RIL’s FY21 Annual Report showed improved quality of earnings, elevated capex, cashflows impacted by repayment of interest-bearing liabilities and sharp reduction in net debt, as per a report by Jefferies.

Digital and omnichannel are focus areas in Retail where disclosures didn’t include segmental details. Driving 2G to 4G transition is the key focus area for Jio. Shift to renewables for captive consumption, increased ESG focus and higher chemical conversion are focus areas in O2C, the report said.

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RIL extinguished $4.6bn capex creditors in FY21. Retail capex was elevated at $1.4bn partly led by Jiomart rollout. Facilities capex under Reliance Projects & Property Management Services was also elevated at $2.1bn.

RIL net debt declined to S$13bn, expect sharp reduction in FY22E. Net debt including spectrum debt and capex creditors declined 70 per cent y/y. This should fall below $6bn in FY22E on realization of balance rights issue proceeds and FCF. Cost of debt declined 200bps over FY19-21 as proportion of fx-debt rose 400bps to 49 per cent.

As per the report, economic life of O2C assets was increased to 50 years from 25-35 years reducing depreciation. Reliance Retail (RR) EBITDA declined 12 per cent YoY in FY21 reflecting tough macro as 80 per cent stores were operational with lower footfalls. Digital & omni-channel strategy was a focus and new commerce accounted for 10 per cent of revenues by year-end; there are more than 1m merchant partnerships now.

Reliance Jio is focused on accelerating the transition of 2G subs to 4G and scale-up of home broadband business. Jio’s network operating costs rose 30 per cent YoY, due to 2.8x YoY jump in fiber usage charges and we expect it to rise further in FY22E. Depreciation and amortization rates have risen YoY but remain below peers. Jio turned FCF positive in FY21 driven by improving cashflow conversion on account of lower capitalized costs. Net gearing remains low at 1.7x EBITDA and return ratios are steadily improving, the report said.

Maximize crude to chemical conversion with MCC technology is part of the commentary. Renewables will replace fossil fuels for entire captive energy consumption. Increasing ESG focus – developing Carbon-capture technology to convert it to proteins, neutraceuticals; developed technology to convert organic waste to renewable crude that can contribute towards Zero Net Carbon target, increase recycling, the report said.