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Reliance Industries Limited Financial Presentation H1 FY 2001-02 October 31, 2001 Forward Looking Statements

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slide1

Reliance Industries Limited

Financial Presentation H1 FY 2001-02

October 31, 2001

forward looking statements
Forward Looking Statements

This presentation contains forward-looking statements which may be identified by their use of words like “plans,” “expects,” “will,” “anticipates,” “believes,” “intends,” “projects,” “estimates” or other words of similar meaning. All statements that address expectations or projections about the future, including, but not limited to, statements about the strategy for growth, product development, market position, expenditures, and financial results,are forward-looking statements.

Forward-looking statements are based on certain assumptions and expectations of future events. The Reliance group companies referred to in this presentation cannot guarantee that these assumptions and expectations are accurate or will be realised. The actual results, performance or achievements, could thus differ materially from those projected in any such forward-looking statements. These companies assume no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events, or otherwise.

slide3

Contents

Operating Environment

Financial Performance

Business Review

Reliance Petroleum

Reliance Infocom

Value Creation

Summary

strong performance under difficult environment
Strong Performance under Difficult Environment
  • Strong operational and financial performance achieved in continuing adverse industry environment
  • General economic slowdown in India and globally led to weak demand conditions for several of Reliance’s products
  • Focus on high operating rates, specialities, productivity gains, integration and reduction in financial costs have contributed to continued profit growth
  • Increase in overall uncertainty in view of the recent global developments

Reliance’s operational and financial strengths have enabled it to maintain performance in difficult industry conditions

slide6

Volatility in Feedstock Prices

Feedstock price volatility has created uncertainty over petrochemicals industry margins

trend in feedstock product prices international
Trend in Feedstock & Product Prices - International

% change in international prices H1 FY’02 over H1 FY’01

Raw Material

International product prices have generally declined in greater proportion than feedstock prices

trend in feedstock product prices domestic
Trend in Feedstock & Product Prices - Domestic

% change in domestic prices H1 FY’02 over H1 FY’01

Raw Material

Declines in domestic prices are less pronounced due to RIL’s superior customer relationships and effective supply chain management initiatives

petrochemicals industry margins under pressure
Petrochemicals Industry Margins Under Pressure
  • Global petrochemical margins under pressure during H1
  • Leading international petrochemicals companies in US, Europe and Asia have reported weak performances
  • Historically low product prices - currently trading 20%-50% below 10 year averages
  • Uncertain future outlook for margins in view of:

- global demand slowdown

- continued volatility in feedstock prices

The global petrochemicals industry is currently passing through one of the most uncertain and difficult times in recent years

ril s h1 performance highlights
RIL’s H1 Performance Highlights
  • Capacity utilisation 104%
  • Production volumes 5.7 mn. tonnes, up 9%
  • Domestic sales 88% of total sales
  • Exports US$ 328 mn. (Rs.1,569 crores)
  • Market shares polyester 53%

intermediates 78%

polymers 50%

RIL has achieved high capacity utilisation rates despite weak demand conditions for some products

ril rpl financial highlights
RIL+RPL - Financial Highlights

H1 FY 2001-02

Rs.crs. $ mn.

Sales 30,000 6,300

Operating Profit 4,600 1,000

Cash Flow 3,500 800

Net Profit 2,200 500

Total Assets 52,000 11,000

Reliance continues to be the No. 1 business group in India in terms of all major financial parameters

ril income statement for q2 fy 2001 02
RIL Income Statement for Q2 FY 2001-02

Q2 FY 2001-02 Q2 FY 2000-01 % Change

Rs.crs. $ mn. Rs.crs. $ mn.

Sales 6,234 1,302 6,721 1,459 -7%

Trading Sales - - 1,673 363

Total Sales 6,234 1,302 8,394 1,822

EBITDA 1,414 295 1,408 306

Interest 255 53 333 73

Depreciation 422 88 381 83

Tax 34 7 347

Deferred Tax 1 - - -

Net Profit 702 147 660 143 6%

Cash Profit 1,124 235 1,041 226 8%

Lower interest costs have contributed to profit growth

ril income statement for h1 fy 2001 02
RIL Income Statement for H1 FY 2001-02

H1 FY 2001-02 H1 FY 2000-01 % Change

Rs.crs. $ mn. Rs.crs. $ mn.

