1 Reliance Industries Limited Financial Presentation April - December 2001 January 31, 2002.
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Transcript of 1 Reliance Industries Limited Financial Presentation April - December 2001 January 31, 2002.
1
Reliance Industries Limited
Financial Presentation April - December 2001
January 31, 2002
2
Forward Looking StatementsThis 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.
3
Operating Environment
Financial Performance
Business Review
Reliance Petroleum
Reliance Infocom
Summary
Contents
4
Operating Environment
5
Petrochemicals - Challenging Times Continue
Profitability of petrochemicals companies globally has remained under pressure due to weak demand and declining product prices
Extended downtrend in global petrochemicals cycle
New capacity additions in Middle East and Asia during 2001, added
significantly to global surplus
Weak demand environment Indian polyester
demand growth restricted to 5%
Sharp decline in end product 15%-32% fall in selling
prices prices
Impact only partly offset by naphtha prices down
onlydeclining feedstock prices 17%
6
Trends in Feedstock & Product Prices - International % change in international prices Apr-Dec 2001 over Apr-Dec 2000
There has been a sharp decline in international prices of RIL’s products during the 9 month period
Raw Material
-7%
-8%
-15%
-17%
-17%
-17%
-17%
-18%
-32%
-8%
PX
POY
PTA
PSF
Crude
Naphtha
PE
MEG
PP
PVC
7
% change in domestic prices Apr-Dec 2001 over Apr-Dec2000
Domestic prices of RIL’s products have also fallen sharply, impacting margins
Trends in Feedstock & Product Prices - Domestic
Raw Material2%
-2%
-10%
-12%
-13%
-13%
-15%
-19%
-8%
PX
POY
PP
PTA
PSF
MEG
PE
Naphtha
PVC
8
Key Elements of Reliance’s Strategy
Strong fundamentals and financial strength have enabled Reliance to better withstand the industry downtrend
High operating rates 104% in Apr-Dec 2001
Emphasis on speciality 20% of polymers
products 30-60% of polyester
5-20% price premium
Focus on domestic markets 87% of revenues
Diversified revenue streams Polyester, Polymers,
Oil & Gas
Consolidation of industry Improved pricing power
9
RIL’s Performance Highlights Apr-Dec 2001
Production volumes 8.6 mn. tonnes, up 9%
Total Exports US$ 494 mn. (Rs. 2,381
crores)
13% of Total Sales
Market shares polyester 53%
intermediates 78%
polymers 49%
Capex in 9 months Rs.592 crores (US$ 123 mn.)Record production volumes achieved despite a weak economic scenario in the country
10
Financial PerformanceFinancial Performance
11
RIL+RPL - Financial Highlights
April-Dec 2001Rs.crs. $ mn.
Sales 43,887 9,101
Operating Profit 6,571 1,363
Cash Flow 5,278 1,095
Net Profit 3,411 707
Total Assets 54,663 11,336
Reliance continues to be the No. 1 business group in India in terms of all major financial parameters
12
RIL Income Statement for 9 months FY 2001-02
Capex for the 9 month period is just Rs 592 crores (US$ 123 mn) -17% of cash flows and only 47% of depreciation
Apr-Dec 2001 Apr-Dec 2000 % ChangeRs.crs. $ mn. Rs.crs. $ mn.
Sales 18,091 3,752 19,287 4,132 (6.2)
Trading Sales 299 62 2,277 488
Total Sales 18,390 3,814 21,564 4,620 (14.7)
EBITDA 3,875 804 4,049 867 (4.3)
Extra-ordinary Income 358 74
Interest 730 151 925 198 (21.1)
Depreciation 1,259 261 1,141 244 10.4
Tax/Deferred Tax 102 21 96 21
Net Profit 2,142 444 1,887 404 13.5
Cash Profit 3,401 705 3,028 648 12.3
13
RIL Consolidated Income Statement for 9 Months Apr-Dec 2001
Rs.crs $ mn.
