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Showing posts with label RETAIL. Show all posts
Showing posts with label RETAIL. Show all posts

Thursday, July 23, 2015

KITEX GARMENTS LTD : GROWING BABY !!

Scrip Code: 521248 KITEX
CMP:  Rs. 840.10; Market Cap: Rs. 3,990.47 Cr; 52 Week High/Low: Rs. 1,074.00 / Rs. 241.50.
Total Shares: 4,75,00,000 shares; Promoters : 2,57,65,597 shares – 54.24 %; Total Public holding : 3,19,18,226 shares –14.38 %; Book Value: Rs. 55.55; Face Value: Rs. 1.00; EPS: Rs. 21.06; Dividend: 125.00 %; P/E: 39.89 times; Ind. P/E: 46.20; EV/EBITDA: 20.84.
Total Debt: Rs. 140.75 Cr; Enterprise Value: Rs. 3,931.13 Cr.

KITEX GARMENTS LIMITED: Incorporated on 1991 and is based in Kochi, India. Kitex Garments Ltd (Kitex) is engaged in manufacture and export of readymade garments (RMG) and fabrics for men, women and children. Kitex Garments Limited also manufactures and sells infant wear and fabrics primarily in India. The company offers body suits, sleepwear, rompers, burps, bibs, and training pants. It came with the Initial Public Offer (IPO) in 1995; the shares of the company are listed on BSE. Kitex has an in-house manufacturing facility at Kizhakkambalam, Kochi, with an installed capacity of producing 1.1 million units of garments per day. The company derives majority of its revenue from export sales, with exports to international markets contributing 71 % to sales revenue in FY12. It exports its products to the United States and Europe. With unmatched global connections, this company caters to prominent and renowned conglomerates in USA and Europe. The company currently employs over 7000 people at its facility, and has been a business provider to many satellite businesses in the state. Kitex has state of the art manufacturing units. Its vertical set-up is with Knitting & Processing of fabrics, until finished garments are done in-house. A 240 meters long and 70 meters wide process house that covers an area of 180,768 sq. ft, is one of the largest in the world under one roof, makes fabrics for its garmenting units. Its units are equipped with digital dispenser system for error-free, automatic and computer-controlled preparation of colour recipes, high quality knitting machines, most modern dyeing, printing and finishing machines that use cutting-edge technology, the plant produces 50,000 Kilograms of knitted fabrics that are of exceptional quality, and is well appreciated and recognized by reputed children’s wear apparel brands in the United States and Europe. Its garmenting unit uses latest machinery for pattern CAD, plotting and grading. Automatic spreader machines enhance the speed of spreading. Automated cutting machines enable faster & precision cutting. Latest sewing machinery ensures stain-free, quality sewing. Most modern embroidery machines are on hand. Needle detector machines ensure safety of products before shipping. State-of-the-art spectrophotometer ensures electronic colour reading & transmission. Kitex Garments Limited is locally compared with Kewal Kiran Clothing, Zodiac Clothing, Page Industries, Indian Terrain Fashions Ltd, Goenka Business, Garware-wall Ropes, Welspun India, Siyaram Silk Mills, Voith Paper Fabrics, Lambodhara Textiles, Binny Mills, Rajapalayam Mills, Shri Dinesh Mills, Gini Silk Mills, RSWM LTD, Amarjothi Spg. Mills, Future Lifestyle, Cantabil Retail, Mafatlal Industries, Century Enka, Aarvee Denims & Exports, Nandan Denim, Maxwell Industries, Kamadgiri Fashions, Birla Cotsyn, Arvind Mills, Digjam, Alok Industries, Vandana Knitwear, Bombay Rayon Fashion, Raymond, Morarjee Textiles, Welspun Syntex, Mandhana Industries, Spl Industries Ltd, lovable lingerie, Rupa & Co, Monte Carlo Fashions and globally compared with Yamaki Co., Ltd of Japan, American Apparel Inc of USA, Carters Inc of USA, Columbia Sportswear Co of USA, Delta Appareal Inc of USA, Nike Inc of USA, Arab Cotton Ginning of UAE, Delta-Galil Industries of UAE, Square Textiles Ltd of UAE, Adidas Ag of USA, Burberry Group Plc of London, PUMA SE of Germany, Prada S.P.A of Italy .

