Anjana Khanduri

Objective: The objective of our project is to apply the various tools we have learned in the course of Financial Management II on the financial reports of Reliance Infrastructure and analyze the company statistics.

Methodology:

In this project we have tried and used the various tools learned like Ratio analysis, Fund Flow, Cash flow analysis, Capital structure and its implication.

Background:

Reliance Infrastructure

Reliance Infrastructure Ltd is one of the India’s largest private sector enterprises in power utility. In the power sector it is involved in generation, transmission, distribution and trading of electricity and constructing power plants as EPC partners. In the infrastructure space the company is focused on roads, urban infrastructure which includes MRTS, Sea link and Airports, Specialty Real Estate which includes business districts, trade towers, convention centre and SEZ which includes IT & ITES SEZ and non IT SEZ as well as free trade zones.

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Business Overview

Power Business EPC Business Infrastructure businessGenerationTransmissionDistributionTrading

Power sectorRoad sector

RoadsMetrosAirportReal Estate /SEZs

Competitor analysis

Top infrastructure companies of India

1. HCC Infrastructure: HCC Infrastructure Ltd. is a wholly owned subsidiary of HCC Ltd with infrastructure projects in the transportation (viz, roads, bridges, ports, airports). Mainly operating through the public-private partnership route, this player has huge scope. Over US $250 billion needs to be imbibed through varied investments in the infrastructure sector in the next five years (Rs in Lakhs)

Particulars Quarter ended 30 Sep, 2009 Quarter ended 30 Sep, 2008Total Income from operations 86,220.82 69,771.12Net Profit 551.49 1994.35

2. Maytas Infra Limited: This leading player in the infrastructure segment has more than 20 years of experience in infrastructure development, construction and project management.

(Rs in Crores)

Particulars Year ended 31 Mar, 2009 Year ended 31 Mar, 2008Turnover 1335 1637Net Profit/Loss (-) 489.79 99.64

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3. Patel Engineering: This Indian infrastructure company has handled building bridges to dams to highways and varied other infrastructure projects. (Rs in Crores)

Particulars Quarter ended 30 June, 2009 Quarter ended 30 June, 2008Net Sales/ Income from operations 643.00 558.39 Net Profit 36.34 29.12

4. Reliance Infrastructure: It is India's largest private sector power utility enterprise and has been the pioneer in the Indian infrastructure sector.

(Rs in Crores)

Particulars Year ended 31 Mar, 2009 Year ended 31 Mar, 2008Total operating income 9868.61 6448.42 Profit after tax 1138.88 1084.63

5. Punj Lloyd: This Company is a diversified conglomerate, which has forayed into aviation, defense, real estate and marine. With integrated design, and management services for infrastructure projects like roads, highways, flyovers, bridges, elevated railroads, metro rail, underground tunnels, seaports and airport terminals, this company has stood up the test of time.

(Rs in Crores)

Particulars Quarter ended 30 Sep, 2009 Quarter ended 30 Sep, 2008Income from operations 3769.92 3120.11Profit after tax 110.60 172.15

6. GMR Infrastructure: With interests in the Airports, Energy, Highways and Urban infrastructure (including SEZ) sector, GMR Group has been the pioneer in the core infrastructure areas.

(Rs in Lakhs)

Particulars Quarter ended 30 June, 2009 Quarter ended 30 June, 2008Revenue from operations 1748 5544

Net Profit 356 4189

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CAPITAL STRUCTURE and DIVIDEND POLICY

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09Equity Share Capital 185.61 212.36 228.57 235.62 226.07debt 3,738.67 4,266.93 5,858.32 5,009.04 7,332.18interest paid 134.82 191.88 250.32 308.76 330.5interest rate 0.036060952 0.044969 0.042729 0.061641 0.045075Reserves 4,834.10 6,820.51 8,412.74 10,024.16 10,308.14total 8,758.38 11,299.80 14,499.63 15,268.82 17,866.39

Data ValuesCovariance of BSE and Reliance 0.027066864variance 0.008824014Beta of stock 3.067409387market return monthly 0.015419002annual return 0.185028029Risk free return 0.07require rate of return 0.422838056weighted cost of capital 0.280176117

As per the above table its clear that if the company would employ equity as a cost of fund only if it is sure to earn more than 42%.

The cost of debt in case of reliance is only 4.2%.

The cost of equity and debt explains two things.