Sales 18,393 3,815
Total Expenditure 14,959 3,102
Operating Profit 3,435 712
Share in Income of Associates 736 153
Other Income 360 75
Extra-ordinary Income 358 74
Interest 732 152
Depreciation 1,259 261
Tax 102 21
Net Profit 2,795 580
Consolidated net profit reflects the true picture of RIL’s returns on its investments
14
Segment Information for 9 Months
Petrochemicals Refining Others
Segment Revenue 17,356 25,497 1,038
Segment Results (EBIT) 1,888 1,971 588
Capital Employed 12,379 20,580 6,167
Return on Capital 20.3% 12.8% 12.7%Employed (ROCE)
Return on Capital Employed significantly higher than cost of capital for a large petrochemical and refining enterprise
Rs CroresRs Crores
15
RIL Income Statement for Q3 FY 2001-02
Profit for the period includes Rs.358 crores (US$ 74 mn) on account of sale of L&T stake
Q3 FY 2001-02 Q3 FY 2000-01 % ChangeRs.crs. $ mn. Rs.crs. $ mn.
Sales 5,467 1,134 6,430 1,377 (15.0)
Trading Sales 299 62 125 27
Total Sales 5,766 1,196 6,555 1,404 (12.0)
EBITDA 1,159 240 1,406 301 (17.6)
Interest 218 45 294 63 (26.0)
Depreciation 441 92 394 84 12.0
Tax/Deferred Tax 36 7 34 7
Net Profit 822 171 684 146 20.3
Cash Profit 1,263 262 1,078 231 17.2
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Sales revenue decline of 6% in the 9 month period reflects mainly the sharp decline in product prices
Composition of
Sales Revenue Change
Impact of volume change -1%
Impact of product price change -5%
Total impact on Sales Revenues -6%
Elements of Sales Change
17
RIL Profitability Ratios
Margins have remained largely stable despite the tough operating environment
Apr-Dec 2001 Apr-Dec 2000
OPM %* 19.0 18.6
NPM % 11.8 9.8
ROE % 20.8 18.4
ROCE % 19.9 18.4
EPS - Rs. ($) annualised 27.1(0.56) 23.8(0.51)
Cash EPS - Rs($) 43.0(0.89) 38.3(0.82)
* excluding FX gains
18
At the current market price, RIL shares are trading at 9 times consolidated EPS
Apr-Dec 2001
NPM % 22.2
ROE % 26.1
ROCE % 31.3
EPS - Rs. ($) annualised 35.3(0.73)
RIL Consolidated Profitability Ratios
19
RIL Liquidity Ratios
RIL’s strong cash flows and refinancing initiatives have enabled lowering of interest costs
Apr-Dec 2001 FY 2000-01
Debt : Equity 0.58 0.72
Gearing 36.1% 41.0%
Interest Cover 3.5x 3.3
Total Debt/Cash Flow 1.8x 1.8 x
20
Reliance is India’s Largest Exporter
Reliance’s high exports demonstrate the international quality of its products, and its ability to compete against global leaders
Reliance group is India’s Rs.8,382 crs (US$ 1,738 mn)
largest exporter in 9 months
RIL is India’s 2nd largest Exports still only 13 % of exporter after RPL RIL’s Sales
RIL’s manufactured exports Rs. 2,083 crs (US$ 432 mn)
Exports to most quality Exports to over 100
conscious customers countries globally
21
Unlocking Value through Sale of L&T Stake
Sold 2.5 crore shares of L&T (10% of equity) to Grasim at a price
of Rs.306.60 per share
Stake sold at 47% premium to prevailing market price of
Rs.208.50 per share
Sale proceeds of Rs.766.50 crores (US$ 160 mn) received in
cash
Capital gains of Rs.358 crores (US$ 74 mn)
Cash flows and capital gains have accrued to RIL
22
Unlocking Value through Sale of L&T Stake
No strategic rationale for retaining investment in L&T in view of
successful completion of Reliance’s major projects
Divestment of non-strategic stake to unlock significant value for
shareholders
Enhancement of returns on RIL’s investments
Increased availability of funds for announced investments in oil
and gas, infocom, reduction of debt, and other uses
L&T stake sale is in line with Reliance’s stated philosophy of unlocking value from investments to maximise shareholder wealth
23
Business ReviewBusiness Review
24
Oil & Gas - Review RIL is the largest private sector E&P operator in India, with total
acreage of 175,000 square kilometers
Reliance holds 30% interest in the producing Panna, Mukta and
Tapti oil and gas fields