Investment Rationale:
Kitex Garments is leader in Kids wear. It is a part of the renowned Anna-Kitex group of companies, founded by the legendary Late Shri M. C. Jacob, Kitex Garments Ltd is the largest employer in private sector in the state of Kerala. It is located near Kochi and has easy access to sea and air ports. The company had started with Rs. 1.8 Crores turnover in the year 1995-96, now has grown to a turnover of over Rs. 524 Crores in 2014-15. The company is currently the second largest producer of children's apparel in the world, and is now in the process of setting up operations in the United States of America. Indian textile industry largely depends on textile manufacturing and export. It also plays a major role in the economy of the country. India earns about 27 % of its total foreign exchange through textile exports. Furthermore, it contributes about 14 % to industrial production, 4 % to the gross domestic product (GDP) of India, and 17 % to the country's export earnings. The sector is the second-largest provider of employment after agriculture. It not only generates jobs in its own industry, but also opens up scopes for other ancillary sectors. The industry currently generates employment to more than 3.5 Cr people. The fibre and yarn produced in India is comparable with the best in the world. Indian fabrics are known for their excellent workmanship, colours and durability. Due to heavy investments in world-class manufacturing plants, continuous innovation, new product mix, and strategic market expansion, Indian man-made fibres (MMF) are all set to take centre stage in the global arena. The potential size of the Indian textile and apparel industry is expected to reach US$ 221 billion by 2021. The big business houses in the USA and Europe manufacturing and dealing in textiles and garments depend upon India and China and the other neighbouring countries as the availability of the raw materials and these countires have skilled labour at lower prices, this helps to get the required output at the lowest possible cost. KITEX is taking all efforts to improve the quality and productivity to get more orders at competitive rates. Due to the own processing plant the company is able to quote better rates and maintain high quality & productivity in the finished goods manufactured. Barring unforeseen circumstances the company is confident of achieving better results in the current year. KGL is now eyeing for next phase of growth by acquiring licenses of few private labels in US and also through launching of its own brand in US for which company has already got the necessary clearances and approvals from US government. Company is already negotiating with few private labels for acquiring its licenses and expects to finalise couple of private labels by this fiscal year. The sales from licenses of these private labels will start from FY16E onwards. It has also registered its merchandising company “Kitex USA LLC” in US and expects sales to start kicking in from FY16E from its own brand. Both these initiatives will boost companies EBITDA margins significantly. Company is expecting to do $1.5 Cr sales in CY16E and by 2020 they expect to clock in $10 Cr sales from these two initiatives. Management expects to reach 50 % plus margins in next few years with these initiatives which are an improvement of 17 % improvement in its FY15 margins of 33 %. This will significantly increase company’s bottom line going forward. KGL has outlined minimal capital expenditures of Rs. 10 Cr to Rs. 15 Cr a year for next three years as major capital expenditure of Rs. 75 Cr was undertaken in FY14 to replace the old machines with the new ones. These will help in improving productivity and reducing wastage. Also the recently replaced sewing machines will have increased speed from 6,000 stitches per hour to 9,000 stitches per hour. All these efforts will lead to increased output thereby increasing the top line. Management expects company to post Rs. 1000 Cr to Rs. 1200 Cr in top line in next three years with these initiatives which would result is Sales CAGR of 25 %. Management plans to merge the unlisted entity KCL with itself in FY16E. It has already appointed E&Y as an internal auditor for the merger. The company wants to merge both the companies together because it desires to be a larger player in infant wear company in the world. As clients of both the companies are more or less same and when both operates in same line of business i.e. infant wear manufacturer this merger makes sense. Capacity and margins of both the companies are somewhat similar so merger will help. KCL holds 15 % plus stake in KGL. The swap ratio of the merger is unknown, but this merger can lead to substantial equity dilution in the listed Kitex garments thereby dragging its EPS lower and stretching the valuations higher, but this would be an short term phenomenon. But due to Kitex's ability and management quality, the company would perform better and can give better returns in coming years. 

