reliance industries limited financial presentation july 20, 2000

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Reliance Industries Limited Financial Presentation July 20, 2000

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Page 1: Reliance Industries Limited Financial Presentation July 20, 2000

Reliance Industries Limited

Financial Presentation

July 20, 2000

Page 2: Reliance Industries Limited Financial Presentation July 20, 2000

Operating and Financial Highlights

Operating Environment

Financial Review

Business Review

New Infocom Initiatives

Summary

Index

Page 3: Reliance Industries Limited Financial Presentation July 20, 2000

Operating Highlights for Q1 2000-01

All time record production volume of 2.63 mn tonnes - increase of 38% over Q1 FY2000

All plants, including new PX / PP facilities at Jamnagar, operated at rated capacity throughout the quarter

Feedstock costs higher by 40%-85% during the quarter, without matching improvement in product selling prices

Acquired control over DCL Polyester’s PFY capacity of 40,000 tpa - RIL is now world’s 4th largest PFY producer

Announced open offer for BSES, India’s largest utility - equity stake raised to nearly 27%

Page 4: Reliance Industries Limited Financial Presentation July 20, 2000

Financial Highlights for Q1 FY2001

Sales Rs 6,615 crores $

1,481 mn + 72 %

Gross Profit Rs 1,235 crores $ 276 mn + 37 %

Cash Profit Rs 937 crores $

210 mn + 31 %

Net Profit Rs 612 crores $

137 mn + 20 %

41 consecutive quarters with increased sales and profits - 10 year CARG of 27% for sales and 39% for net profits Reliance continues to lead the Indian private sector with highest sales, profits, net worth, and assets

Page 5: Reliance Industries Limited Financial Presentation July 20, 2000

Operating Environment

Page 6: Reliance Industries Limited Financial Presentation July 20, 2000

GDP growth % Inflation %3 Month

Int. Rate2000 2001 2000 2001

Hongkong 6.5 6.0 4.5 -3.5 2.0

Singapore 2.8 6.5 5.5 1.7 2.0

Thailand 4.0 5.0 5.5 2.5 4.0

Malaysia 3.2 6.5 6.0 2.5 3.5

Indonesia 13.0 4.0 5.0 3.0 6.0

Korea 7.2 8.6 6.0 2.5 3.0

Taiwan 5.8 6.5 6.0 2.0 2.2

India 9.5 6.7 7.0 6.0 6.3

Asia is expected to register GDP growth of over 5% in 2001

Positive Demand Environment in Asia

Page 7: Reliance Industries Limited Financial Presentation July 20, 2000

Stable Macro Economic Environment

The macro-economic environment in India remains stable, despite short term volatility in interest rates and FX markets

GDP growth in India for the year 2000-01 is likely to be in the 6% - 7% range

Inflation rates are marginally higher than the previous year, but still in the 6% - 7% band

Long term interest rates have declined significantly - the 10 year Treasury rate is around 10.90% per annum

Short term volatility in the Indian rupee - broader outlook remains stable with FX reserves over $ 36 bn

Page 8: Reliance Industries Limited Financial Presentation July 20, 2000

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5

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Jan-9

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Jan-9

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Apr-

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Crude Price Trends (Brent)

High 31.9

Current28.56

Low - 9.6

International crude prices are generally forecast to remain in the $25 plus range during the year 2000

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Page 9: Reliance Industries Limited Financial Presentation July 20, 2000

International Feedstock Price Trends

(US$ / T )

Avg. Q1 Avg. Q1 % July FY 2000 FY 2001 Change 2000

price

Crude ($/bbl) 15.42 26.49 +72 32.16

Naphtha 163 229 +41 251

EDC 232 428 +85 385

Feedstock prices increased 40%-85% during the quarter, tracking higher crude prices

Page 10: Reliance Industries Limited Financial Presentation July 20, 2000

International Product Price Trends

(US$ / T )

Avg. Q1 Avg. Q1 % July 2000 FY2000 FY 2001 Change prices

POY 890 1067 +20% 970

PSF 700 893 +28% 870

PTA 342 502 +47% 460

MEG 391 592 +52% 560

PE 574 653 +14% 675

PVC 536 715 +33% 660

PP 514 581 +13% 620

The 20%-50% increase in international product selling prices did not match the higher increase in feedstock costs