Sales 12,624 2,637 12,856 2,791 (2%)

Trading Sales - - 2,153 467 -

Total Sales 12,624 2,637 15,009 3,258 (16%)

EBITDA 2,716 567 2,643 574 3%

Interest 512 107 631 137 (19%)

Depreciation 818 171 747 162 10%

Tax 64 13 62 13 -

Deferred Tax 2 - - - -

Net Profit 1,320 276 1,203 261 10%

Cash Profit 2,138 447 1,950 423 10%

Strong performance in the continuing adverse global and domestic environment in the petrochemicals industry

income statement consolidated h1 2001 02
Income Statement - Consolidated H1 2001-02

Q2 FY 2001-02 H1 FY 2001-02

Rs.crs $ mn. Rs.crs. $ mn.

Sales 6,234 1,302 12,624 2,637

Total Expenditure 4,996 1,044 10,211 2,133

Operating Profit 1,238 259 2,413 504

Share in Income of Associates 220 46 502 105

Other Income 163 34 251 52

Interest 256 53 514 107

Depreciation 422 88 818 171

Tax 35 7 66 14

Net Profit 908 190 1,768 369

Consolidated net profit reflects the true picture of RIL’s returns on its investments

segment information
Segment Information

Rs Crores

Petrochemicals Refining Others

Segment Revenue 11,902 17,331 722

Segment Results (EBIT) 1,378 1,371 416

Capital Employed 15,544 18,318 5,034

Return on Capital

Employed (ROCE) 18% 15% 17%

Return on Capital Employed significantly higher than cost of capital for a large petrochemical and refining enterprise

factors contributing to ril s profit growth
Factors Contributing to RIL’s Profit Growth
  • Lower raw material prices
  • Greater focus on speciality products, contributing to higher margins
  • Continued focus on cost, productivity and efficiency
  • Interest cost savings, owing to prepayment and refinancing

Aggressive efforts to enhance sales realisation through speciality grades, and cost reduction measures have delivered results

ril profitability ratios
RIL Profitability Ratios

H1 FY 2001-02 FY 2000-01

OPM %* 19.2% 17.4%

NPM % 14.9% 13.2%

ROE % 19.6% 18.1%

ROCE % 18.4% 18.0%

EPS - Rs. ($) 25.1 (0.52) 22.8 (0.49)

Cash EPS - Rs($) 40.6 (0.85) 38.1(0.83)

* excluding FX gains

Margins have improved in a tough operating environment

slide19

Consolidated Profitability Ratios

H1 FY 2001-02

NPM % 20.0%

ROE % 25.4%

ROCE % 15.6%

EPS - Rs. ($) 33.6 (0.70)

At the current market price, RIL shares are trading at 7.5 times consolidated EPS

ril liquidity ratios
RIL Liquidity Ratios

H1 FY 2001-02 FY 2000-01

Debt : Equity 0.72 0.72

Gearing 44% 41%

Interest Cover 3.7x 3.3x

Total Debt/Cash Flow 2.0x 1.8x

RIL’s strong cash flows and refinancing efforts have enabled reduction of interest costs

slide21

Reliance is India’s Largest Exporter

  • Reliance is by far the largest exporter in India - manufactured exports of US$ 1.08 billion (Rs. 5,150 crores) in the first half
  • The current exports represent 120 times growth over the annual exports of Rs. 86 crores (US$ 25 million) just 5 years ago
  • Individually too, RIL and RPL are India’s top 2 exporters - still only 12% of RIL’s and 21% of RPL’s sales come from exports
  • RIL’s manufactured exports were US$ 328 mn (Rs. 1,569 crores) in the first half
  • RIL exports products to over 90 countries, including to the most quality conscious customers globally

