Fundamental Analysis of Reliance Industries: For such a large company, Mukesh Ambani-led Reliance Industries Ltd. (RIL) has given impressive returns in the last five years. It generated a 21% CAGR return for its investors launching this or that new business successfully. Where does it stand today? Can investors expect the same returns in the future? We shall attempt to answer these and other questions by performing a fundamental analysis of Reliance Industries.
Fundamental Analysis of Reliance Industries
We shall start our fundamental analysis of Reliance Industries by getting ourselves acquainted with its history and a brief overview of general affairs. So without further ado, let us jump in.
Company Overview
Reliance Industries Ltd. (RIL) was founded 65 years ago in 1958 by Shri Dhirubhai Ambani as a trading corporation. Over the years, it has grown to become India’s largest company in terms of market capitalization with multiple business interests ranging from oil exploration and petrochemicals to telecommunications to retail and more.
Shri Mukesh D. Ambani presently serves as the chairman and managing director of the conglomerate. He got control of the oil business after a business split was formalized in 2005 between his brother Anil Ambani and following a family feud.
Under his stewardship, RIL has grown into a corporate behemoth with a worldwide presence. It houses well-known brands including Jio, Trends, Ajio, Urban Ladder, Clovia, Moneycontrol, Voot, Colors, and many more across retail, apparel, e-commerce, media, and other industries. The market capitalization of Reliance Industries stood at Rs 1,587,500 crore as of the writing of this article.
The group employs close to 3.43 lakh people and counts high-profile individuals such as Yasir Othman H. Al Rumayyan (chairman of Saudi Aramco) and Arundhati Bhattacharya (former chairperson of SBI) on its board of directors.
We got a very brief overview of the history and business of the company. Now we’ll study its various businesses in the next section of our fundamental analysis of RIL
Business Segments
The conglomerate groups its various businesses into five major segments: retail, digital services, oil to chemicals, oil & gas exploration, financial services, and others.
Retail
Reliance Retail is the omnichannel (online and offline) division of the company selling clothes, consumer electronics goods, groceries, footwear, medicines, furniture, jewelry, toys, and more through its 17,225 stores and multiple mobile apps & websites.
It has well-known in-house and partner brands such as Netmeds, Reliance Digital, Reliance Trends, Ajio, Jio Mart, Clovia, Amante, Ritu Kumar, Manish Malhotra, Just Dial, Dunzo, etc. under its portfolio.
Digital Services
Mobile services (4G and 5G), fixed broadband services, and online platforms (such as JioSaavn, Live TV, JioNews, etc.) for retail and enterprise customers together make up the digital services division of Reliance which operates under the well-known brand Jio.
As for the scale, Jio is the nation’s largest digital services platform with a wide customer base of 433 million subscribers. Not just this, the company also leads the broadband segment with its Jio Fiber offering.
Refining and Petrochemicals (Oil to Chemicals)
In spite of heavy investments in other divisions in the recent fiscals, refining, and petrochemicals (O2C or oil to chemicals) is still the largest segment of Reliance in terms of operating revenue and profits both.
RIL is one of the largest producers of transportation fuels globally including gasoline, high-speed diesel, aviation turbine fuel (ATF), etc. via B2B and B2C channels both. In addition to this, the well-integrated division manufactures a broad range of other products such as butyl rubber, glass fiber, resins, polymers, etc.
What’s more? RIL is also engaged in fuel retailing with British Petroleum operating Jio-BP fuel stations across the country.
The image below lists the large product portfolio of the segment.
Others
For our segment analysis, we have clubbed oil & gas exploration, financial services, media and SEZ development under the others segment as they are comparatively smaller. Although RIL reports the oil and gas exploration division’s and financial services division’s numbers separately.