1) CAPITAL STRUCTURE2) DIVIDEND POLICY

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Capital Structure

Mar '05 Mar '06 Mar '07 Mar '08 Mar '090

1000

2000

3000

4000

5000

6000

7000

8000

Equity Share CapitalTotal Debt

Figure 1: EQUITY DEBT IN RELIANCE INFRASTRCTURE

TIMEMar '05 Mar '06 Mar '07 Mar '08 Mar '09

Equity Share Capital(crores)

185.61 212.36 228.57 235.62 226.07

Total Debt(Crores)

3,738.67 4,266.93

5,858.32 5,009.04 7,332.18

Over a period of time the total debt of reliance infrastructure has risen considerably as compared to equity share capital. The rise in debt in 2009 has been almost 47% as compared to the previous year. The substantial rise in debt increases the leverage and risk for the company. But the substantial rise in debt could be attributed to the cost of debt as compared to equity.

The increase in substantial debt over a period of time has also increased the cost of debt for the company from 4.2% to 6.2 % due to more leverage. This could be explained by Walter and Gordon model of capital structure model

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Dividend paid by reliance infrastructure:

Date DIVIDEND PAID Price one day before Price after dividend announcement

15-Sep-04 $ 3.20 Cash 190 224

5-Sep-05 $ 3.20 Cash 258 386

21-Mar-07 $ 3.50 Cash 357 378

4-Jun-08 $ 3.50 Cash 806 975

13-Aug-09 $ 3.50 Cash 1101 1024

DIVIDEND POLICY :

The dividend pay out by the company is almost on a constant basis and has increased in the period of 2007 and constant till 2009. The constant dividends pay out shows that the company does not want to retain equity as it cost them more than Debt.

The dividend payout on respective days also displays how investors react to the dividend pay out of a company. As the company has announced the dividends the day on which dividends were given shows a tremendous price gain as compared to the prices of the previous day.

In a market investors have there own estimation of the prices and as a company announces dividend the price of share price get adjusted as per speculations of investors. A jump in price shows that the dividends announced were as per investor’s expectation. In most of the cases the share prices of Reliance Infrastructure has gone up except in the year 2009 were the share prices dropped.

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Financial ratios

Investment valuation Ratios

Face Value 10 10 10 10 10Dividend Per Share 4.7 5 5.3 6.3 7

Operating Profit Per Share (Rs) 36.24 35.99 21.75 22.82 19.22

Net Operating Profit Per Share (Rs) 223.99 186.7 251.72 268.76 426.42

Free Reserves Per Share (Rs) 227.62 292.31 339.74 371.2 396.55

Bonus in Equity Capital 4.35 3.8 3.53 3.43 3.57

Profitability RatiosOperating Profit Margin(%) 16.18 19.27 8.64 8.49 4.5

Profit Before Interest And Tax Margin(%)

4.32 7.66 3.98 4.45 1.78

Gross Profit Margin(%) 19.01 25.52 15.18 4.96 1.96

Cash Profit Margin(%) 22.36 23.63 16.15 11.41 8.93

Adjusted Cash Margin(%) 17.9 23.83 12.71 11.41 8.93

Net Profit Margin(%) 11.64 14.39 12.43 15.34 10.73

Adjusted Net Profit Margin(%) 7.18 14.58 8.99 15.34 10.73

Return On Capital Employed(%) 5.41 7.91 6.56 6.56 6.22

Return On Net Worth(%) 9.31 9.13 9.27 10.57 10.81

Adjusted Return on Net Worth (%) 6.39 9.37 6.71 5.69 6.67

Return on Assets Excluding Revaluations

4.24 4.45 4.34 5.32 4.55

Return on Assets Including Revaluations

4.51 4.69 4.51 5.5 4.66

Return on Long Term Funds (%) 5.85 9.04 9.45 9.67 9.66

Liquidity And Solvency Ratios

Current Ratio 3.58 2.09 1.51 1.06 0.75

Quick Ratio 3.75 4.07 3.82 2.37 1.45

Debt Equity Ratio 0.74 0.61 0.68 0.49 0.7Long Term Debt Equity Ratio 0.72 0.42 0.16 0.06 0.14

Debt Coverage Ratios

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Interest Cover 3.75 5.44 4.47 3.41 3.65Total Debt to Owners Fund 0.74 0.61 0.68 0.49 0.7