Reliance’s high exports demonstrate the international quality of its products, and its ability to compete against global leaders

slide23

RIL’s Product Mix

Composition of RIL’s sales

Petrochemicals businesses dominate RIL’s portfolio - share of oil and gas business likely to increase

slide24

Oil & Gas - Update

  • RIL is India’s largest private sector E&P operator in India, with total acreage of over 175,000 square kms
  • Well balanced E&P portfolio comprising 25 onshore and offshore, deep and shallow water blocks
  • Exploration work progressing well - drilling of first well likely next year
  • Exploration capex expected to be Rs. 1,500 - 2,000 crores (US $ 300 - 400 million) over next 3 years

Oil and Gas operations are likely to make an enhanced contribution to RIL’s future revenue and profit growth

slide25

Oil and Gas - Production Growth

Oil Production in kT

Gas Production in kTOE

8%

Output from the 2 currently producing oil and gas fields of Panna- Mukta and Tapti (PMT) has further increased in H1

slide26

Polyester - Production Growth

Production in ‘000 tonnes

16%

9%

Polyester demand increased by only 3% during the first half, reflecting weak demand conditions in the domestic markets

slide27

Polyester - Prospects

  • Demand slowdown in H1 due to seasonal factors, Diwali timing, inventory drawdown, and lower demand from apparels segment
  • Reliance is responding by creating new markets for speciality grades and growing high potential segments
  • Increasing focus on polyester grades finding application in segments with higher growth potential such as home furnishings, automobiles, and industrial textiles
  • Polyester demand in India likely to grow at double digit rates over the long term - CARG of 15% over last 10 years

Reliance has a strategy in place for countering temporary demand slowdown and taking advantage of the long term growth opportunity

slide28

Fibre Intermediates - Production Trend

Production in ‘000 tonnes

-6%

-1%

RIL’s lower production only reflects RIL’s planned shutdowns and the impact of new industry capacity operating at fuller levels

slide29

Polymers - Production Growth

Production in ‘000 tonnes

16%

10%

  • Polymers demand has shown further strong growth of 15% during the first half - on top of 11% growth in FY 2000-01
  • Higher relative industry production growth reflects the impact of new industry capacities operating at fuller rates during H1
slide30

Polymers - Update

  • Healthy demand growth for RIL’s polymers during H1:

- PP 17%

- PE 12%

- PVC 16%

  • Demand from high growth user industries like telecom, packaging, food and beverages, consumer durables
  • Domestic demand / supply balance is progressively improving with healthy growth

RIL is the leading player in the rapidly growing polymers market in India with a 50% market share

slide32

RPL - Mixed Demand Trends

Y-o-Y growth in half yearly demand

LPG 10.2%

Gasoline 5.8%

HSD -5.3%

SKO -5.6%

All Products -1.5%

  • LPG and gasoline continue to register strong demand growth
  • Negative growth rates for middle distillates
slide33

RPL – Higher Operating Rates

RPL’s high operating rates despite the domestic demand slowdown reflect :

  • Integration with group’s downstream operations
  • Ability to tap exports markets
  • Flexibility of product slate
slide34

Capacity Utilization – RPL vs. Indian Peers

H1 Capacity Utilization

RPL 107%

IOC(Incl. CPCL & BRPL) 85%

BPCL (Incl. KRL & NRL) 101%

HPCL 94%

MRPL 53%

RPL has operated at significantly higher capacity utilisation rates compared to other Indian refineries

rpl income statement for h1 fy 2001 02
RPL - Income Statement for H1 FY 2001-02

H1 FY2001-02 H1 FY2000-01 %

Rs.crs. $ mn. Rs.crs. $ mn. Change

Gross Sales 17,331 3,620 14,308 3,106 21%

EBITDA 1,830 382 1,479 321 24%

Interest 489 102 456 99

Depreciation 407 85 297 64

Tax 67 14 54 12

Net Profit 867 181 672 146 29%

Cash Profit 1,274 266 969 210 31%

RPL is India’s largest private sector company in terms of sales

rpl factors contributing to profit growth
RPL - Factors Contributing to Profit Growth
  • High capacity utilisation rates of 107% leading to 14% volume growth from 12.6 to 14.4 million tonnes
  • Improved product mix to take advantage of niche opportunities
  • Import tariff rationalisation in October, 2000, as well as in March and April, 2001, leading to higher effective import tariff differentials
  • Stability of earnings through risk management
  • Advantageous price setting mechanism for export cargoes
  • Ongoing productivity gains and cost reductions