Outlook and Valuation:
Kitex Garments Ltd (KTG) is based in Kochi, India. Kitex Garments Ltd has presence in the highly niche market of infant-wear clothing segment which currently accounts for US$20 billion in sales globally. Kitex is the 3rd largest Vendor for infant wear globally. India has etched its name amongst the topmost promising markets for apparel due to the burgeoning economic activities taking place here and the ever widening consumer base. Kids wear is not a small business anymore. Driven by huge demand from brand conscious children, the Indian kidswear retail market is expected to touch Rs. 58,000 crore by 2017. At present, the size of kidswear market in India is estimated at about Rs 38,000 crore which accounts for 25 % of the total Indian apparel category. Growing at the rate of 17 %, this is one of the most attractive categories. The increased media exposure, double-income parents and peer pressure as the reasons for children becoming more fashion and brand conscious. Brands are also realising the potential of this market and are increasing their presence in this segment. In April 2009, the Mahindra Group launched Mom & Me stores to tap into this segment. Exclusive children's brands, such as Gini & Jony, Lilliput and Catmoss, have also expanded their presence exponentially in the last two to three years. These brands are developing categories such as infant wear, kids' formal wear, kids' ethnic wear, swim wear and casual wear, along with a wide range of other merchandise for children. Even international brands like Reebok, which focused on adults till now, have recently launched the 'Reebok Juniors' concept store to tap into this segment. It has started offering apparel, footwear, accessories and sports equipment for children in the age group of four to 14 years. Gini & Jony started their Freedom Fashions stores, which offer licensed products from brands like Reebok and Levi's, along with their own products. Even premium brands, such as Tommy Hilfiger, Allen Solly and Puma, are not far behind and are now including more kids' product and accessories. Childrens' fashion shows, organised by these brands, is not a new concept. Lilliput started this trend and Catmoss roped in Darsheel Safary, of Taare Zameen Par-fame, to walk the ramp for its collection. KTG is in the business of manufacturing and exporting infant garments. Company derives 80 % of its revenue from the sale of infant garments and the balance 20 % from the sale of fabric to Kitex Childrenwear. Company has major concentration in US markets, where Customers generally demand bulk deliveries. KTG is in the final stages of a tie-up with an US brand and the first shipment will begin in October. Commercials for the brand will only be based on royalty and management guides that there will be no upfront investment. From a two to three-year perspective, KTG will look at having two to three private labels and an own brand. Given the popularity of the private label (well-known toys brand in the US), management believes KTG will not have to invest significantly in brand promotion. Management has hired designers for private label business who are currently, free lancers working for other prominent brands like Toys R Us. With regards marketing, management believes they’re well placed as KTG’s marketing head has 17 years’ work experience with Toys R Us and is working with KTG since 4 years. KTG will not have to invest heavily in brand promotion. Business from existing clients will stay constant and it expects additional capacities to be devoted exclusively towards private label and the own brand. In five years’ time, management targets to have 100 % of revenue from direct sales, thus transitioning it into a complete B2C player. Management expects to double sales in 3 years, showing around 20 % to 25 % sales growth for FY16, around 30 % to 35 % sales growth in FY17 and around 35 % to 40 % sales growth in FY18. With regards to capacity, they are not intending to add any new machines, besides Rs. 5 Cr to Rs. 10 Cr annual capex will be required, and around Rs. 30 Cr to Rs. 50 Cr maximum aggregate capex seen over next 3 years. Management believes market demand is not a concern as far as growth is concerned; key constraint is managing higher production scale. Lack of skilled labour, need for continuous training is key factors that limit