Page 11: Reliance Industries Limited Financial Presentation July 20, 2000

Domestic Product Price Trends

( Local prices in Rs. / kg )

Avg. Avg. % July 2000 Q1 FY 2000 Q1 FY 2001 Change prices

POY 57.5 59.6 +4% 57.8PSF 45.3 54.7 +21% 53.5PTA 24.2 32.1 +33% 32.7MEG 23.2 35.4 +53% 35.4PE 39.9 46.0 +15% 47.0PVC 33.0 41.0 +24% 41.0PP 35.7 38.2 +7% 38.9

Domestic product selling prices moved broadly in line with international prices

Page 12: Reliance Industries Limited Financial Presentation July 20, 2000

Financial Review

Page 13: Reliance Industries Limited Financial Presentation July 20, 2000

Income Statement

Q1 FY 2000 Q1 FY 2001

Rs. Crs. $ mn. Rs. Crs. $ mn. Growth

Sales 3,837 885 6,615 1,481 72%

Op. Profit 750 173 1,157 259 54%

PBDIT 901 208 1,235 276 37%

Interest 183 42 298 67 63%

Depreciation 207 48 325 73 57%

Tax NIL NIL NIL NIL

Net Profit 510 118 612 137 20%

Cash Profit 717 165 937 210 31%

Cash Profits have increased 31% to Rs. 937 crores ($ 210 mn)

Page 14: Reliance Industries Limited Financial Presentation July 20, 2000

Improved Quality of Earnings

Other Income declined 48% from Rs. 150 crores ($ 35 mn) in Q1 2000 to Rs. 78 crores ($ 17 mn) in Q1 2001

Full interest and depreciation expenses charged to the income statement

No interest capitalisation in Q1 2001 against Rs. 121 crores ($ 28 mn) in Q1 2000

More than 60% of assets being depreciated under the more aggressive Written Down Value method - conservative accounting practice

Income statement takes into consideration full charge of interest and depreciation

Page 15: Reliance Industries Limited Financial Presentation July 20, 2000

US GAAP Reconciliation

Indian GAAP US GAAP

Rs. Crs. $ mn Rs. Crs. $ mn

Net Profit 612 137 477 107

Difference (135) (30)

The difference is on account of foreign exchange variations

Page 16: Reliance Industries Limited Financial Presentation July 20, 2000

Income Statement - After Removing Extraordinary Items

Q4 FY 2000 Q1 FY 2001

Rs. Crs. $ mn. Rs. Crs. $ mn. Growth

Sales 6,262 1,436 6,136 1,373

Op. Profit 1,036 237 1,070 241 3%

OPM % 16.5 17.4

Interest 309 71 298 67 -4%

Depreciation 274 63 325 73 +19%

Tax 57 13 NIL NIL

Profit fromOperations

395 90 447 101 +13%

Other Income 261 60 78 17 -70%

Net Profit 657 150 525 118

13% growth in profit from operations, on trailing quarter

Page 17: Reliance Industries Limited Financial Presentation July 20, 2000

Business Mix

Textiles1.0%

Polyester18.8%

Oil and Gas3.0%

Chemicals19.8%

Plastics & Int.

30.7%

Fibre Int.26.7%

Reliance remains focused on the petrochemicals businesses

Page 18: Reliance Industries Limited Financial Presentation July 20, 2000

Growth in Production and Sales

Sales revenue growth of 72%, contributed by:

– Impact of sales volume growth 45%

– Impact of increase in average product selling prices 27%

Net external sales up 91 % for the quarter

86% of production sold within India (excluding merchant exports)

Strong 740% growth in exports

Production volume increased 38% to a record level of 2.63 million tonnes during the quarter

Page 19: Reliance Industries Limited Financial Presentation July 20, 2000

Stability in Operating Margins

Operating margins (excluding merchant exports) remained stable at 19%

This was the result of : Strong volume growth

Higher product prices mitigating higher operation

costs

Gains from productivity, cost control, and

efficiencies

Higher degree of integration and value addition

Stability in operating margins despite consistently higher levels of feedstock costs

Page 20: Reliance Industries Limited Financial Presentation July 20, 2000

Profitability Ratios

Q1 FY 2000 Q1 FY 2001

OPM % 19.6 18.9

NPM % 13.3 9.3

RONW % 22.1 18.8

EPS - Rs. ($) 21.8(0.50) 23.0(0.52)

