On refining, while margins may sequentially decline (but still well ahead of benchmark and peers), we believe stage is set for margin expansion in subsequent quarters driven by: (1) ramp-up of petcoke gasification project boosting GRMs by c.$2/bbl with full impact likely in 4QFY19 and (2) IMO 2020 sulphur regulations to drive GRMs higher starting 2QFY20 with peak GRM potential of $18-19/bbl in CY2020. We see 31% upside to our 12-month SOTP-based target price.

We expect 1QFY19 GRM of $10/bbl, a sequential decline by $1/bbl. Margin decline will be driven by lower margins for light distillates in the quarter and higher oil price impacting petcoke margins. We expect GRM to improve in 2HFY19 with ramp-up of petcoke gasification project. We expect petchem EBITDA to grow by 6% qoq mainly driven by improving margins for PP and polyester chains more than offsetting weakness in PE margins. Reliance diversified feedstock mix (off gas, naphtha and imported ethane) provides further insulation from decline in PE margins.

We expect 4Q Jio revenues of Rs 7,200 crore (up 1% qoq) with subscriber of 210 mn (+13% qoq) and ARPU of Rs 121 (-12% qoq). We expect ARPU to come down qoq driven by price cuts and lack of prime ARPU of existing customer base. Our discussions with investors suggest three key focus areas for Jio in 4Q will be (1) direction of pricing action for the smartphone tariffs, (2) future capex programme and (3) launch of FTTH business.

We continue to value RIL on an SOTP basis. We use EV/EBITDA to value the core refining and petchem business, and we use DCF to value the high-growth telecom and retail business. We tweak our 12-month FY20 SOTP based TP on changes in FY20 earnings. We see 31% upside to our TP of Rs 1,340.