Company analysis of Reliance Industries Ltd.

Introduction :

Reliance Industries Limited (RIL) is the largest private sector business enterprise
in India. It is the only private sector company from India to feature in the Fortune
Global 500. RIL’s operations include exploration and production of crude oil and
gas, refining and marketing of petroleum, and, production of petrochemicals and
textiles. Also, the company recently forayed into retail business and has aggressive
future growth plans for this segment .RIL is the largest Oil & Gas acreage holder
among the Private sector companies in India with 34 domestic exploration blocks
covering an area of about 331,000 sq. km. This is in addition to its interest in one
exploration block each in Yemen and Oman; and interests in Panna Mukta and
Tapti fields. RIL also has 5 coal bed methane blocks covering an area of about
4,000 sq. km. RIL’s Jamnagar refinery, is the world’s third largest grassroot
refinery (present capacity of 33 mn tones p.a.), and has acquired the status of an
EOU w.e.f.2007.
Reliance Retail has opened its first retail store in November 2006 and now holds
over 135 retail stores covering 16 cities with a total square footage of over 370,000
sq. ft. RIL operates mainly in India but has business activities and customers in
more than 100 countries around the world. The company has entered into a merger
agreement with Indian Petrochemical Corporation Ltd. (IPCL) and awaits approval
from appropriate authorities. Reliance Industrial Infrastructure Limited and
Reliance Europe Limited are RIL’s other two major associate companies. Reliance
Industries Limited (RIL) is a Fortune Global 500 conglomerate with operations
including the entire hydrocarbon value chain, retail shopping and textiles. RIL is
currently buoyed by high gross refining margins, high refinery utilization rates and
increased demand for petrochemical products. The company’s strategy to integrate
upstream in the oil and gas industry and foray into the retail industry will provide
significant opportunities for growth. Given RIL’s reputation for prompt execution,
we expect rapid expansion of its retail stores. The company’s active participation
in acquisition of hydrocarbon assets and track record of finding productive oil
wells increases the probability of finding large new reserves.

Strategies – Core competencies :

 One of RIL’s core competencies is to conceptualise & implement multi-

billion dollar projects ontime & in a cost efficient manner.
  RIL has proven successfully track record of successfully implementing large
projects,including its existing refinery & petrochemicals complex at
Jamnagar in Gujrat , its petrochemicals complex at Hazira in Gujrat and
another petrochemicals complex at Patalganga in Maharastra.

 These 3 facilities together accounted for approximately 84 % of RIL’s gross

fixed assets for the year ended march 31st,2005.

Swot Analysis :

Strengths

 Technological Skills
 Distribution channels
 Production Quality
 High resource & surplus
 Unique growth visibility

Weakness

 Failure in Forward Integration

 Un-utlised high resource & surplus

Opportunities

 Increase in demand in Chinese & Indian market

 Gas from KG basin
 Local Indian market visibility & growth

Threats

 Possibility of 100 % FDI

 Windfall taxes
 Competition
 Government
RIL Product Mix :

Fibre Int.
29% Oil & Gas Chemicals
3% 11%

Plastics & Int.

34%
Polyester
22%

Fabrics
1%

Shareholder’s Pattern :

Holder's Name No of Shares % Share Holding

Promoters 1463923343 44.76%
ForeignInstitutions 562481618 17.20%
GeneralPublic 412494014 12.61%
FinancialInstitutions 260668783 7.97%
 SubsidiaryCompanie
s 171883624 5.26%
OtherCompanies 161838311 4.95%
Others 122910567 3.76%
NBanksMutualFunds 85190150 2.60%
ForeignNRI 24356714 0.74%
CentralGovt 4967212 0.15%

Comparative Analysis of RIL :

3
  Today 1 Month Months 1 Year 3 Years
Reliance Industries 10.38
Ltd. 1.27% 4.07% 9.25% % 14.08%
17.17
Sensex 0.56% 11.29% 13.37% % 16.06%
18.60
NIFTY 0.64% 11.34% 13.50% % 20.08%

Competative Analysis :

Market capitalization (in ROA RONW(% ROCE(%

 Companies mn.) P/E P/BV Div(%) (%) ) )
               
RIL 3292097.95 18.92 2.33 70% 9.50% 11.80% 13.30%
IOC 1015004.5 32.23 1.42 130% 3.70% 5.80% 9.60%
Essar Oil 180268.06 -47.54 5.67 0 2.90% -12.50% 4.50%
HPCL 173732.71 -14.1 1.82 120% 5.40% 5.40% 8.80%
Chennai
petro 38248.3 15.73 1.47 120% -8% -13.20% -9.90%

Financial Analysis of Reliance Industries ltd.