Segment-wise Breakdown of Financials
Segment revenue of Reliance Industries Ltd. for FY21 and FY22.
| Revenue | FY21 | FY22 |
| O2C | 306,490 | 480,320 |
| Oil & Gas | 2,128 | 7,482 |
| Retail | 139,136 | 175,015 |
| Digital Serv. | 76,642 | 85,117 |
| Fin. Serv. | 2,433 | 2,114 |
| Others | 41,054 | 60,619 |
Segment EBIT of Reliance Industries Ltd. for FY21 and FY22.
| EBIT | FY21 | FY22 |
| O2C | 29,773 | 45,194 |
| Oil & Gas | -1,477 | 2,879 |
| Retail | 7,991 | 10,198 |
| Digital Serv. | 21,181 | 25,150 |
| Fin. Serv. | 1,294 | 708 |
| Others | 3,635 | 5,196 |
Segment EBIT margins of Reliance Industries for FY21 and FY22.
| EBIT Margin | FY21 | FY22 |
| O2C | 9.7 | 9.4 |
| Oil & Gas | -69.4 | 38.5 |
| Retail | 5.7 | 5.8 |
| Digital Serv. | 27.6 | 29.5 |
| Fin. Serv. | 53.2 | 33.5 |
| Others | 8.9 | 8.6 |
Industry Overview
Since Reliance operates in multiple sectors, we’ll take some space to understand the future prospects of those sectors individually.
Retail Industry
Due to its large population and rising income levels, India is one of the most lucrative markets. Multiple domestic and international companies are spending excessively to build online and offline capabilities to tap the nation’s urban and rural demand.
Various sectors like fashion and lifestyle, nutrition, pharmaceutical, and consumer electronics together make up the retail Industry in India. The combined sector is projected to grow at a CAGR of 11% to touch $ 1.2 trillion in value by 2025.
Telecommunication Industry
India’s telecom market is one of the largest in the work with a user base of 1,166.9 million as of 2022. In recent years, the sector has seen consolidation with the number of large players reducing to only 3. In addition to this, the customer base has come down by 3.3% and teledensity falling to 84.88% from 92.84% in FY18. This shift happened as Reliance-led Jio 4G brought an intensive price war along with faster speeds and better connectivity.
In the coming years, the sector is set to see further developments with 5G network rollout, higher adoption of broadband services, higher enterprise networking needs, and expansion of the digital ecosystem along with regular mobile services.
Refining and Petrochemicals Industry
The refining and petrochemical operations of Reliance Industries are so widespread that a combined industry overview is outside the scope of this article. Broadly speaking, the sector is on recovery with volume and margin recovery for polyethylene, polypropylene, polyvinyl chloride, intermediates & polyesters, transportation fuels, high-speed diesel, etc.
Reliance Industries – Financials
Revenue & Net Profit Growth
During the last five years, the revenues and net profit of RIL have grown at a CAGR of 13.92% and 14.68% to Rs 721,634 crore and Rs 67,845 crore in FY22. This growth was led by a mix of organic and inorganic factors.
Taking cues from our segment analysis above, we can conclude that the entry of RIL into the telecom sector has been quite profitable. Similarly, the recent focus on retail division, 5G solutions, and other digital services are expected to drive the top line and bottom line growth in the years to come.
The table below shows the consolidated operating revenue and net profit of Reliance Industries Ltd. for the last six years.
| Fiscal Year | Operating Revenue | Net Profit |
| 2022 | 721,634 | 67,845 |
| 2021 | 486,326 | 53,739 |
| 2020 | 611,645 | 39,880 |
| 2019 | 583,094 | 39,837 |
| 2018 | 408,265 | 36,080 |
| 2017 | 330,180 | 29,833 |
| 6-Yr CAGR | 13.92% | 14.68% |
Margin Analysis
Moving on to the margin analysis, the figures have been volatile for the company over the last six years. However, being a diversified company helps RIL to maintain its margins on a consolidated basis.
The table below shows the EBIDT margin and net profit margin of Reliance Industries for the past few years.
| Fiscal Year | EBDIT Margin | Net Profit Margin |
| 2022 | 15.9 | 8.6 |
| 2021 | 18.1 | 10.0 |
| 2020 | 15.5 | 6.0 |
| 2019 | 14.8 | 6.4 |
| 2018 | 17.2 | 8.4 |
| 2017 | 16.8 | 9.0 |
We can note that the figures declined considerably in FY19 and FY20 because of cost inflation and inventory write-down.
