A refining golden age, tightening global gas markets, and improving telecom subscriber quality point to a $20 billion-plus EBITDA run rate for Reliance Industries Ltd by the end-2022, Morgan Stanley said Monday.
After becoming the first company to hit $100 billion revenue in the fiscal year ended March 31, Reliance is on a path toward a $20 billion+ EBITDA run rate inflection, with five-pronged support" of high refining margin, telecom revenue per user rising, global gas market tightening, rising traction on digital commerce and superior petrochemical spreads, it said in a note.
On Friday, Reliance Industries Ltd (RIL) reported a consolidated EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) -- a measure of a company's overall financial performance -- of Rs 1,25,687 crore ($16 billion) for April 2021 to March 2022 fiscal (FY22), up 29 per cent year on year.
A 26 per cent surge in net profit at Rs 67,845 crore ($8.8 billion) was led by its three super-star businesses -- oil to chemical (O2C), telecom, and retail.
"Refinery margins could nearly double and be sustained at high levels for the next half-decade, with global fuel markets seeing sustained lower supply due to a lack of investments," the brokerage said.
"We see telecom ARPUs (Average Revenue Per User) rising, quality of subscribers improving, and churn falling. RIL is producing 18 million standard cubic meters per day of gas from its KG basin, which we expect to rise to 30 mmscmd peak production over the next two years, with increases starting in January 2023. Rising production, along with a tailwind from elevated global gas prices, could increase RIL's upstream profitability multi-fold over the coming years," it said.
Gas price for RIL's KG gas fields rose to $9.9 per million British thermal units in April from $6.13, and the firm expects further increases in the six-monthly reset in October. "This should help nearly double EBITDA by end-2022," Morgan Stanley said.
Also, rising traction on digital commerce with 193 million subscribers and a consistent 20 per cent revenue contribution should expand margins.
"Digital EBITDA (ex-telecom) for FY22 stood at $200 million, but earnings contribution was limited. We think the scale-up of digital revenues is key for RIL to command higher than telecom multiples," it said.
"The new energy business, along with the five-pronged tailwind, could add $50 billion in market cap in 2022, in our view," the brokerage said.
RIL's FY22 investments of $13 billion increased 25 per cent year-on-year and Morgan Stanley believes this should be sustained at such levels for the next few years.
About 30 per cent of the capex was in telecom, 20 per cent in oil to chemicals, 30 per cent in retail, and 11 per cent in new energy.
Including spectrum acquisition, total investments were at $19 billion.
Net interest cost was nearly zero for the first time in nearly three years as net debt declined. Including spectrum liabilities, total debt at the end of FY22 was $10 billion, with Jio's standalone net debt at $5.4 billion.
"A refining golden age, tightening global gas markets, and improving telecom subscriber quality point to a $20 billion+ EBITDA run-rate by end-2022. With progress in new energy investments, a $50 billion market cap uplift appears ahead as EBITDA trends pose upside risks," it said.