Over the last few years, Reliance has acquired 18 new blocks:
- 2 blocks in pre-NELP round of bidding
- 12 blocks in NELP-1 in 90:10 consortium with Niko (Canada)
- 4 blocks in NELP-2 in 90:10 consortium with Hardy Oil (UK)
In February 2001, Reliance entered into an agreement with
Tullow (UK) for acquiring participating interest in 5 blocks
Well balanced portfolio of 25 deep and shallow water, offshore and onshore E&P blocks
25
Oil & Gas - Update Exploration work consisting of seismic surveys, data processing,
and interpretation in progress
Drilling of first well to commence over next few months
Estimated initial capex of Rs. 1,500 crores (US $ 300 million)
over the next 3 years
Later stage exploration capex can be self-financing through
monetisation of future revenues
Contribution of Oil and Gas business to revenues likely to grow significantly in the future
26
Oil and Gas - Production GrowthOil Production in kT
Gas Production in kTOE
Output from existing Oil & Gas fields has broadly been maintained
at previous year levels
Oil
307 310
275
300
325
Apr-Dec 2000 Apr-Dec 2001
1%516
502
450
500
550
Apr-Dec 2000 Apr-Dec 2001
-3%
Gas
27
Polyester - Update
Polyester demand increased by only 5% during Apr-Dec 2001
Demand slowdown due to historically low cotton prices, general
economic slowdown, and the recent unrest in some weaving and
texturising markets
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
Strong emphasis on specialities to counter demand slowdown and to take advantage of the longer term growth prospects
28
Polyester - Production GrowthProduction in ‘000 tonnes
Much higher production growth rate for RIL reflects acquisition of control over JCT’s polyester capacity
1074
1153
1000
1050
1100
1150
1200
Apr-Dec 2000 Apr-Dec 2001
534
614
450
500
550
600
650
Apr-Dec 2000 Apr-Dec 2001
Industry Reliance
7% 15%
29
Fibre Intermediates - Production Trend
Fibre intermediates production remained flat, both for Reliance and the Industry, in view of low polyester demand growth
Production in ‘000 tonnes
Industry Reliance
27252757
2550
2590
2630
2670
2710
2750
Apr-Dec 2000 Apr-Dec 2001
21742164
2075
2125
2175
Apr-Dec 2000 Apr-Dec 2001
1%
30
Polymers - Update
Healthy demand growth for RIL’s polymers during Apr-Dec 2001:
- PP 16%
- PE 10%
- PVC 21%
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 49% market share
31
Polymers - Production GrowthProduction in ‘000 tonnes
Polymers demand has shown further strong growth of 15% during
the first nine months of FY 2001-02
2231
2526
2050
2150
2250
2350
2450
2550
Apr-Dec 2000 Apr-Dec 2001
1184
1249
1050
1100
1150
1200
1250
Apr-Dec 2000 Apr-Dec 2001
Industry
13%
Reliance
6%
32
Reliance PetroleumReliance Petroleum
33
RPL’s Performance Highlights Apr-Dec 2001
Capacity utilisation 107 % (Apr-Dec 2001)
109 % (Oct-Dec 2001)
Crude processed 21.8 MMT, up 12 %
Exports US$ 1,263 mn. (Rs. 6,001
crores)
RPL has operated at significantly higher capacity utilisation rates compared to its global peer group
34
RPL – Higher Operating Rates
Integration with group’s downstream operations, ability to tap exports markets and flexibility of product slate enabled RPL to operate at much higher rates
Operating Rates (April - Dec 2001)
84% 87% 90%
107%
Asia-Pacific Europe N. America RPL
35
Comparison with Benchmark GRMs
RPL has reported significantly higher GRMs than its global peer group, and with lower volatility
Apr-Dec Apr-Dec
2001 2000
RPL 5.3 6.0
US Gulf Coast 1.53 2.58
Mediterranean 1.85 4.84
Rotterdam 0.49 2.25
Singapore 1.93 3.30
36
RPL - Income Statement for 9 Months FY 2001-02
RPL’s net profits have increased by 18 % despite lower product prices, and the downtrend in regional refining margins
Apr-Dec 2001 Apr-Dec 2000 %Rs.crs. $ mn. Rs.crs. $ mn. Change
Gross Sales 25,497 5,288 23,457 5,025 9%
EBITDA 2,696 559 2,363 506 14%
Interest 735 152 727 156
Depreciation 608 126 469 100
Tax 84 17 87 19