Cash EPS - Rs. ($) 30.7(0.71) 35.4(0.79)

RIL’s market price discounts cash earnings barely 10 times

Page 21: Reliance Industries Limited Financial Presentation July 20, 2000

Liquidity Ratios

FY 2000 Q1 2001

Gross Debt : Equity 0.88 0.88

Net Debt: Equity 0.63 0.67

Net Gearing (% ) 38.6 40.1

Interest Cover 2.7 3.1

Net Debt/ Cash Flow 1.7 1.8

Conservative liquidity ratios reflect RIL’s financial strength

Page 22: Reliance Industries Limited Financial Presentation July 20, 2000

Exponential Growth in Exports

RIL’s total exports increased 740% from Rs. 156

crores ($ 36 mn) to Rs. 1,311 crores ($ 293 mn)

Manufactured exports increased 433% from Rs.

156 crores ($ 36 mn) to Rs. 832 crores ($ 186 mn)

Focus of exports on the quality conscious markets

of Europe and the US with an emphasis on

speciality grades

During the quarter, RIL exported Rs. 479 crores ($

107 mn) of petroleum products sourced from RPLExports offer attractive overall returns due to related tax incentives and RIL’s ability to cater to premium markets

Page 23: Reliance Industries Limited Financial Presentation July 20, 2000

2000-01 Exports to be nearly $ 1 billion

Export revenues likely to be nearly $ 1 billion (Rs.

4,500 crores) during current year

RIL to have substantial net foreign exchange

earnings in current year due to commissioning of

Jamnagar Complex

RIL emerges as India’s largest manufacturer

exporter

Export revenues alone provide nearly 10 times

cover for RIL’s FX denominated interest liabilityGrowing export revenues reflect global competitiveness and international quality of products

Page 24: Reliance Industries Limited Financial Presentation July 20, 2000

Export Revenues Trends

RIL’s exports have grown by over 50 times in last 5 years

Page 25: Reliance Industries Limited Financial Presentation July 20, 2000

Conservative Financial Management

Top end domestic AAA credit rating - international ratings constrained by sovereign ceiling

RIL’s cash flows for less than 2 years are sufficient to extinguish its entire net debt

RIL’s increased export revenues provide adequate foreign exchange risk cover

Dollar revenues from oil and gas provide additional cover

External debt of $ 1.3 billion has weighted average maturity of 22 years - no short term pressures

RIL has achieved quantum growth in the scale of its operations, while pursuing conservative financial policies

Page 26: Reliance Industries Limited Financial Presentation July 20, 2000

Reliance increases stake in BSES

Reliance has increased its equity stake in BSES, India’s leading utility, to nearly 27 %

Enhancement of stake through an open offer conducted transparently in accordance with SEBI guidelines

Reliance’s total investment for acquiring the BSES stake is nearly Rs. 800 crores

RIL will consolidate BSES’ financials from the current financial year, under the equity accounting method

Consolidation will add approximately Rs. 100 crores to RIL’s income statementRIL’s investment in BSES is an important strategic

step, in the pursuit of growth opportunities in power and telecom

Page 27: Reliance Industries Limited Financial Presentation July 20, 2000

Business Review

Page 28: Reliance Industries Limited Financial Presentation July 20, 2000

Leading Market Shares

Polyester market share expansion driven by acquisitions

Decline in Fibre Intermediates market share only reflects impact of commissioning of Mitsubishi’s PTA plant

RIL’s market share Q1 2000 Q1 2001 % change

Polyester 45% 51% +6%(PFY, PSF, PET)

Fibre Intermed. 85% 81% -4%(PTA, MEG, PX)

Plastics 55% 55% 0%(PE, PP, PVC)

Page 29: Reliance Industries Limited Financial Presentation July 20, 2000

Business Review - Polyester

Demand down in April and May : 12% growth in June RIL’s polyester volumes increased faster than

industry - 200,000 tpa of capacity acquired over the last 2 years

Industry Reliance

(Prodn. in‘000 tonnes)

Q12000

Q12001

%change

Q12000

Q12001

%change

Polyester(PFY, PSF, PET)

347 347 0 157 178 13

Fibre Intermed.(PTA, MEG, PX)