quick scalability. Management is targeting higher use of technology with same labour strength to drive capacities higher and incremental growth to come from higher technology investments. Management highlighted that wastage reduction and use of better technology are key driving factors which are leading margins higher. KTG has agreement with buyers with predefined formulas and hence raw material inflation or deflation will not affect margins. Management re-iterated that margins are certainly sustainable at current levels. With new foreign trade policy, even if incentives go down, KTG will be able to sustain margins due to agreements with clients. Other operating income includes duty drawbacks of around 7.5 % incentive. There’s a merger with Kitex Children Wear Ltd and will be concluded by FY16. Kitex Children wear Ltd has revenues of Rs. 250 Cr; however its profitability is lower than KTG, and its debt free on net basis. This merger will increase authorized share capital, and management is considering various alternatives including bonus share issue. With India’s growing competitiveness against erstwhile low-cost countries like China which is 52 % market share it can be safely assume that the long term opportunity for KTG is large. KTG is the largest exporter of infant-wear clothing out of India and commands a 70 % market share for all infant-wear clothing exports out of India. Adhering to stringent safety measures, maintaining high quality standards, higher degree of complexity due to involvement of small sizes, need for greater variety, smaller batch size orders and high labour requirements are some of the key entry barriers that support superior profitability for the company. KTG commands strong, industry leading return ratios of ROCE of 45.1 % and ROE of 44.9 %, with its business model generating robust free cash generation of Rs. 300 Cr over FY15-17. KTG stands out amongst listed textile exporters with most of them present in capital intensive, low RoCE businesses of yarn and fabric manufacturing which averages around 10 % ROCE. It is expected that KTG can capture a larger pie of the infant-wear value chain through its forward integration with its launch of own brand in the US market as well as licensing of private labels in the US market. Forward integration holds high significance for the company as margins in its own brand will be double of the current business with margins improving from current 30 % to 60 %, along with higher realisatioisn. The company declared its quarterly results and first quarter for textile field is always slow and Q2 will be better and Q3 will be further better and in Q4 they will make maxium in result. Kitex Garments has reported a standalone total income from operations of Rs. 109.08 crore and a net profit of Rs. 15.97 crore for the quarter ended Jun '15. Other income for the quarter was Rs. 12.25 crore. For the quarter ended Jun 2014 the standalone total income from operations was Rs. 102.76 crore and net profit was Rs. 14.44 crore, and other income Rs. 6.58 crore. Profit before tax was Rs. 25.82 Cr as against Rs. 21.04 cr in June 2014. And Management expects to do about Rs. 600 to Rs. 650 Cr of revenues in FY16. Kitex export book for FY16 is fully booked. Kitex have more demand than their capacity and so this year Company lans for 15 % to 20 % increase in revenues and within 3 years company plans to double their capacity i.e 100 % growth, so slowly they will be adding the production and that is already planned and orders have been already taken for that. SO the planned capex would be around Rs. 10 to Rs. 15 cr this year. Company have already invested huge on processing side and so the investment is very marginal but substantialy the revenue will be much higer. At current market price of Rs. 840.10 KGL is trading at a PE of 31.00 times its FY16E EPS of Rs. 27.10 and 21.7 times its FY17E EPS of Rs. 38.70 and PE of 14.79 on the EPS of Rs. 56.80 in FY18E. Which is a attractive valuation with growth of 25 % CAGR in sales and growth of 40 % CAGR in PAT from FY15 to FY18E. Kitex would be debt free company by FY18E with strong improvement in margins along with sales from its own brand and licensing of private labels and strong return ratios of 40 % plus the stock can trade at PE of 30 times its FY18E EPS. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.   