Net Profit 1,269 263 1,080 231 18%
Cash Profit 1,877 389 1,549 331 21%
37
RPL - Income Statement for Q3 FY 2001-02
RPL is India’s largest private sector company in terms of sales
Q3 FY2001-02 Q3 FY2000-01 %Rs.crs. $ mn. Rs.crs. $ mn. Change
Gross Sales 8,166 1,693 9,149 1,960 -11%
EBITDA 866 180 884 189 -2%
Interest 246 51 271 58
Depreciation 201 42 172 37
Tax 17 4 33 7
Net Profit 402 83 408 87 -1%
Cash Profit 603 125 580 124 4%
38
RPL - Factors Contributing to Profit Growth
High capacity utilisation rates of 107%, leading to 12% volume
growth from 19.4 to 21.8 million tonnes
Improved product mix enabling RPL to take advantage of niche
opportunities
Stability of earnings through risk management
Ongoing productivity gains and cost reductions
Strong volume growth and superiority of RPL refinery’s configuration have contributed significantly to net profit growth
39
RPL - Profitability Ratios
RPL’s ROE is amongst the highest in refining companies globally
Apr-Dec 2001 Apr-Dec 2000
OPM % 9.8% 9.4%
NPM % 5.0% 4.6%
ROE % 18.5% 22.3%
Annualised EPS - Rs. ($) 3.25 (0.07) 3.03 (0.06)
Annualised CEPS - Rs. ($) 4.81 (0.10) 4.35 (0.09)
40
RPL - Liquidity Ratios
Apr-Dec 2001 Apr-Dec 2000
Debt : Equity 0.97 0.86
Gearing 49.3% 46.2%
Interest Cover 3.4 2.82
Total Debt / Cash Flow 2.82 3.15
RPL’s cash flows for less than 3 years are adequate to extinguish its entire debt
41
RPL - India’s Largest Exporter
Reliance’s high exports demonstrate the international quality of its products, and its ability to compete against global leaders
RPL India’s largest exporter Rs.6,001 crs (US$ 1,263 mn), in 9 months
Exports up by 27 %
Gasoline, diesel, naphtha Total exports of 6.6 mn
were largest items of exports tonnes
Exports to most quality Exports to over 14 countries conscious customers globally
42
New Auto Fuel Policy
RPL’s competitive strengths are expected to be further enhanced when product specifications are tightened
In a recent report on Auto Fuel Policy, the Expert Committee has recommended :
- Euro - II in the entire country from April 2005
- Euro - III to be introduced in seven mega cities from April 2005 and extended to other parts of the country from 2010
RPL already meets Euro II norms
With minimal investments, RPL can supply Euro III grade products
Other Indian refineries as per the reports need Rs. 17,000 crs. for Euro II compliance and another Rs. 18,000 crs. for Euro III compliance
43
RPL - ECB Deal of the Year
RPL’s US$ 750 million syndicated loan has been named ‘Indian
Capital Markets Deal of the Year’ by IFR Asia
This was the largest commercial term loan for an Indian borrower
Attractive features of this deal included :
- amortising structure with step-up pricing
- average life of 5 years
The facility oversubscribed by 1.5 times with participation of
leading banks from 13 countries
This attractive loan facility will enhance the RPL’s financial flexibility, reduce interest cost and improve profitability
Cellular BusinessCellular Business
45
Reliance Telecom - Update
Reliance has successfully established an extensive GSM network in the central and eastern part of the country
Reliance's cellular subscriber base has continued to grow strongly
to cross 345,000, with services in 118 cities and 15 states
124% growth in GSM based cellular subscriber base in calendar
year 2001 as compared to industry growth rate of 76%
Roll out plans for the recently acquired Kolkata circle being
finalised currently
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 InfocomReliance Infocom
47
Reliance’s Integrated Business Model
Reliance’s low-cost communications infrastructure, and integrated approach, will provide a lasting competitive edge
Reliance is building a 60,000 kms, nationwide, terabit bandwidth,
broadband network connecting India’s top 115 cities - representing
over 50% of the country’s GDP
All optic, facilities based, intelligent IP networks - robust and
