Company analysis

RELIANCE INDUSTRIES LIMITED

The Reliance group, founded by Dhirubhai H Ambani (1932-2002), is India’s largest private

sector enterprise, with businesses in the energy and material value chain. The flagship company,

Reliance Industries Limited, is a Fortune Global 500 company and is the largest private sector

company in India. The chairman of the company is Mukesh Ambani.

The company is India’s largest petrochemical firm and among the country’s largest companies

(along with the likes of Indian Oil and Tata Group). Oil refining and the manufacture of

polyfines account for nearly all of Reliance’s sales. It also makes textiles and explores for oil and

gas, though those businesses are relatively small. In 2009 the company merged with its oil and

gas refining subsidiary (Reliance Petroleum) in order to boost the operational and financial

synergies of Reliance as a major refining company.

First let us look at the industry analysis of the petrochemical sector

The petrochemicals cycle is currently on a global uptrend thanks to growing demand from China

and other developing nations. In the domestic markets, growing activity in infrastructure and

construction segments coupled with strong growth in the auto sector on the back of lower interest

rates have actually boosted the performance of the petrochemicals sector. Major beneficiaries of

this uptrend are the integrated players such as Reliance Industries, GAIL , IPCL etc.

Let us now do a SWOT analysis of the industry as a whole

Strengths:

Consolidation: The Indian petrochemicals industry has witnessed consolidation over the

last few years and nearly 85% of the polymer capacity in the domestic market is with the

top three participants (Reliance, IPCL and Haldia Petrochemicals (HPL)). Of the three

companies mentioned, IPCL forms a part of the Reliance stable while GAIL is set to pick

up stake in HPL. Such high concentration is likely to benefit these players, as this would

help reduce duplication of production.

Synergies: Most of the petrochemical players have integrated facilities, thereby reducing

external dependence to a large extent. To put things in perspective, Reliance Industries

uses naphtha from its own Jamnagar refinery as a feedstock for the petrochemicals

production. IPCL uses Reliance's vast and widespread marketing network to reach out to

global consumers. On the other hand, GAIL utilizes natural gas for its petrochemicals

capacity. Rich natural gas is evacuated into the pipelines and after separation of the

hydrocarbons such as ethane, propane and butane, the lean gas is transmitted to

consumers such as power and fertilizer industry. Further, petrochemicals business being a

high value add, would add further to the profitability of these integrated companies.

Weaknesses:

Low bargaining power vis-a-vis the suppliers: Input costs form nearly 50% to 60% of the

raw material costs. Further, gas prices are regulated but in short supply, while naphtha is

an expensive source of feedstock. Refineries realize the import parity prices on naphtha

produced and in case of high feedstock prices, petrochemical players have little

bargaining power against the suppliers. These players are therefore vulnerable to raw

material prices.

Low Bargaining power vis-a-vis customers: In case of increase in input costs, the

companies might not be able to pass on the rise to the consumers as the prices of products

is highly influenced by factors such as international prices and supply.

Opportunities:

Low per capita consumption: Currently, domestic per capita polymer consumption is

nearly 4 kgs while the global average is nearly 20 kgs. This underlines the fact that there

is immense scope of capacity expansion in the country as the market to be tapped is huge.

Further, spending on R&D activities is around 2% of sales as compared to an

international average of 18%. This leaves enough room for product development. Also,

currently, India has a chemicals trade deficit of about US$ 1.5 bn a year, which leaves

enough investment opportunities in the industry.

Increased economic activity:The government has set aside nearly Rs 400 bn for

infrastructure projects such as roadways, airports and convention centers and also

towards rural housing augur well for the petrochemicals industry as this is likely to

increase demand for various products (high density polyethylene, low density

polyethylene among others) for the purpose of road development, packaging, cables and

wiring. Also sustained growth in the auto sector is likely to keep the demand for

petrochemical products high. As per our estimates, the auto sector is likely to grow at

nearly 12% over the next few years.

Threats:

Customs duties: Historically, the domestic industry has been protected from overseas

competition by high import duties imposed by the government. However, of late, Import

duty on polymers has been steadily reduced and is currently at 20%. As part of its

commitment to various multilateral and bilateral trade agreements, the government is

likely to reduce duties going forward and this is likely to reduce the cushion enjoyed by

the domestic players as against the landed cost of imported products.

Growing competition: The domestic industry is likely to witness immense competition

going forward with IOC all set to enter the segment with its Rs 64 bn project in FY06.

Further, ONGC is also venturing into petrochemicals business. With commitments to

reduce and eliminate tariff and non-tariff barriers, India, with huge market potential,

might witness entry of global majors such as ExxonMobil, Dow Chemicals and Shell into

the business. These global majors with deep pockets can actually lead into a pricing war,

which could result in squeezing margins.

Hence, overall we can say that the industry has a good future which is mostly sable and

profitable.

PEST analysis of industry

It stands for the terms of political , economic , social and technological analysis.