Strong volume growth and superiority of RPL refinery’s configuration have contributed significantly to net profit growth

slide37

Trends in Benchmark GRMs

July-Sep Oct-Dec Jan-Mar Apr-June July-Sep

2000 2000 2001 2001 2001

RPL 6.4 6.4 5.3 5.7 4.9

US Gulf Coast 1.3 2 3.3 3 1

Mediterranean5 4.8 2.9 2.8 1

Rotterdam 2.6 3.1 2.5 2.4 1.2

Singapore4.5 2.7 3.1 2.3 1.5

RPL has reported consistently higher and less volatile GRMs

rpl factors contributing to higher grms
RPL - Factors Contributing to Higher GRMs
  • High complexity - Ability to process heavy and sour varieties of crude oil
  • Superior product slate - leading to higher value addition per barrel
  • Ability to optimise product mix in response to market conditions
  • Favourable location and access to world class infrastructure - leading to lower freight/logistics costs
  • World class risk management techniques employed to hedge margins

RPL’s fundamental strengths ensure superior GRMs, even under difficult industry conditions

rpl profitability ratios
RPL - Profitability Ratios

Q2 FY2001-02 Q2 FY2000-01

OPM % 9.31 9.34

NPM % 4.86 4.47

ROE % 17.7% 23.2%

Annualised EPS - Rs. ($) 3.34 (0.07) 3.13 (0.07)

Annualised CEPS - Rs. ($) 4.90 (0.10) 4.50 (0.10)

RPL’s ROE ranks amongst the highest in refining companies globally

rpl profitability ratios40
RPL - Profitability Ratios

H1 FY2001-02 H1 FY2000-01

OPM % 9.8 9.8

NPM % 5.0 4.7

ROE % 19.5 20.9

Annualised EPS - Rs. ($) 3.34 (0.07) 3.13 (0.07)

Annualised CEPS - Rs. ($) 4.90 (0.10) 4.51 (0.10)

RPL’s ROE ranks amongst the highest in refining companies globally

rpl liquidity ratios
RPL - Liquidity Ratios

H1 FY2001-02 FY2000-01

Debt : Equity 0.83 0.83

Gearing 45.1% 43.9%

Interest Cover 3.26 2.98

Total Debt / Cash Flow 2.26 2.95

RPL’s strong liquidity ratios reflect healthy cash flows and conservative financial position

slide42

RPL - India’s Largest Exporter

  • RPL is India’s largest exporter with exports of US$ 1,375 mn (Rs. 6,410 crores) in FY 2001
  • H1 exports of RPL’s products have increased 67% to US$ 759 mn (Rs. 3,581crores)
  • RPL exported 3.6 million tonnes of products during H1 - Gasoline, HSD, and naphtha were the largest items of exports
  • RPL’s products have been exported to 14 countries, including to the most quality conscious customers globally

RPL’s exports reflect global competitiveness, international quality of products, operational flexibility and world class logistics capabilities

slide43

RPL - Future Growth Strategies

  • Capacity increase possible through debottlenceking at marginal cost - capital cost advantage will be further enhanced
  • Investments in pipeline infrastructure - will result in smooth evacuation of products and enhanced cost competitiveness
  • Evaluating a multi-pronged strategy to enter the business of retail marketing of controlled products in India:

- potential joint ventures and alliances

- acquisitions of marketing and distribution assets (participating in disinvestment of government owned oil PSU IBP)