Liquidity ratios and solvency:

Liquidity implies a firm’s ability to pay its debts in the short run. If a firm has sufficient net
working capital, it is assumed to have enough liquidity. The current ratio and the quick ratio are
the two ratios, which directly measure liquidity.
 Liquidity And Solvency Ratios Mar-06 Mar-07  Mar-08  Mar’09  Mar ‘10
Current Ratio 0.83 0.77 1.01 1.08 1.11
Quick Ratio 0.67 0.69 0.94 0.9 0.76
Debt Equity Ratio 0.48 0.45 0.46 0.65 0.49

Current Ratio: As the CURRENT RATIO measures the ability of the enterprise to meet its
current obligations. It gives an idea about the short term liquidity position of the firm. From
above data the value of current ratio has been increasing for all the years & its around 1.5. This
shows the company's short-term assets (cash, cash equivalents, marketable securities, receivables
and inventory) were readily available to pay off its short-term liabilities .

Debt Equity Ratio: The debt-equity ratio is a leverage ratio that compares a company's total
liabilities to its total shareholders' equity. This is a measurement of how much suppliers, lenders,
creditors and obligors have committed to the company versus what the shareholders have
committed. Here DE ratio is less than 1 & comstanly decreasing by years finally it is 0.49 , it is
good for company as it means company is trying to have a stronger equity position & the
company is using less liabilities and has a stronger equity position.

Profitability Ratios:

Profitability Ratios compare the component of income with sales.

Profitability Ratios Mar-06 Mar-07  Mar-08  Mar’09  Mar ‘10

Operating Profit Margin(%) 17.87 18.26 16.76 17.01 15.6
Gross Profit Margin(%) 13.67 13.95 13.14 13.35 10.13
Net Profit Margin(%) 11.13 10.64 14.45 10.65 8.35
Return On Capital Employed(%) 17.37 18 15.68 10.96 11.35
Return On Net Worth(%) 20.08 19.49 24.66 13.36 12.64

Gross Profit Margin: A company's cost of sales, or cost of goods sold, represents the expense
related to labor, raw materials and manufacturing overhead involved in its production process.
This expense is deducted from the company's net sales/revenue, which results in a company's
first level of profit, or gross profit. There has been a decrease in gross margin from the year
march’09 to march’10 from 13.35% to 10.13%.As compared to march’06,direct expenses such
as cost of goods sold,raw materials,etc has increased,which should be controlled to gain a good
profit over years.The decreasing gross profit margin shows a negative profit indicator.But
looking at previous years ,it can be controlled.

Operating Profit Margin%:This is the ratio of operating profit to sales,this ratio indicates how
much of sales is left after deducting all operating expenses. There has been a decrease in
operating profit margin from the year march’06 to march’10 varyin with different
percentages.As compared to march’06,direct expenses such as cost of goods sold,raw
materials,etc has increased,which should be controlled to gain a good profit over years.
Return on Capital Employed:

This ratio measures whether or not a company is generating adequate profits in relation to the
funds invested in it and is a key indicator of investment performance. A business could have
difficulty servicing its borrowings if a low return is being earned for any length of time. ROCE is
good as compared to different other companies in same sector but increasingly constant over
years.

Return on net Worth:

The Return on net worth of a company measures the ability of the management of the company
to generate adequate returns for the capital invested by the owners of a company.RONW is 12%
as per now

Cashflow Indicator ratios :

 cash flow indicators, which focus on the cash being generated in terms of how much is being
generated and the safety net that it provides to the company. These ratios can give users another
look at the financial health and performance of a company.

Cash Flow Indicator Ratios Mar-06 Mar-07  Mar-08  Mar-09  Mar-10 

Earning Retention Ratio 82.56 86.5 86.01 85.92 84.16

Earning retention ratios:

Since the earning retention ratio is increasing from 82.56 % to 84.16 % from march’06 to
march’10,it signifies that the company has a profitable investment opportunities in future.

Market Ratios :

Earnings Per Share: Earnings per share ratio are used to find out the return that the
shareholder’s earn from their shares. After charging depreciation and after payment of tax, the
remaining amount will be distributed by all the shareholders.

Market Ratios Mar-06 Mar-07  Mar-08  Mar-09  Mar-10 

65.08 85.71 133.86 97.28 49.64
EPS

Management efficiency ratios :

Management Efficiency Ratios Mar-06 Mar-07  Mar-08  Mar-09  Mar-10 

Inventory Turnover Ratio 9.6 10.65 10.57 12.92 8.29
Debtors Turnover Ratio 19.99 28.29 26.87 26.29 23.67
Investments Turnover Ratio 9.6 10.65 10.57 12.92 8.29
Fixed Assets Turnover Ratio 0.96 1.13 1.29 1.01 0.94
Total Assets Turnover Ratio 1.21 1.26 1.15 0.79 1.07
Asset Turnover Ratio 0.96 1.13 1.29 1.01 0.94

Inventory Turnover Ratio:This ratios shows how many times a company’s inventory is sold &
replaced over a period of time.

Debtors Turnover ratio : indicates the velocity of debt collection of a firm. In simple words it
indicates the number of times average debtors (receivable) are turned over during a year.
Investment turnover ratio : The investment turnover ratio is computed by dividing the year to
date net sales by the total net worth of the dealership. This is used to determine how many times
the investment or net worth of the dealership is turned into net sales dollars.

