CMP: ₹1,280.5

Target: ₹1,400

Capex intensity remains high with total investment of ₹22,600 crore in 1QFY20, of which Jio accounted for ₹8,500 crore, RIL standalone for ₹6,000 crore and retail for ₹2,000 crore. There is no specific guidance on capex going forward. The petcoke gasifiers appear to have been fully commissioned, which should reduce capex, at least in the standalone business.

SG refining margins have been recovering over the past few weeks, primarily due to large shutdowns that are being taken globally — either unplanned or to align production with IMO 2020. As these refineries come on stream, SG refining margins will likely stabilise at $6/bbl over the medium term, in our view.

Petrochem margins are expected to be weak in light of the expected expansions. Incremental capacity addition in 2019 is expected to be more than that in 2017 and 2018 combined, against which there is no commensurate demand.

We value RIL using SOTP. Core segment of refining and petrochem is valued at 7.5x FY21E EV/EBITDA. Peers trade at ~6.0x FY20E EV/EBITDA. RIL's premium is due to its ability to optimize crude basket, product yield, risk management and multiple feedstock availability for its petrochem segment.

We reiterate our Neutral stand on the company with a target price of ₹1,400, which leaves limited upside from the current levels.