KEY FINANCIALSFY15FY16EFY17EFY18E
SALES ( Crs)511.10613.30766.701,000.00
NET PROFIT (₹ Cr)98.50128.80184.00270.00
EPS ()20.7027.1038.7056.80
PE (x)44.1033.7023.6016.10
P/BV (x)17.8011.808.205.80
EV/EBITDA (x)33.0018.0013.509.80
ROE (%)37.3039.1041.2043.50
ROCE (%)37.2045.1050.9058.10

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*As the author of this blog I disclose that I do not hold KITEX GARMENTS Ltd in my any of the portfolios.

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Friday, July 3, 2015

RELIANCE INDUSTRIES LTD: THE SLEEPING DRAGON NOT ANYMORE !!!

Scrip Code: 500325 RELIANCE
CMP:  Rs. 1010.85; Market Cap: Rs. 3,27,017.04 Cr; 52 Week High/Low: Rs. 1043.30 / Rs. 796.45. 
Total Shares: 323,50,69,941 shares; Promoters : 146,39,61,977 shares –45.25 %; Total Public holding : 177,11,07,964 shares –54.75 %; Book Value: Rs. 609.07; Face Value: Rs. 10.00; EPS: Rs. 70.20; Divd: 95.00 %; P/E: 14.39 times; Ind. P/E: 17.02; EV/EBITDA: 10.03.
Total Debt: Rs. 89,141 Cr; Enterprise Value: Rs. 4,04,587.04 Cr.

RELIANCE INDUSTRIES LTD: The Company was founded on 11th February 1966 by name of Reliance Textile Industries Pvt Ltd in Mumbai, Maharashtra. In November of 1977, the promoters Mr. Dhirajlal H Ambani & Mr. Natvarlal H Ambani along with some other existing shareholders offered for sale at par 28,20,000 equity shares to the public to get listed on Bombay Stock Exchange. In June 27 of 1985, company again changed its name from Reliance Textiles Industries Ltd to its current name Reliance Industries Ltd. Reliance Industries Limited (RIL) is a conglomerate with business in the energy and materials value chain. RIL together with its subsidiaries, primarily engages in the exploration and production of oil and gas in India and worldwide. The company operates two refineries and owns 1.24 million barrels per day of crude processing capacity. The company has till date delcared lucartive bonuses - it delcared its first bonus in 1983 at ratio of 3 new shares for every 5 held; second was declared on 1997 in ratio of 1:1 and last bonus was declared in the year 2009 in ratio of 1:1. The Company mainly operates in three segments: Petrochemicals, Refining and Oil & Gas segments. The Petrochemicals - includes production and marketing operations of petrochemical products namely, polyethylene, polypropylene, polyvinyl chloride, poly butadiene rubber, polyester yarn, polyester fiber, purified terephthalic acid, paraxylene, ethylene glycol, olefins, aromatics, linear alkyl benzene, butadiene, acrylonitrile, caustic soda and polyethylene terephthalate. The Refining - includes production and marketing operations of the petroleum products. The Oil and Gas - includes exploration, development and production of crude oil and natural gas. The Oil and Gas segment includes exploration, development and production of crude oil and natural gas. Reliance Industries subsidiaries include Reliance Retail Limited (RRL) serves customers, farmers, and vendors. RRL operates approximately 900 stores in 80 cities across 14 states in India. RRL operates Reliance Fresh, Reliance Mart & Reliance Super which offer a range of products for daily household usage; Reliance Digital focuses on consumer durables & information technology, Reliance Trends is into apparel & accessories, Reliance Wellness is into health, wellness & beauty, iStore focuses on especially Apple products, Reliance Footprint is into footwear, Reliance Jewels into Jewellery, Reliance TimeOut is into books, music & entertainment, Reliance AutoZone for automotive products & services; and Reliance Living focuses on home-ware, furniture, modular kitchens, furnishings. RRL has strategic partnerships with companies, such as Marks and Spencer, Office Depot, Pearle Europe (optical products) and Hamleys (toys). RRL has a direct engagement with approximately 5o lakh customers following a loyalty programme ‘Reliance One’. Reliance Ventures Ltd, a subsidiary of RIL, is a joint venture with Haryana State Industrial Investment Development Corporation (HSIIDC) formed a joint venture company Reliance Haryana SEZ Limited to develop SEZs. The project would function as an integrated package with all the required facilities for the development of medium and large scale industries and service activities. RIL has a refinery in the special economic zone (SEZ) at Jamnagar. The refinery has a crude oil processing capacity of 5,80,000 barrels of oil per day. The refinery has a Nelson Complexity Index of 14.0 enabling processing of heavy crudes and production of products. The Jamnagar SEZ commissioned a captive power plant and water desalination plant in 2008. The railway sidings for solid products were completed during the year 2008. The SEZ unit, the petroleum refinery and polypropylene plant (RPL) were successfully started in 2008. The company, as of March 2009, commenced production of hydrocarbons in its KGD6 block in the Krishna Godavari basin with the production of sweet crude of 42° API. Its other segment includes Telecom & Broadband business. During the fiscal year ended March 31, 2012; RIL further increased its interest to 18.53 % in EIH Limited. The company is compared locally with HPCL, BPCL, Mangalore Refinery, Chennai Petroleum Corp. Ltd, and Globally with Exxon Mobil Corp and Chevron Corp both from USA; Royal Dutch Shell PLC from Netherlands; BP from UK; Endesa SA from Spain; Rosneft Oil, LUKOIL and Gazprom Oao both from Russia; RWE AG and E.On AG both from Germany; China Petroleum & Petro China Corp both from China; Total SA from France; Petrobrass Brasileiro from Brazil.