462 901 95 394 728 85

Page 30: Reliance Industries Limited Financial Presentation July 20, 2000

Business Review - Plastics

Demand growth strong at 13% - PP demand grew at 23%

Excise duty cuts and opening up of the huge foodgrains packaging markets, to support future demand growth

Industry Reliance

(Prodn. in‘000 tonnes)

Q12000

Q12001

%change

Q12000

Q12001

%change

Plastics(PE, PP, PVC)

533 706 32 293 387 32

Page 31: Reliance Industries Limited Financial Presentation July 20, 2000

Outlook on Import Tariffs

Import tariffs on PFY and PSF cut by 15% to WTO bound rates of 20% - no further reduction likely

Import tariffs on polymers may only gradually decline by 3%-5% per annum over the next 5 years

Consistent policy of pricing products at 10-15% discount to import parity levels provides adequate flexibility

Operating margins for RIL maintained in the 20% range over last 7 years through drastic cuts in import tariffs

Impact of import tariff cuts will be largely offset by the ongoing depreciation of rupee - historically at 5%/ year

Further tariff cuts likely to be gradual, as import duties represent 25% of Indian government’s revenues

Page 32: Reliance Industries Limited Financial Presentation July 20, 2000

Business Review - Oil and Gas

RIL awarded 14 exploration blocks, becoming the No. 1 E&P player in the Indian private sector

Exploration acreage exceeds 100,000 sq. kms - deep water blocks awarded for the first time

Page 33: Reliance Industries Limited Financial Presentation July 20, 2000

Reliance Telecom - Update

Cellular services operating in 40 cities, with the subscriber base growing from 69,000 to 90,000 in Q1

Expanding service to more than 90 cities, with subscriber base expected to cross 150,000 in the current year

Cellular operations currently EBITDA positive, and likely to be cash positive by end of next financial year

Fixed line service commissioned in Jamnagar in the state of Gujarat, now extending reach to other cities

Broadband optic fibre network across Gujarat, expected to be completed in the next financial year

Reliance Telecom is achieving fast growth in subscriber numbers and revenues

Page 34: Reliance Industries Limited Financial Presentation July 20, 2000

Reliance Petroleum - Update

RIL and RPL to emerge as the top 2 companies in the Indian private sector in the current financial year

Commenced commercial production during the

quarter

All facilities operating at rated capacities

RPL declaring results for Q1 2001 on July 29, 2000

RIL will consolidate RPL’s financials, under the

equity accounting method, from the next financial

year - fully reflecting the value of RIL’s investment

in RPL

Page 35: Reliance Industries Limited Financial Presentation July 20, 2000

New Infocom Initiatives

Page 36: Reliance Industries Limited Financial Presentation July 20, 2000

Reliance’s Infocom Initiatives

Reliance to build a state-of-the-art, world-class, internet

infrastructure in India

Nationwide broadband network connecting India’s top 115 cities, representing over 50% of GDP

Terabit bandwidth, and next generation technologies, for meeting future demand

All optic fibre and internet protocol based network

Network to be leveraged for providing the entire range of value added services

Building a nationwide internet infrastructure in the first phase for acquiring sustainable competitive advantage

Page 37: Reliance Industries Limited Financial Presentation July 20, 2000

Reliance’s Infocom Initiatives

Focus on value added voice, data, and image offerings over broadband networks

Will provide media-casting, web hosting, e-commerce, data centres, and managed software services

Network and bandwidth to be used for own businesses, as well as to be offered to other service providers

Global alliances under discussions with world leaders in new economy sectors

Investments to be completed over next 24 monthsTargeting the complete range of business opportunities presented by the Indian infocom revolution

Page 38: Reliance Industries Limited Financial Presentation July 20, 2000

Strategy for Leadership

Harness opportunities across the digital value chain

Leverage Reliance’s demonstrated strengths in financial engineering and in executing complex projects, to attain leadership in integrated broadband services

Ability to participate in national and international long distance telephony, and voice over internet, as these sectors are deregulated

RIL to be the lead investor in all infocom initiatives

Sustaining growth momentum and enhancing shareholder value are key objectives

Strategy in place for delivering superior returns to shareholders through infocom investments

Page 39: Reliance Industries Limited Financial Presentation July 20, 2000

Summary and Outlook

Page 40: Reliance Industries Limited Financial Presentation July 20, 2000

Highest ROE in Asian Chemicals Cos.