Fixed asset turnover ratio : A financial ratio of net sales to fixed assets. The fixed-asset
turnover ratio measures a company's ability to generate net sales from fixed-asset investments
- specifically property, plant and equipment (PP&E) - net of depreciation. A higher fixed-asset
turnover ratio shows that the company has been more effective in using the investment in fixed
assets to generate revenues.

Total asset turnover ratio : The total asset turnover ratio measures the ability of a company to
use its assets to generate sales. The total asset turnover ratio considers all assets including fixed
assets, like plant and equipment, as well as inventory and accounts receivable.

Asset Turnover ratio : Asset turnover measures a firm's efficiency at using its assets in
generating sales or revenue - the higher the number the better. It also indicates pricing strategy:
companies with low profit margins tend to have high asset turnover, while those with high profit
margins have low asset turnover.

Competative Analysis of cash Flow statement : ( in crores )

Essar
  BPCL Oil MRPL IOC Reliance
  Mar '09 Mar '10 Mar '10 Mar '10 Mar '10

Net Profit Before Tax 12 mths 12 mths 12 mths 12 mths 12 mths

Net Cash From Operating Activities 1017.57 28.58 1691.85 14106.09 20547.44

Net Cash (used in)/from Investing Activities 6212.34 688.65 2723.53 -464.7 20490.22
- -
Net Cash (used in)/from Financing Activities -9908.75 2075.47 1883.33 4676.1 -18204.5
Net (decrease)/increase In Cash and Cash Equivalents -2285.32 1411.1 -645.22 -3694.23 -10999.6
Opening Cash & Cash Equivalents -5981.73 24.28 194.98 517.17 -8713.88
Closing Cash & Cash Equivalents -11139.67 190.7 1761.61 798.02 22176.53
 Balance Sheet Comparision : ( in crores )

Balance Sheet ( in crores )

  Reliance IOC BPCL Essar Oil HPCL  

  Mar '10 Mar '10 Mar '10 Mar '10 Mar '10  
Sources Of Funds          
Total Share Capital 3,270.37 2,427.95 361.54 1,218.13 339.01  
Equity Share Capital 3,270.37 2,427.95 361.54 1,218.13 339.01  
Share Application Money 0 0 0 1,153.21 0  
Preference Share Capital 0 0 0 0 0  
48,124.9 11,218.9
Reserves 125,095.97 8 12,725.17 2,302.31 6  
Revaluation Reserves 8,804.27 0 0 0 0  
50,552.9 11,557.9
Networth 137,170.61 3 13,086.71 4,673.65 7  
18,292.4
Secured Loans 11,670.50 5 10,443.87 9,470.59 1,375.88  
26,273.8 19,926.4
Unsecured Loans 50,824.19 0 11,751.33 883.14 9  
44,566.2 21,302.3
Total Debt 62,494.69 5 22,195.20 10,353.73 7  
95,119.1 32,860.3
Total Liabilities 199,665.30 8 35,281.91 15,027.38 4  
             
  Reliance IOC BPCL Essar Oil HPCL  

  Mar '10 Mar '10 Mar '10 Mar '10 Mar '10  

Application Of Funds          
71,780.6 24,988.3
Gross Block 215,864.71 0 25,412.52 13,802.50 7  
30,199.5
Less: Accum. Depreciation 62,604.82 3 11,743.17 1,493.15 9,681.70  
41,581.0 15,306.6
Net Block 153,259.89 7 13,669.35 12,309.35 7  
21,268.6
Capital Work in Progress 12,138.82 3 2,517.75 4,318.75 3,887.59  
22,370.2 11,387.2
Investments 19,255.35 5 12,201.32 203 2  
36,404.0 12,579.2
Inventories 26,981.62 8 12,028.86 3,969.44 2  
Sundry Debtors 11,660.21 5,799.28 2,662.68 2,033.30 2,437.34  
Cash and Bank Balance 362.36 1,315.11 342.36 1,350.75 243.17  
Total Current Assets 39,004.19 43,518.4 15,033.90 7,353.49 15,259.7  
 7 3
15,870.4
Loans and Advances 10,517.57 3 9,850.04 1,025.94 5,382.21  
Fixed Deposits 17,073.56 0 0 0 0  
59,388.9 20,641.9
Total CA, Loans & Advances 66,595.32 0 24,883.94 8,379.43 4  
Deffered Credit 0 0 0 0 0  
39,236.2 16,257.8
Current Liabilities 48,018.65 8 15,409.86 10,160.34 7  
10,271.5
Provisions 3,565.43 6 2,580.59 22.81 2,105.21  
49,507.8 18,363.0
Total CL & Provisions 51,584.08 4 17,990.45 10,183.15 8  
Net Current Assets 15,011.24 9,881.06 6,893.49 -1,803.72 2,278.86  
Miscellaneous Expenses 0 18.17 0 0 0  
95,119.1 32,860.3
Total Assets 199,665.30 8 35,281.91 15,027.38 4  

 
23,586.8
Contingent Liabilities 25,531.21 1 5,682.54 22,091.84 4,598.74  
Book Value (Rs) 392.51 208.21 361.97 29.3 341.32