Investment Rationale:
Reliance Industries is India’s largest private sector company, and the first Indian company to be featured in the Fortune Global 500 list. Reliance Industries is in the business of oil and gas exploration, refining and petrochemicals. The crude oil and gas produced is the raw material for refining and petrochemicals segment. Reliance is also a major importer of oil for its refining business. The major products under refining are LPG gas (Reliance gas), naphtha, gasoline, aviation turbine fuel, kerosene oil, high speed diesel etc. Petrochemical segment produces polyester, fibre intermediates, plastics and chemicals. Reliance is now focusing on other segments of its business like Retail and Telecom. RIL is investing Rs.85,000 crore in R-JioR-Jio has a pan-India licence in the 2300 megahertz (MHz) frequency band, which has not seen many international 4G launches using the so-called long term evolution (LTE) technology standard. That’s mainly because the higher the frequency, the lower the signal strength, although it offers higher data delivery speed. Reliance Jio Infocomm Limited (“RJIL”) plans to provide reliable fast internet connectivity and rich digital services on a Pan India basis. RJIL has finalized the key vendor and supplier partnerships that are required for the launch of services, and is making rapid progress in building the critical infrastructure needed to launch its services. RJIL has signed agreements with various telecom infrastructure providers to widen access to telecom tower and forfibre optics infrastructure to expedite the rollout of its 4G services. R-Jio intends to provide 4G service, using LTE technology, in the 800MHz, 1800MHz and 2300MHz bands through an integrated ecosystem. R-Jio has spectrum in 20 of the 22 circles in the country in the 800MHz band which accounts for 92 % of industry revenues and 14 circles in the 1800MHz band. Its licence for the flagship 2300 MHz covers all 22 circles. Reliance Jio Infocomm’s installation of 70,000 LTE sites for the launch network is mostly completed. Reliance Jio has completed roll-out of 100,000 Rkm of optic fiber cable, and the roll-out continues at a faster space. This is already comparable with the fiber rolled out by the rest of the industry over the last 10-15 years. More than 85 % of RJio’s fiber is intra-city fiber i.e. access fiber running up to the towers as of now. Till now, RCOM was believed to have the largest fiber network among private operators, with an intra-city network of 70,000 Rkm. Thus, it is possible that Reliance Jio already has the largest intra-city fiber network in the industry (excluding fiber leased from RCOM here!). Reliance Jio has already built 28,000-30,000 towers of its own including mix of poles and full ground based towers. Reliance Jio’s 4G deployment will also benefit from superior technology efficiency as compared with 2G/3G networks of other operators. Spectral efficiency refers to the amount of data throughput (in bits per second) that a technology can push through a given MHz of spectrum. It can be safer to conservatively assume that 3G is 1.25x better than 2G on spectral efficiency, and LTE is 1.25x better than 3G. Data clearly suggests that top 30 % customer accounts for 70 % of revenues in the India Wireless Industry. The Reliance Chairman clearly indicated at the shareholder meeting, that the company will offer data packages in the range of Rs. 300-500 per month which in just below the global average of Rs. 600- 650. In this backdrop the new entrant Reliance Jio Infocomm’s positioning would be more important to see. The SmartPhone handset changing cycle is less than 24 months for high end customers in India, so it can be safely assume that these customers could shift to 4G LTE handset very soon as long as the handsets are at the right price and Reliance has clearly said to launch its 4G LTE handsets below Rs. 4,000. Good quality video delivery is critical for forming perceptions about network quality. Nearly 50 % of consumers face some issues in data connectivity and quality & most commonly while trying to watch videos (and less frequently while using lower bandwidth apps such as messaging). In fact, 80 % believe that watching videos is important for their mobile usage experience and only 40 % of them have a seamless video watching experience. There is significant room for Reliance Jio to position them on the promise of better data network quality. RJio is betting big on the Fiber to the Home (FTTH) market and is justified looking at the 100,000 Km Intra-City Fiber rolled out which is growing by the day. Reliance Jio Infocomm has received provisional licence to operate as pan India Multi System Operator taking it step closer to becoming a nationwide distributor of television channels. It intends to use Fiber to home connectivity to offer host of services to its prospective customers thus bringing in true IPTV Experience. There are 17 Cr odd television sets in India. Of these, 2 cr are terrestrial like doordarshan, 4 to 4.5 Cr are connected through Direct To Home and around 10 Cr have cable television connections out of which 3 to 3.5 Cr are digitalized. So effectively R-Jio will be vying with the existing MSOs and DTH companies. So basically RJIO is looking to deliever to as much as 68 Cr sets if we assume that India has 17 Cr TV sets and when it is multiplied by four. So even if there are close to 5 Cr devices to offer your content it is too big market to be captured by anyone company. RJio is also expected to come out with Wi-Fi hotspot solutions for a ready market to tap into. Jio plans to start with 1,000 own “Jio Centre” (exclusive retail stores) which when combined with Reliance Retail’s Digital Express stores will bring Jio at par with leading operators. This appears to be in addition to Franchisees and Distributors chain but the answer was not totally clear. The biggest differentiator that R-Jio has talked about in its telecom offering is to be present in the entire value chain of the telecom and e-commerce business—something not done by any telecom company in India before
                                                                                         
