Reliance Industries Valuation Excel Model and Intrinsic Value of Shares- BDV

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Reliance Industries Valuation: About the Company

Reliance Industries is a diversified business conglomerate and ranks 106 in Fortune global 500 and 71 on Forbes Global 2000 companies as in 2019. The company is involved in the manufacturing of polymers, chemicals, polyesters, petroleum, and textiles.

They have further ventured into Retail, Digital services, payments, and telecom. Its Jio platform has gained 300+ Million subscribers in 2.5 years.

The company also has the world’s largest Crude oil refinery in Jamnagar and its retail business arm has crossed $ 10 billion in revenue. From here, we go ahead with Reliance Industries Valuation and Intrinsic Value of its shares.

The company is a diversified conglomerate with a lot of uncorrelated businesses under its umbrella. In such a case each business has its own operating structure and a set of competitors.

The largest revenue contributing businesses are Petroleum, Refining, Petrochemicals, and Retail. The company has 1.24+ Mbpd (Million Barrel per day) of crude processing capacity 1400+ petroleum outlets.

The Jamnagar refinery is the largest in the world and has a complexity Index of 21.1 which is the best in the industry. In the petrochemicals business, it has a 38 Million Metric Tonne capacity which is the highest in India.

Reliance is also the largest integrated polyester producer in the world. In the retail business, the company has expanded rapidly across 6700+ cities and towns in India and operates 11,000+ stores, which again is one of the largest retail chains in India.

The company is also a market leader in digital services through its Jio Platforms.

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Overall the company has a wide economic moat due to its sheer scale and market presence which touches every Indian life. Therefore this category gets 5 stars in Reliance Industries Fundamental Analysis.

Read more here: Reliance Industries Shares Fundamental Analysis 

Methodology Used:

Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. The following step by step procedure is followed.

  1. Determining the Revenue Growth Rates
  2. Forecasting the Financial Statements
  3. Deriving the FCFF and FCFE
  4. Calculating the Terminal Value
  5. Calculating the Discount Rate
  6. Discounting the Cashflows
  7. Arriving at the Intrinsic Value of the Shares

Step 1: Determining the Revenue Growth Rates

We arrive at the below table by using the past and expected future performance of both the company and the economy. This along with adjustments to changes in the management expectations, extraordinary events and other macro factors give the revenue growth rates for Reliance Industries Valuation.

Financial Year Revenue Growth Rate
Year 1 5%
Year 2 -12%
Year 3 22%
Year 4 12%
Year 5 12%
Revenue Growth Rates: Reliance Industries Valuation

Step 2: Forecasting the Financial Statements

The financial statements are forecasted for a period of 5 years using the annual report data of the company. The assumptions used for forecasting are tabulated below. The Excel model is completely editable and can be adjusted for specific changes that may happen over a period of time.

Financial Statements Forecast : Reliance Industries Valuation
Financial Statements Forecast : Reliance Industries Valuation

Step 3: Deriving the FCFF and FCFE

Free cash flow to the firm (FCFF) represents the amount of cash flow from operations available for distribution after accounting for depreciation expenses, taxes, working capital, and investments.

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FCFF is a measurement of a company’s profitability after all expenses and reinvestments. It is given as follows.

Free cash flow to equity (FCFE) is a measure of how much cash is available to the equity shareholders of a company after all expenses, reinvestment, and debt are paid. FCFE is a measure of equity capital usage.

F/S Items (INR Millions) Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
Free Cash Flow to Firm 1190706 -1338331 1277752 904107 1128665
Free Cash Flow to Equity 1977810 -2538133 2611649 1717258 2044846
FCFF and FCFE values: Reliance Industries Valuation

Step 4: Calculating the Terminal Value

Terminal value (TV) is the value of a business or project beyond the forecast period when future cash flows can be estimated. It assumes that a business will grow at a set growth rate forever after the forecast period. Terminal value often comprises a large percentage of the total assessed value.

Terminal Value Calculation Units INR Millions
Free Cash Flow to Firm 1128664.53
Growth Rate 5.00%
Cost of Capital 10.49%
Terminal Value 21586026.73
Terminal Value: Reliance Industries Valuation

Step 5: Calculating the Discount Rate

DCF analysis helps assess the viability of a project or investment by calculating the present value of expected future cash flows using a discount rate. Here we use the Weighted average cost of capital (WACC) to discount the cash flow. The below table from the excel model shows the calculation of WACC for Reliance Industries Valuation.

WACC Calculation for Reliance Industries Valuation.
WACC Calculation for Reliance Industries Valuation.

Step 6: Discounting the Cashflows

The WACC and the Cost of Equity for the company calculated in the above step are then used to discount the FCFF, FCFE, and Terminal Value calculated in Step 3 and 4.

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In our case, we’ll only consider the FCFF based Intrinsic price of the shares as it represents the cash flow to all the suppliers of capital and not only to the equity shareholders.

Thus we arrive at the Present value of future FCFF for Reliance Industries Valuation. (Units are INR Millions)

PV of FCFF and FCFE  for Reliance Industries Valuation.
PV of FCFF and FCFE for Reliance Industries Valuation.

Step 7: Arriving at the Intrinsic Value of the Shares

Dividing the PV of the FCFE and Terminal Value (the value of the entire firm) by the number of outstanding shares we get the per-share intrinsic value. We can compare this price with the current market price of the stock to get the Discount or Premium to its intrinsic price.

Reliance Industries Valuation Units
PV in INR Million 14869639
No of Shares Outstanding (In Million) 5925
Intrinsic Value 2509.64
Current Market Price of Share 2047
Current Discount/Premium -18%
Intrinsic Value of the Shares: Reliance Industries Valuation

Reliance Industries Valuation and Intrinsic Share Price = INR 2509.64

Download the Excel Model from Here!

References: Investopedia
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