Chennai: Reliance Industries is yet to come out of troubled times and a brokerage has stated that the firm is expected to remain free-cash flow negative over FY20-21 too, just as it has been for the last six years.
Credit Suisse downgraded the company’s stock to ‘underperform’ from ‘neutral’ and the news comes at a time when RIL’s liabilities have gone up to $65 billion in FY19, from $19 billion in FY15.
RIL’s total liabilities, as disclosed in its annual report, include debt, higher crude payables, customer advances, capex creditors and spectrum payouts, said Credit Suisse analysts.
According to the brokerage, RIL has been FCF negative for the past six years and resulting in its financing liabilities increasing from $19 bn in FY15 to $65 bn in FY19.
During the period, the company’s net debt has increased from $2.7 billion to $12.4 billion. Additional debt at the consolidated balance sheet rose from $9.4 billion to $20.6 billion.
The report said RIL’s crude payable days are at 121 days. RIL’s customer advances are at $5.9 billion and are 10 per cent of sales.
Retail shows lease rentals of $300 m on Jio devices but the impact is offset by service income of $1.3 billion, which is 40 per cent of retail gross profit. Capitalised expenses on the other hand were $2 billion.
The report said refining asset useful life extended from 15-25 years to 25-40 years.
Credit Suisse has given Jio an enterprise valuation of $46 billion, which factors in RoCE increase to nine per cent in FY25 through price increase and monetisation of customers through new commerce.
“We value Jio at eight times steady state Ebitda of $8 billion. We cut FY21/22 EPS by five per cent to factor in lower petcoke gasifier contribution, hit of East West pipeline and lower refining margins,” said the brokerage.
“We cut target price to Rs 995 (from Rs 1,350) to factor in higher liabilities from crude payables and operating lease for Jio feature phones, lower multiple for refining, build slower growth for consumer electronics and lower Jio valuation due to weak ARPU in Q120 and slower roll-out of FTTH and enterprise,” the brokerage added.
| Testing waters |
| To bolster its e-commerce plans, Reliance Industries has acquired a majority stake in a Google-funded startup Fynd for Rs 295 crore. The investment has been made by RIL’s subsidiary, Reliance Industrial Investments & Holdings. The Mumbai-based startup mainly helps offline retailers connect with online retailers and consumers. |
| Bid for physical assets |
| Reliance Jio and Bharti Airtel have expressed interest in bidding for physical telecom infrastructure of Anil Ambani-led Reliance Communications which is undergoing insolvency proceedings, the PTI reported.
The two companies are, however, are not interested in buying spectrum held by RCom, the report said. “Jio and Airtel are not interested in spectrum because there is no clarity on the sale and transfer of the airwaves to them. In any case, both the companies will need to pay market rate of spectrum to complete the deal. Therefore, it is better to buy it in spectrum auction,” the source said. Reliance Jio in December 2017, had signed a mega deal with RCom for buying wireless spectrum, tower, fibre and media convergence nodes assets. RCom lenders have claimed dues of around Rs 49,000 crore on the company till May. |