Financial Charges Coverage Ratio 7.3 6.88 4.76 4.13 4.25

Financial Charges Coverage Ratio Post Tax

8.41 6.57 5.16 5.23 5.19

Management Efficiency RatiosInventory Turnover Ratio 11.48 11.4 18.77 40.26 55.96

Debtors Turnover Ratio 5.95 3.92 5.35 5.26 6.71

Investments Turnover Ratio 31.27 19.6 32.87 40.26 55.96

Fixed Assets Turnover Ratio 1.85 1.86 2.56 0.99 1.4

Total Assets Turnover Ratio 0.45 0.35 0.4 0.4 0.52

Asset Turnover Ratio 0.8 0.73 0.98 0.99 1.4

EARNINGS RATIOS

Earnings per share ratio (EPS Ratio)

It is a small variation of return on equity capital ratio and is calculated by dividing the net profit after taxes and preference dividend by the total number of equity shares.

Formula of Earnings Per Share Ratio:

[Earnings per share (EPS) Ratio = (Net profit after tax − Preference dividend) / No. of equity shares (common shares)]

Significance:

The earnings per share is a good measure of profitability and when compared with EPS of similar companies, it gives a view of the comparative earnings or earnings power of the firm. EPS ratio calculated for a number of years indicates whether or not the earning power of the company has increased.

Analysis:

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Going by the EPS ratio of the various companies and comparing it with the industry average we find that Reliance has been profitable since 2005 and displays a high earning power as compared to other companies.

Dividends per Share: DPS

The DPS ratio is very similar to the EPS: EPS shows what shareholders earned by way of profit for a period whereas DPS shows how much the shareholders were actually paid by way of dividends. The DPS formula is:

Dividends per

share=

Dividends paid to equity shareholders/Average number of issued equity

shares

,Significance : Increase in the dividend are taken to be a sign that the management is confident that the new level can be maintained or improved on.

Analysis: As from the DPS of Reliance an increasing trend can be observed which shows the confidence of the firm in its operations which it believes can be maintained and even improved on. Moreover the value is more than the other companies in the industry sector which shows its potential to lure more investors as compared to other companies.

SOLVENCY OR LEVERAGE RATIOS

The solvency or leverage ratios throws light on the long term solvency of a firm reflecting it’s ability to assure the long term creditors with regard to periodic payment of interest during the period and loan repayment of principal on maturity or in predetermined instalments at due dates. There are thus two aspects of the long-term solvency of a firm.

a. Ability to repay the principal amount when dueb. Regular payment of the interest.

The ratio is based on the relationship between borrowed funds and owner’s capital it is computed from the balance sheet, the second type are calculated from the profit and loss a/c.

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Cash Debt Coverage Ratio

The cash debt coverage ratio shows the percent of debt that current cash flow can retire.

Formula to calculate cash debt coverage ratio:

Cash Debt Coverage = (cash flow from operations - dividends) / total debt.

Significance:

A cash debt coverage ratio of 1:1 (100%) or greater shows that the company can repay all debt within one year.

Analysis:

Reliance has consistently maintained a cash debt ratio of more than 1 since 2005. Company wise analysis shows that it is less than the industry sector average.

Fixed-Charge Coverage Ratio

A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases.

Formula of Fixed-Charge Coverage Ratio

Fixed-Charge Coverage Ratio = EBIT +Fixed charges / Fixed charges+ Int(tax adjusted)Significance:

since leases are a fixed charge, the calculation determining a company's ability leases would be (EBIT + Lease Expenses) / (Lease Expenses + Interest).

Analysis:

Reliance has maintained a double digit fixed charge ratio which determines that it has that much times cash to cover its fixed charges. The industry average has increased because of Reliance’s high ratio which is twice as much as other companies in the infrastructure sector.

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Owners fund as Percentage of total source

The ratio of equity and capital employed represents the amount of equity funding in the total capit employed.

Formula

Owners fund as Percentage of total source= equity/capital employed

Analysis

Reliance has around 65% of its capital employed through equity.

Fixed assets turnover ratio

IT is the ratio of sales to fixed assets. This ratio indicates the extent that the investment in total assets results in sales.

Formula

Fixed assets turnover = sales/fixed assets

Analysis

ompanies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover - it indicates pricing strategy.

This ratio is more useful for growth companies to check if in fact they are growing revenue in proportion to sales

We see the result of 1.2 for 2005 this means that turnover is 1.2 times bigger than total assets.