Outlook and Valuation:
Reliance Industries (RIL) is one of the world's most vertically integrated and horizontally diversified groups, from its origins in trading in polyester and fibers to a move into textiles and branded showrooms, it has integrated forward and backward into textile intermediates, including fiber, petrochemicals, naphtha crackers, plastics, refining, and oil exploration in stages. Oil and Gas sector in India is dominated by public sector companies. The major players are ONGC, Oil India, Reliance Industries, Crain Energy, GAIL, Bharat Petroleum, Indian Oil, Bharat Petroleum and Hindustan Petroleum. Reliance Industries and Crain Energy are the two major private players in oil and gas sector. The oil and gas sector consists of three segments upstream, midstream and downstream. The upstream segment primarily comprises of companies that are engaged in exploration and production activities, while the midstream segment comprises of players in storage and transportation, and the downstream segment comprises of players that are engaged in refining, processing and marketing of petroleum products. The oil and gas sector is regulated at two levels, policy level and regulatory level. At the policy level, the oil and gas sector is regulated by the finance ministry and planning commission. At the regulatory level, the sector is administered by the Ministry of Petroleum and Natural Gas, Directorate General for Hydrocarbons and Petroleum and Natural Gas Regulatory Board. During FY 2013–14, the total consumption of petroleum products in India was 158.2 million tonnes (MT). The consumption stood at 14.2 MT in March 2014, according to data released by the Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas. The share of fuels in the country's exports surged from 5.59 % in 2003–04 to 20.05 % during 2013–14. Total exports of fuel products stood at US$ 62.69 billion in value terms during FY 2013–14. The country had total reserves of 1354.76 billion cubic meters (BCM) of natural gas and 758.27 million metric tonnes (MMT) of crude oil at the end of FY 2012–13. The use of shale gas can be the first step in the road to ‘economic freedom’. The petroleum ministry of India feels that the country could do something similar to the US, which became a net exporter of energy from a net importer of energy, on the back of shale gas and oil. By 2015–16, India’s demand for gas is expected to touch 124 MTPA, as per projections of India’s Petroleum and Natural Gas MinistryMore recently, Relaince Industries has diversified into unrelated areas like retail chains, media and telecom through Reliance Jio, which will be launched sooner in 2015. Reliance JIO commercial launch is delayed to December 2015 a combination of significant expected declined in the 4G handset price to Rs. 4,000 by December 2015 and significant capacity of JIO planned at launch date with already 100m wireless subscribers would lead to increased activity in telecom data market. Reliance JIO’s voice strategy remains uncertain as no particular details were shared from company about how it would be providing voice services which currently constitute 80 % of the Indian wireless market revenue. So there can be potential tie up with existing operators for circuit switched fall back (CSFB). Large scale population coverage planned by JIO combined with low 4G handset prices can enable mass adoption of 4G services. However rate of subscriber up-take would be the key as JIO would be largely targeting churn from existing subscribers with proposition of cheaper and better data offering. RIL’s acquisition of control in Network 18 Media & Investments Limited through Independent Media Trust including its subsidiary TV18 Broadcast Limited will differentiate Reliance’s 4G business by providing a unique amalgamation at the intersect of telecom, web and digital commerce via a suite of premier digital properties. TV18 Broadcast ltd had posted excellent result for FY15 inspite of Rs. 220 Cr write-offs. With finance costs also coming down the share price is likely to rise significantly in next 2 quarters. Reliance Retail has continued its growth momentum crossed three significant milestones during past couple of period; it has surpassed turnover of Rs. 4,000 Cr in a quarter with more than 2,000 operating stores and with establishing its presence in over 150 cities. Despite persistent inflation and slow consumption growth, first half of FY 14-15 revenue for Reliance Retail grew by 17.3 % Y-o-Y to Rs. 8,166 Cr. PBDIT for the retail business more than doubled to Rs. 357 Cr from Rs. 165 Cr in the same period last year. All format sectors grew through store additions as well as consistent like for like growth ranging up to 21 %. Reliance witnessed sharp improvement in complex refining margin and delivered record performance taking benefit of being an integrated energy Company. Declining gas production in KG basin as a concern will remain for some more time. However, a positive point could trigger from its start of projects worth $25 billions in next 18 months, also new launch of Reljio and the growth shown by its Retail Business could contribute around $17 billion. The start of downstream expansions could lift Ebitda by around 75 % over next 3 year so it can be expected that RIL Eps can grow double in next three years. The fair value of RIL on Sum of the parts basis comes at Rs. 1050 per share, while the valuation of RIL including its treasury shares comes to Rs. 1140 per share. At the current market price of Rs. 1010.85, the stock is trading at 11.85 x FY16E EPS of Rs 85.30/share and at 9.73 x FY17E EPS of Rs 103.80/share. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.