Political

There are various political factors which affect this industry.

Primary among them is that the oil producing countries are having different foreign policies and

also have many compulsion acting on them. The example can be given of sanctions on iran

which has made it difficult for it to export its crude oil which in turn affect the companies which

use crude as raw material since the supply gets reduced.

Another major reason can also be the boundary disputes between countries or disputes regarding

sharing of profits when crude from one country is transferred through another country. The

example of this can be china’s dipute with Vietnam regarding oil blocks in the southchina sea.

The second example can be of problems faced by south sudan in exporting oil through sudan.

Economic

Increasing industrialization and increasing standards of living have led to an increasing demand

of oil products which has led to increasing prices. Also , war in some oil producing areas has led

to decrease in production which has also increased prices.

Social

Petrochemical industries cause a lot of environmental problems which may be undesirable by the

residents living in nearby areas. However they create lot of employment for the citizens and are

welcome industries in the fast growing economies with a large workforce.

Technological

New technologies are making exploration and drilling much more easier. This will lead to

increase in the amount if useable resource easing the price. Better and environment friendly ways

of recycling petrochemical waste are also being reaserched which will make the industry much

more environment friendly.

Company analysis

RELIANCE INDUSTRIES LTD.

Reliance Industries Limited (NSE: RELIANCE) is India's largest private sector

conglomerate (by market value) , with an annual turnover of US $ 35.9 billion and profit

of US$ 4.85 billion for the fiscal year ending in March 2008 making it one of India's

private sector Fortune Global 500 companies, being ranked at 206th position (2008). It

was founded by the Indian industrialist Dhirubhai Ambani in 1966. Ambani has been a

pioneer in introducing financial instruments like fully convertible debentures to the

Indian stock markets. Ambani was one of the first entrepreneurs to draw retail investors

to the stock markets. Critics allege that the rise of Reliance Industries to the top slot in

terms of market capitalization is largely due to Dhirubhai's ability to manipulate the

levers of a controlled economy to his advantage. Though the company's oil-related

operations form the core of its business, it has diversified its operations in recent years.

After severe differences between the founder's two sons, Mukesh Ambani and Anil

Ambani, the group was divided between them in 2006. In September 2008, Reliance

Industries was the only Indian firm featured in the Forbes's list of "world's 100 most

respected companies

General information

Stock

According to the company website "1 out of every 4 investors in India is a Reliance

shareholder.”. Reliance has more than 3 million shareholders, making it one of the world's most

widely held stocks. Reliance companies have been among the best performing in the Indian stock

market.

Products

Reliance Industries Limited has a wide range of products from petroleum products,

petrochemicals, to garments (under the brand name of Vimal), Reliance Retail has entered into

the fresh foods market as Reliance Fresh and launched a new chain called Delight Reliance

Retail and NOVA Chemicals have signed a letter of intent to make energy-efficient structures.

The primary business of the company is petroleum refining and petrochemicals. It operates a 33

million tone refinery at Jamnagar in the Indian state of Gujarat. Reliance has also completed a

second refinery of 29 million tons at the same site which started operations in December 2008.

The company is also involved in oil & gas exploration and production. In 2002, it struck a major

find on India's eastern coast in the Krishna Godavari basin. Gas production from this find was

started on April 2, 2009. As of the end of 3rd quarter of 2009-2010, gas production from the KG

D6 ramped up to 60 MMSCMD.

Chairman – shri Mukesh Ambani

Directors

1 – Shri Nikhil R. Meswani

2 - Shri Hital R. Meswani

3 - Shri .S.Kohli

4 -Shri PMS Prasad

5- Shri R. Ravimohan

6 - Shri Ramniklal H. ambani

7 - Shri Mansingh L. Bhakta

8 - Shri Yogendra P. Trivedi

9 -Dr. D. V. Kapur

10 - Shri M. P. Modi

11 - Prof. Ashok Misra

12- Prof. Dipak C Jain

Financial position of the industry

The long-term solvency of the company is very satisfactory.

Immediate solvency position of the company is also quite satisfactory. The company can

meet its urgent obligations immediately.

Credit policies are effective.

Overall profitability position of the company is quite satisfactory.

Dividend payout ratio is satisfactory. Dividend paid in all years to its shareholders.

The company is paying promptly to the suppliers.

The return on capital employed is satisfactory.

The profitability position of the company is very satisfactory.

SWOT of reliance ind. Ltd.

strengths

Leading in the market

Operational efficiency in refining

Strong financial performance

Weaknesses

Increasing long term debt

Problem with government

Opportunities

Joint venture with nova chemicals

Various new acquisitions

Increase in demand for transportation fuels

Growing demand for petrochemical products

Threats

Intense domestic competition

Increasing petrochemical supply by foreign companies

Flustuating crude prices

Economic slowdown in india

At the end we can say that it is one of the most important companies in Indian markets and is

helping growth in india in a big way