Another way of saying that is that the Reliance infrastructure was able to generate sales of

Rs.1.56 for every Rs.1 of assets it owned and used for the year ended 31 March 2006. For the

year ended 25 March 2006, it was at 0.95 times.Currently it has a ratio of 1.01.

Long term debt Equity ratio

It indicates the proportion of the company’s assets that financed with long-term debt.

Formula

Long term debt Equity ratio = long term debt / total assets

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Analysis

A high Long term debt Equity ratio is unfavourable because it indicates possible difficulty in meeting long term debt obligations .Reliance Infrastructure has a current ratio of 0.59 which has increased from 0.36.It is more than the industry average of 0.5424.

PROFITABILITY RATIOS

They compare components of income with sales. They give us an idea of what makes up a company’s income and are usually expressed as a portion of each rupee of sales.

Gross profit Margin

It is the ratio of gross income or profits to sales.This ratio indicates how much of every rupee of sales is left after costs of goods sold

Formula

Gross Profit Margin = (Gross income / Sales) * 100

Analysis

Reliance enjoys a gross profit of 13.35% which means that for every rupee of sales it earns 13.35 rupees apart from its cost on goods sold. Gross profit is the profit we earn before we take off any administration costs, selling costs and so on. So we should have a much higher gross profit margin than net profit margin.

Operating margin ratio

It is the ratio of operating profit (EBIT,Operating income) to sales.

Formula

Operating margin ratio = EBIT / Sales

Analysis

It indicates how much of each rupee of sales is left over after operating expenses. Reliance enjoys an operating margin of 17.01.whereas the industry average is of 31.16.

Net profit margin

It indicates how much of each rupee of sales is left over after all expenses.

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Formula

Net Profit Margin =Net Profit

* 100 =Profit before Interest and Taxation

* 100Turnover Turnover

Net Profit = Gross Profit – Expenses

Analysis

The net profit margin ratio tells us the amount of net profit per £1 of turnover a business has

earned. That is, after taking account of the cost of sales, the administration costs, the selling and

distributions costs and all other costs, the net profit is the profit that is left, out of which they

will pay interest, tax, dividends and so on.

Reliance has a net profit margin of 10.65 as compared to 21.78 of industry average.thus its

profitability as compared to other companies is less.

PROFITABILITY IN RELATION TO INVESTMENTS

Return on net worth

Return on Net Worth (RONW) is used in finance as a measure of a company’s profitability. It

reveals how much profit a company generates with the money that the equity shareholders

have invested. Therefore, it is also called ‘Return on Equity’ (ROE).This ratio is useful for

comparing the profitability of a company to that of other firms in the same industry .

Formula

Net Income

RONW = ------------------------------------------- X 100

Shareholder’s Equity

Analysis

The numerator is equal to a fiscal year’s net income (after payment of preference share

dividends but before payment of equity share dividends).The denominator excludes preference

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shares and considers only the equity shareholding. RONW measures how much return the

company management can generate for its equity shareholders . Reliance has a RONW of 13.76

which is more than the industry average of 11.29.

Return on capital employed ratio

The Return on Capital Employed ratio (ROCE) tells us how much profit we earn from the

investments the shareholders have made in their company. Think of it this way: if we had a

savings account with a bank and we'd been paid, say, £25 interest at the end of a year; and we

had saved £500, we could work out the rate of interest we had earned:

Formula

Rate of interest =Interest earned

* 100Amount saved

Analysis

This ratio establishes the relationship between net profit and the gross capital employed. The term gross capital employed refers to the total investment made in business. The conventional approach is to divide Earnings After Tax (EAT) by gross capital employed. Reliance Infrastructure has an ROCE of 11.34 as compared to the industry average of 13.1375.

LIQUIDITY RATIOS

It measures the ability of the firm to meet its short-term obligations, that is capacity of the firm to pay its current liabilities as and when they fall due. Thus these ratios reflect the short-term financial solvency of a firm. A firm should ensure that it does not suffer from lack of liquidity. The failure to meet obligations on due time may result in bad credit image, loss of creditors confidence, and even in legal proceedings against the firm on the other hand very high degree of liquidity is also not desirable since it would imply that funds are idle and earn nothing. So therefore it is necessary to strike a proper balance between liquidity and lack of liquidity.