SOTP valuation (FY2016E) 
BUSINESS SUBSIDIARYValue per Share (₹
Core Business 
Refining562.00
Petro Chemicals427.00 
E&P INITIATIVES
KG - D6 Gas (KG Basin)44.00
KG - D6 MA1 Oil (KG Basin)13.00
KG - DWN - 2003/1 (D3)12.00
NEC - 25 (Mahanadi Basin)14.00
Sohagpur East & West (CBM)23.00
PMT14.00
INVESTMENTS
In Shale Gas35.00
In RGTIL, RIIL11.00
In SEZ14.00
In BWA36.00
In Reliance Retail84.00
Less: Net Debt239.00
TOTAL VALUE PER ( Ex Treasury stock )1,050.00
Add: Treasury Stock of 29.35 cr shares91.70
TOTAL VALUE PER 1,141.70

KEY FINANCIALSFY14FY15FY16EFY17E
SALES ( Crs)3,90,1003,57,3002,84,8003,42,900
NET PROFIT (₹ Cr)22,00022,70025,00030,800
EPS ()75.2077.5085.30103.80
PE (x)13.1012.7011.509.50
P/BV (x)1.301.201.101.00
EV/EBITDA (x)9.409.809.006.80
ROE (%)11.7011.0011.0012.30
ROCE (%)11.1010.5010.6012.40

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