- development of its own distribution and marketing infrastructure

RPL’s entry into marketing will enhance integration and provide opportunities for generating attractive returns

slide45

Reliance’s GSM Circles

Reliance’s existing GSM mobile operations span 1/3rd of India’s geographical area and cover nearly 400 million people

slide46

Reliance Telecom - Update

  • 54% growth in GSM based cellular subscriber base over last six months as compared to industry growth rate of 34%
  • Subscriber base has crossed 300,000 mark with services in 118 cities across 15 states
  • Leading market shares in most circles
  • Pre-paid services account for over 90% of cellular revenues – low risk strategy
  • Strength of Reliance Mobile brand and expertise in building retail consumer franchise demonstrated

Reliance has successfully established an extensive GSM network in the central and eastern part of the country

slide47

Kolkata GSM Circle

  • Won the Kolkata GSM license for Rs. 78 crores (US$ 16 million) under the fourth cellular license bidding
  • Presence in Kolkata circle to offer synergy in operations and marketing efforts in the entire Eastern region
  • Acquisition of Kolkata circle to enable superior roaming facilities throughout the region
  • Roll out plans being finalised

Kolkata circle forms a synergistic fit with Reliance’s existing GSM cellular operations in the Eastern region

slide49

Reliance Infocom - Current Status

  • National footprint with licences signed for providing fixed line services in 18 circles
  • Fixed line licences also enable tapping of mobile segment through WLL services – in addition to existing GSM business
  • First company to receive National Long Distance (NLD) LOI
  • Work on 60,000 route kms, world class IP backbone on schedule – project on target for completion by end 2002
  • Participating in process for disinvestment of VSNL, India’s monopoly international long distance carrier - ILD services to be opened up to private sector in April, 2002

Reliance Infocom’s comprehensive business model targets opportunities in high growth voice and data markets

slide50

Reliance Infocom - Investment Plans

  • Reliance Infocom to be the holding company for all infocom and related businesses of Reliance group
  • Reliance Infocom to invest up to Rs. 25,000 crores (US$ 5 bn) over the next 5 years
  • Project proposed to be financed with 2:1 debt:equity
  • RIL is the lead investor with 45% equity stake

Reliance’s infocom investments are likely to yield attractive returns, and create superior value for RIL’s shareholders

ril s share price performance
RIL’s Share Price Performance

% change

Period RIL Sensex Nifty

1 year -16% -20% -17%

2 year 8% -33% -27%

3 year 130% 5% 16%

5 year 142% -7% 4%

10 year 206% 59% -

RIL shares have consistently outperformed the broad market over all time frames - Compounded return of 19 % per annum over the last 5 years

slide53

RIL’s Share Buyback Philosophy

Our consistent and transparent policy regarding share buyback:

  • Rs. 303 not an automatic trigger for buyback
  • Share price decline part of global market meltdown
  • RIL shares have been outperforming Sensex and other leading stocks over all time frames
  • Buyback not a mechanism for providing exit to short term traders / speculators / operators
  • Investment of cash flows directed towards highest return investments

RIL’s share buyback program is focussed on enhancing value for long term shareholders

ril s beta has declined
RIL’s Beta Has Declined

Significant reduction in share price volatility, beta and WACC achieved over the last few years

value creation
Value Creation

Consistent focus on value creation as operating managers:

  • Through margin improvement – focus on productivity improvements and higher margin products
  • Through capital efficiency – stretching and sweating existing assets, focus on high returns investment for future growth
  • Through financial efficiency - continuous innovation to lower financial costs and reduce the cost of capital

Market recognition of value creation in the company has led to superior share price performance

summary
Summary
  • RIL is on track to deliver more than 11 million tonnes in production volume in the current financial year
  • RIL has reported good performance in a very difficult industry environment, reflecting the strength of its cost and market positions, and the success of its business strategies
  • Global petrochemicals margins are likely to remain under pressure, owing to the world-wide slowdown in demand
  • RIL’s future investments in oil and gas and infocom are likely to generate attractive returns in the medium to long term

Reliance will endeavour to continue to perform well and create superior value for all its shareholders, despite the tough operating environment for the global petrochemicals industry

slide58

Reliance Industries Limited

India’s World Class Corporation