The various ratios that explains about the liquidity of the firm are

1. Current Ratio2. Acid Test Ratio / quick ratio

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CURRENT RATIOThe current ratio measures the short-term solvency of the firm. It establishes the relationship between current assets and current liabilities. It is calculated by dividing current assets by current liabilities.

Current Ratio = Current Asset

Current Liabilities

Current assets include cash and bank balances, marketable securities, inventory, and debtors, excluding provisions for bad debts and doubtful debtors, bills receivables and prepaid expenses. Current liabilities includes sundry creditors, bills payable, short- term loans, income-tax liability, accrued expenses and dividends payable.

Analysis

Reliance has a current ratio of 1.23 as compared to the industry average of 29.755.It has 1.23 times assets to cover its liabilities.

ACID TEST RATIO / QUICK RATIOIt has been an important indicator of the firm’s liquidity position and is used as a complementary ratio to the current ratio. It establishes the relationship between quick assets and current liabilities. It is calculated by dividing quick assets by the current liabilities.

Acid Test Ratio = Quick Assets

Current liabilities

Quick assets are those current assets, which can be converted into cash immediately or within reasonable short time without a loss of value. These include cash and bank balances, sundry debtors, bill’s receivables and short-term marketable securities.

Analysis

Reliance has a quick ratio of 0.9 as compared to 29.75 industry average.Thus comparatively Reliance can not convert its assets into cash immediately in comparison with the industry companies.

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INVENTORY TURNOVER RATIOThis ratio indicates the number of times the inventory has been converted into sales during the period. Thus it evaluates the efficiency of the firm in managing its inventory. It is calculated by dividing the cost of goods sold by average inventory.

Inventory Turnover Ratio = Cost of goods sold

Average Inventory

The average inventory is simple average of the opening and closing balances of inventory. (Opening + Closing balances / 2). In certain circumstances opening balance of the inventory may not be known then closing balance of inventory may be considered as average inventory.

Analysis

Reliance has an inventory turnover ratio of 12.92 which is 3 times the industry average of 4.23.This depicts the efficiency of the firm in managing its inventory and the speed with which it travels within the company to produce sales.

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INDEX ANALYSIS

Years Mar '05 Mar '05 Mar '07 Mar '08 Mar '09Total Share Capital 100 114.4119 123.1453 126.9436 121.7984

Equity Share Capital 100 114.4119 123.1453 126.9436 121.7984

Share Application Money 100 15.53494 0 137.936 137.936

Preference Share Capital 0 0 0 0 0

Reserves 100 141.0916 174.0291 207.3635 213.238Revaluation Reserves 100 100 92.78886 85.57773 78.40515

Networth 100 124.1864 147.3092 184.3401 187.8178Secured Loans 100 244.5618 182.8025 143.3121 235.4561Unsecured Loans 100 79.46453 149.7567 131.4988 185.6622

Total Debt Total Liabilities 100.00 120.4558 150.791 165.6586 190.8965Gross Block 100.00 105.7538 114.0227 123.6454 133.8243(-) Accumulated Depreciation 100.00 114.7461 125.6697 135.7017 146.0554Net Block 100.00 97.64496 103.5201 112.7737 122.795Capital Work in Progress 100.00 113.2473 150.1067 296.0196 293.6781Investments 100.00 171.3165 360.7883 1100.853 1744.721Inventories 100.00 101.8477 88.27414 77.1676 113.2446Sundry Debtors 100.00 117.3831 113.4732 145.1631 163.63

Cash and Bank Balance 100.00 0.322415 30.47558 2.347672 6.772621Total Current Assets 100.00 29.95456 50.38366 34.69075 44.18249

Loans and Advances 100.00 262.3585 711.8407 563.0186 518.7179

Fixed Deposits 100.00 239.5858 44.64255 0.042472 0.044171

Total CA, Loans & Advances 100.00 121.8225 148.2323 104.68 103.5097Deffered Credit 100.00 0 0 0 0

Current Liabilities 100.00 103.0394 141.8531 162.1591 280.5769

Provisions 100.00 157.0103 178.3697 190.0417 187.0682Total CL & Provisions 100.00 113.0965 148.6577 167.3548 263.1522

Net Current Assets 100.00 124.7871 148.0877 83.38663 49.27226

Miscellaneous Expenses 0.00 0 0 0 0

Total Assets 100.00 120.4558 150.791 165.6586 190.8965Contingent liabilities 100.00 113.0799 341.9686 555.6578 675.3265Book Value (Rs) 100.00 122.4547 139.7893 161.0018 172.2625

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The index analysis of the company shows some important results Both total assets and liabilities have increased substantially over a period of five years. The increase in capital WIP shows the money which is blocked for the company and could be

related to unsecured loan which might be taken for managing the working capital. The total liabilities have increased almost double of 2005 whereas the total current assets have

become less than 50% of the The loans and advances in 2009 the company has increased to almost 500% of the year 2005.