RIL ranks amongst the top 3 chemicals companies globally in ROE terms - highest in Asia

Capital Work in Progress at lowest levels in 10 years at Rs. 60 crores ($ 13 mn) - higher returns and ROE

Free cash flows rising strongly as profits grow and capex declines - capex to cash profits ratio has declined from 240% in 1995, to less than 25% in current year

Capex unlikely to exceed 3%-4% of total assets in current year, compared with 30% 5 years ago

Capex for the current year will be more than fully covered by depreciation aloneROE likely to show consistent improvement as

relative capex spending declines, and investments generate returns

Page 41: Reliance Industries Limited Financial Presentation July 20, 2000

Global Competitiveness Supports High ROE

Economies of scale and project management strengths, lead to 30%-50% capital cost advantage

RIL’s employee cost at less than 3% of net sales is nearly 1/6th of the typical cost for the global peer group

Selling and distribution cost at below 3% of net sales is 1/5th of the typical cost for the global peer group

Globally competitive power costs - all manufacturing complexes run on 100% captive power facilities

Financing mobilised at competitive terms, from the domestic and international markets

Reliance’s sustainable competitive strengths translate into the highest returns and profitability ratios for the company

Page 42: Reliance Industries Limited Financial Presentation July 20, 2000

Superior Price Performance - Local Shares

% change

Period Price RIL Sensex

Current 353

Calendar YTD 234 51-8

1 year 186 90 -2

2 year 149 137 33

3 year 174 102 12

5 year 138 156 37

10 year 49 624 390

RIL stock price has consistently outperformed the Sensex over all time frames - 9% outperformance over Q1 2001

Page 43: Reliance Industries Limited Financial Presentation July 20, 2000

Returns to GDR/FCCB Investors

% changeIssue Date Issue Current ($)Absolute Sensex

Price ($) Price

GDR 1 May 1992 8.17 21 157 3

GDR 2 Feb 1994 11.75 21 79 -17

FCCB Nov 1993 9.18 21 129 24

The RIL GDR is trading at US$ 21, translating into a stock price of over Rs. 470 per share, and representing a premium of nearly 33% to the underlying domestic stock price

Page 44: Reliance Industries Limited Financial Presentation July 20, 2000

Approvals in place for Share Buyback

Shareholder approval for India’s largest stock buyback of Rs. 1,100 crores ($ 250 mn) - open market route

Maximum share buyback price of Rs. 303 is EPS/ROE accretive, and is shareholder value enhancing

Under SEBI regulations, RIL can not make a fresh offer of equity shares for 2 years

RIL has achieved exponential growth in past 6 years without any fresh equity offerings - RIL would not have issued equity for 8-9 yearsThe buyback demonstrates RIL’s confidence in future

growth prospects, and perception of stock under-valuation

Page 45: Reliance Industries Limited Financial Presentation July 20, 2000

Promoters Increase Stake in RIL

RIL’s promoters have increased their total equity stake to over 40%, under SEBI’s creeping acquisition guidelines

Room for further acquisition of 3% stake i.e. 3 crore shares in the current year, taking stake to over 43%

Voting rights on GDRs of 7% vest with company management, as in most Indian GDRs

Promoters will control total voting power of at least 51% in RIL - making it the only such company in India of this size and scale

Creeping acquisition of shares, combined with buyback by RIL, may potentially exceed Rs. 4,500 crores ($ 1 bn) in a year

Page 46: Reliance Industries Limited Financial Presentation July 20, 2000

Summary and Outlook

Stable outlook for core petrochemicals businesses - production volumes likely to exceed 10 million tonnes

Speciality grades already contributing 15%-60% across major products, resulting in 5%-15% premium pricing

Export revenues likely to touch $ 1 billion (Rs. 4,500 crores) during current year

Strong growth in free cash flows - driven by higher profits and declining capex levels

Infocom initiatives for capturing new opportunities

Consolidation of affiliates’ financials under equity accounting will unlock true value of RIL’s investments

RIL will achieve its stated growth targets, and enhance shareholder value by pursuing its core business strategies

Page 47: Reliance Industries Limited Financial Presentation July 20, 2000

Reliance Industries Limited

India’s World Class Corporation