*EBIDT margin has been calculated as EBDIT / Gross Turnover
Return Ratios: RoCE & RoE
Carrying forward the profitability analysis, the return ratios: RoE, and RoCE of RIL highlight that the company has maintained an optimal capital structure. This has resulted in higher returns on equity for investors under the present profitability levels.
The ratios have come down in recent years as the management actively reinvested profits in new businesses, acquisitions, and investments.
The table below presents the RoE and RoCE of Reliance Industries for the past six fiscal years.
| Fiscal Year | RoE | RoCE |
| 2022 | 13.5 | 12.8 |
| 2021 | 13.1 | 10.6 |
| 2020 | 12.7 | 12.0 |
| 2019 | 15.1 | 13.5 |
| 2018 | 16.9 | 13.6 |
| 2017 | 16.4 | 13.5 |
So far so good, in the next section on our fundamental analysis of Reliance Industries, let us learn how the company manages its debt.
Debt / Equity & Interest Coverage
The management of RIL has done a fine job of paying back the debt and diversifying its business sustainably from its core business of refining and petrochemicals. At the end of FY22, the company’s debt-to-equity ratio stood at 0.34 and the interest coverage ratio was at 8.6 times.
After successfully launching Jio, RIL roped in marquee investors such as Google and Facebook to invest in Jio Platforms. The company used these funds to pay back debt, fulfill spectrum obligations and make investments in other ventures.
The table below showcases the improving trend in the debt-to-equity ratio and interest coverage ratio of Reliance Industries.
| Fiscal Year | Debt / Equity | Interest Coverage |
| 2022 | 0.34 | 8.6 |
| 2021 | 0.32 | 3.3 |
| 2020 | 0.65 | 3.6 |
| 2019 | 0.70 | 4.3 |
| 2018 | 0.62 | 7.1 |
Future Plans Of Reliance Industries
So far we looked at previous fiscals’ data for our fundamental analysis of Reliance Industries. In this article, we’ll try to understand what lies ahead for the company and its investors.
- To ramp up its retail division, the company has made a number of partnerships, investments, and acquisitions such as Dunzo, Milkbasket, Metro Cash & Carry India, Ritu Kumar, Manish Malhotra, Just Dial, and many more.
- The management plans to fast-track the expansion by launching more stores, launching & re-launching brands, and integrating various businesses.
- Furthermore, it has plans to raise funds by floating an InvIT worth Rs 20,000-cr for retail warehousing assets. The money raised can be used for investments or debt repayment.
- Jio has partnered with Google Cloud, WhatsApp, and other global giants to broaden its enterprise and retail offerings in conjunction with the 5G rollout.
- The company has been leading the 5G rollout in the nation by actively securing respective spectrums in the auctions. It has already established a presence in 134 cities across 19 telecom circles with a speed of over 600 Mbps.
- The oil to chemicals division is targeting a count of 5,500 outlets under the Jio-BP brand in the coming years. Furthermore, it is setting up multi-format EV charging and battery swap units as part of its advanced mobility plans.
Key Metrics Of Reliance Industries
We are almost at the end of the fundamental analysis of Reliance Industries. The table below compiles the key metrics of the stock.
| CMP | ₹2,350 | Market Cap (Cr.) | ₹1,587,500 |
| EPS | ₹94 | Stock P/E | 25 |
| RoCE | 12.8% | RoE | 13.5% |
| Promoter Holding | 50.5% | Book Value | ₹1,168 |
| Debt to Equity | 0.34 | Price to Book Value | 2 |
| Net Profit Margin | 9% | EBDIT Margin | 15.9% |
In Conclusion
As we conclude our fundamental analysis of Reliance Industries, we can say that Reliance has been a story of continuous improvement and corporate re-invention. Initially, with Jio-led 4G revolution and now with its retail division, it has strived to create shareholder value all along.
Going forward, it will be interesting to track how RIL’s new ventures pan out in competitive sectors like FMCG, retail, e-commerce, etc. Do you think it will be able to disrupt these sectors as well? How about you let us know in the comments below?
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