On the other hand the companies’ contingent liabilities have also increased substantially by 600% in 2009 as compared to 100 in 2005.

The total share capital has seen a minor rise of 21% over 5 years in 2009 to 121 as compared to 100 in 2005

Companies total assets have decreased almost 50% and bank balance hardly 6% in 2009 as compared to 2009. Over the period of time a fall in the current asset and specially bank balance shows a a threat of liquidity crunch in the company.

COMMON SIZE ANALYSIS

Year Mar '05 Mar '06 Mar '07 Mar '08 Mar '09Total Share Capital

1.841632 1.749228 1.503991 1.411236 1.175023

Equity Share Capital 1.841632 1.749228 1.503991 1.411236 1.175023

Share Application Money 5.635825 0.726841 0 4.692681 4.072274

Preference Share Capital 0 0 0 0 0

Reserves 47.96419 56.18115 55.35586 60.03929 53.57767Revaluation Reserves 7.46307 6.195692 4.592382 3.855355 3.065237

Networth 62.90472 64.85291 61.45223 69.99856 61.8902

Secured Loans 7.788811 15.81365 9.442305 6.738141 9.606895

Unsecured Loans 29.30647 19.33344 29.10546 23.2633 28.5029

Total Debt 37.09528 35.14709 38.54777 30.00144 38.1098

Total Liabilities 100 100 100 100 100

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Gross Block 51.32648 45.06191 38.81123 38.30942 35.98143

(-) Accumulated Depreciation 24.33731 23.1837 20.2828 19.93627 18.62053

Net Block 26.98917 21.8782 18.52843 18.37314 17.36089Year Mar 05 Mar 06 Mar 07 Mar 08 Mar 09

Capital Work in Progress 1.906919 1.792803 1.898265 3.407523 2.933634

Investments 6.907931 9.824706 16.52818 45.90537 63.13586

Inventories 3.861067 3.264606 2.260297 1.798575 2.290482

Sundry Debtors 9.237034 9.001409 6.95105 8.094214 7.917672

Cash and Bank Balance 36.6212 0.098021 7.40132 0.518987 1.299246

Total Current Assets 49.71931 12.36404 16.61267 10.41178 11.5074

Loans and Advances 12.92556 28.15248 61.01782 43.92968 35.12226

Fixed Deposits 23.36127 46.46542 6.916242 0.005989 0.005406Total CA, Loans & Advances 86.00614 86.98194 84.54673 54.34745 46.63507

Deffered Credit 0 0 0 0 0Current Liabilities 17.74599 15.18013 16.69413 17.37111 26.08279

Provisions 4.064172 5.29752 4.807482 4.662374 3.982667Total CL & Provisions 21.81016 20.47765 21.50161 22.03348 30.06546

Net Current Assets 64.19598 66.50429 63.04512 32.31397 16.56961

Miscellaneous Expenses 0 0 0 0 0

Total Assets 100 100 100 100 100Contingent liabilities 5.781084 5.427089 13.11053 19.39111 20.4515

Common size analysis: from the above table the company picture can be presented as followers

The company has increased its investment over a period of time in its total assets. The investment has increased from 1.9 in 2005 of total assets to 63 percent of total assets

The cash in the company in bank has decreased substantially from 36% of total assets to 1.2 %. The decrease in cash may give rise to liquidity issues in the company.

The total current asset are still important part of total assets for the company but have decreased from 80% to half in 2009.

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The reserves held by company are almost 50% of the total liabilities. The investment increase and constant holding of reserves indicate that the company might be looking forward to profitable projects in future.

The next major junk of total liabilities after reserves is taken by total debt most of which is contributed by unsecured loans. The unsecured loans means that company would be paying high rate of interest on these loans as they are not backed by as much securities as bond.