scaleable
Reliance will leverage infocom infrastructure to capture value
across the entire digital chain
Reliance will offer a complete bouquet of voice, data, and value
added services, and high quality end-to-end connectivity, including
the last mile
Backbone for own services, as well as carrier’s carrier
48
Reliance Infocom – Update
Reliance Infocom currently has nearly 1,500 full time employees, with a target to increase this to 8,000 over a period of time
Work on backbone on schedule for completion by end 2002
Work on providing fibre to the identified buildings at various
stages of completion
Completed procurement of entire fibre requirement
Orders for equipment/ switches to be placed shortly
Evaluation of proposals for handsets in progress
49
Reliance Infocom – Update
Reliance Infocom will endeavor to offer the highest quality services and provide the best value to its customers
Data centre at Thane near Mumbai already operational
Work at data centre at Bangalore in progress – scheduled to be
operational in this year
Rollout plans for various voice services currently being finalised
National footprint and the Reliance brand to be leveraged
Customer acquisition strategy to be based on bundled offers in
enterprise relationships, and segment specific value propositions
50
Reliance Infocom – Update
Licenses already obtained for providing basic services in 18 circles
(including Gujarat through Reliance Telecom) covering 95% of
India’s population, and for providing national long distance (NLD)
services
Service No. of Licenses License Fees (Rs.crores)
Cash Bank GuaranteeTotal
Basic 17 circles 398 1,7922,190
NLD 1 (Nationwide) 100 400 500
51
Reliance Infocom – Qualcomm Investment
RCL plans to leverage the cost, capacity, and quality advantages of CDMA to offer the most competitive wireless voice and data services nationwide
Qualcomm has committed to invest up to US$ 200 million (Rs.
1,000 crores) in Reliance Communications (RCL) for acquisition of
a minority stake
This is the largest investment in basic services in any single
telecom services licensee company in India
RCL is Reliance Infocom’s subsidiary providing voice services on a
nationwide basis – basic telephony, including WLL service with
limited mobility, and NLD
RCL proposes to provide limited mobility wireless services by
deploying CDMA 2000 1X technology of Qualcomm - the pioneer
and world leader of CDMA digital wireless technology
52
Reliance Infocom – Investment Plans and Capex
Reliance Infocom will target leading market shares and attractive
returns on capital employed
Reliance Infocom to invest up to Rs. 25,000 crores (US$ 5 billion)
over the next 5 years
Proposed financing with 2:1 debt:equity
RIL is the lead investor with 45% equity stake
RIL’s investment in Reliance Infocom: Rs. 2,600 crores (US$ 550
million) to date
SummarySummary
54
RIL’s Share Price Performance
RIL shares have consistently outperformed the benchmark indices over all time frames
% change
Period RIL Sensex Nifty
Year to date 3% 1% 1%
1 year -19% -25% -23%
2 year -6% -38% -33%
3 year 137% -1% 10%
5 year 123% -6% 7%
10 year 311% 43% -
55
SummaryRIL provides exposure to major growth sectors of the economy - oil
& gas, petrochemicals, refining and marketing, power, infocom
Continued industry downtrend has adversely affected margins of
petrochemicals producers globally
RIL’s superior performance amongst international peers reflects its
global competitiveness and the success of its business strategies
RIL’s investments in oil & gas and infocom are expected to generate
significant returns in the medium to long term for maximisation of
overall shareholder value
Reliance has adopted strategies for enhancing operational and financial flexibility, and outperforming peers in an uncertain industry environment
56
Reliance Industries Limited
India’s World Class Corporation