References:

1. Moneycontrol.com data retrieved on 30th December 20092. Yahoo finance : data retrieved on 30th December 20093. Financial Management : R.P. Rustagi, ratio analysis4. http://www.rinfra.com/ data retrieved as on 5th Jan 2010

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ANEXXURE:

Calculation of beta and Returns

month/year

BSE RETURNS ON BSE

RELIANCE INFRASTRCUTURE

RETURNS ON RELIANCE

12/1/2005 9397.93 293.81/2/2006 9919.89 0.05553989 495.25 0.6856705242/1/2006 10370.24 0.045398689 437.75 -0.1161029783/1/2006 11279.96 0.087724103 392 -0.1045117084/3/2006 11851.93 0.05070674 557.8 0.4229591845/2/2006 10398.61 -0.122623066 662.5 0.1877016856/1/2006 10609.25 0.020256554 484.15 -0.2692075477/3/2006 10743.88 0.01268987 403.9 -0.1657544158/1/2006 11699.05 0.088903636 461.8 0.1433523159/1/2006 12454.42 0.064566781 522.5 0.131442183

10/3/2006 12961.9 0.04074698 518.1 -0.00842105311/1/2006 13696.31 0.056659132 579.45 0.11841343412/1/2006 13786.91 0.00661492 528.7 -0.087583053

1/2/2007 14090.92 0.022050626 545.4 0.0315869112/1/2007 12938.09 -0.081813679 448.1 -0.1784011733/1/2007 13072.1 0.010357789 394.6 -0.1193929934/2/2007 13872.37 0.061219697 468.6 0.1875316785/3/2007 14544.46 0.048448102 482.25 0.0291293216/1/2007 14650.51 0.007291436 469.7 -0.0260238477/2/2007 15550.99 0.061464072 532.9 0.1345539718/1/2007 15318.6 -0.014943743 478.6 -0.101895299/3/2007 17291.1 0.128765031 1394.55 1.913811116

10/1/2007 19837.99 0.147294851 2910.55 1.08708902511/1/2007 19363.19 -0.023933876 1889.3 -0.350878712/3/2007 20286.99 0.047709081 2188.75 0.158497856

1/2/2008 17648.71 -0.130047878 1644.6 -0.2486122222/1/2008 17578.72 -0.003965729 1367 -0.168794844

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3/3/2008 15644.44 -0.110035315 917 -0.3291880034/1/2008 17287.31 0.105013027 1550.75 0.6911123235/2/2008 16415.57 -0.050426585 1174 -0.2429469616/2/2008 13461.6 -0.17994928 807 -0.3126064747/1/2008 14355.75 0.066422268 930.3 0.1527881048/1/2008 14564.53 0.014543301 913.45 -0.0181124379/1/2008 12860.43 -0.117003432 599.8 -0.343368548

10/1/2008 9788.06 -0.238901032 334 -0.44314771611/3/2008 9092.72 -0.071039614 310.7 -0.06976047912/1/2008 9647.31 0.06099275 368.75 0.186836176

1/2/2009 9424.24 -0.023122508 312.7 -0.1522/2/2009 8891.61 -0.056517024 280.55 -0.1028141993/2/2009 9708.5 0.091872001 289.8 0.032970954/1/2009 11403.25 0.174563527 725.6 1.5037957215/4/2009 14625.25 0.282551027 1119.6 0.5429988976/1/2009 14493.84 -0.008985146 984.7 -0.1204894617/1/2009 15670.31 0.081170345 1022.4 0.0382857728/3/2009 15666.64 -0.000234201 1107.9 0.0836267619/1/2009 17126.84 0.093204414 1094.15 -0.012410867

10/1/2009 15896.28 -0.071849798 859.95 -0.21404743411/3/2009 16926.22 0.064791259 918 0.06750392512/1/2009 17198.27 0.016072697 939.95 0.023910675

debt 3,738.67 4,266.93 5,858.32 5,009.04 7,332.18Interest coverage ratio 3.75 5.44 4.47 3.41 3.65PBIT 4.32 7.66 3.98 4.45 1.78Interest expenses in crores 1.152 1.408088 0.89038 1.304985 0.487671rate of debt 0.000308 0.00033 0.000152 0.000261 0.000243

1.Covariance of BSE and Reliance 0.0270672.variance 0.0088243.Beta of stock [beta= covariance/variance](1/2) b 3.0674094.market return monthly(average return from BSE) Rm 0.0154195.annual return 0.1850286.Risk free return ( Return from Government securities) Rf 0.077.require rate of return [Ri=Rf+(Rm-Rf)*b] 0.422838

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