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Submitted to (ANAND INSTITUTE OF MANAGEMENT)
IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF MASTER OF BUSINESS ASMINISTRATION
In Gujarat Technological University
UNDER THE GUIDANCE OF JAY JOSHI (ASSISTANCE PROFESSOR, AIM) Submitted by MEHMOOD DAGIA PRASHANT KOTIYA BALAJI NAGARGOJE DILIP PRAJAPATI [Enrollment No.:107020592026] [Enrollment No.:107020592027] [Enrollment No.:107020592033] [Enrollment No.:107020592034]
MBA SEMESTER - IV [Batch: 2010-12]
(ANAND INSTITUTE OF MANAGEMENT) MBA PROGRAMME Affiliated to Gujarat Technological University Ahmedabad 2010-12
petroleum refining and oil and gas exploration and production . Reliance Industries Limited (RIL) is India's largest private sector company on all major financial parameters with a turnover of Rs. fibre intermediates. The flagship company. textiles.3 billion) as of March 31.INTRODUCTON OF RELIANCE INDUSTRY LTD The Reliance Group. Major Group Companies are Reliance Industries Limited.7 billion). The Group's activities span exploration and production of oil and gas. infotel and special economic zones. petrochemicals.261 crore (US$ 3. plastics. 81. with businesses in the energy and materials value chain. 2008.269 crore (US$ 34. 1.449 crore (US$ 20. retail. RIL is amongst the 30 fastest climbers 2 .8 billion) and net worth of Rs. being the largest polyester yarn and fibre producer in the world and among the top five to ten producers in the world in major petrochemical products. net profit (excluding exceptional income) of Rs. Ambani (1932-2002). Backward vertical integration has been the cornerstone of the evolution and growth of Reliance. petrochemicals (polyester. 25. Reliance Industries Limited.in polyester. 39. is a Fortune Global 500 company and is the largest private sector company in India. 15. petroleum refining and marketing. is India's largest private sector enterprise. plastics and chemicals). Group's annual revenues are in excess of US$ 58 billion.205 crore (US$ 6.to be fully integrated along the materials and energy value chain. founded by Dhirubhai H. fibre intermediates. cash profit of Rs. Reliance enjoys global leadership in its businesses. RIL is the first private sector company from India to feature in the Fortune Global 500 list of 'World's Largest Corporations' and ranks 103rd amongst the world's Top 200 companies in terms of profits.3 billion). Starting with textiles in the late seventies. including its subsidiaries and Reliance Industrial Infrastructure Limited. Reliance pursued a strategy of backward vertical integration .
Global rankings in most key businesses – integrated energy company in Refining and Petrochemicals poised for large gains in the E&P sector Large part of Indian business and capital markets.ranked by Fortune. net gearing at 22% 3 .8 Billion. RIL features in the Forbes Global list of the world's 400 best big companies and in the FT Global 500 list of the world's largest companies. RIL ranks amongst the 'Worlds 25 Most Innovative Companies' as per a list compiled by the US financial publication-Business Week in collaboration with the Boston Consulting Group. driven by organic growth India‟s largest private sector and only Fortune 500 company Annual exports in excess of US$ 6 billion to over 100 countries Committed to large investments in key businesses – refining and petrochemicals – US$ 8-9 Billion in next 4-5 years Conservative balance sheet – annual cash flow at US$ 2.
Singapore. which currently holds a 5% equity stake in the Company . and has interests in the downstream oil business. RPL is subsidiary of RIL. W ith an annual crude processing capacity of 5.0 Among the top 5% refineries globally with capability process ultra heavy crude (Average API of 24) Built to supply ultra-clean fuels to meet the world‟s evolving needs Focus on high growth transportation fuel segment. Crude refining commenced on 25th Dec „08 and first parcel of product exported in Jan „09 4 .INTRODUCTON OF RELIANCE PETROLEUM LTD Reliance Petroleum Limited was set up by Reliance Industries Limited (RIL). a wholly owned subsidiary of Chevron Corporation USA (Chevron).000 barrel capacity per stream day(BPSD). RPL : HIGHLIGHT Crude processing capacity of 580. RPL also benefits from a strategic alliance with Chevron India Holdings Pte Limited.000 barrels/day. one of India's largest private sector companies based in Mumbai. RPL is setting up a Greenfield petroleum refinery & polypropylene plant in a Special Economic Zone at Jamnagar in Gujarat. Currently.80. Lowest US$/complexity-barrel cost among recently built refinery projects. completed in a record time of 36 months Higher complexity: Nelson Complexity Index of 14. RPL will be the sixth largest refinery in the world.
RPL dispatched its first parcel of refinery products in January 2009. 84 crore (US$ 17 million). 3.World class refinery with minimal project risk. RPL processed 3.6 million tons of crude with revenue of Rs. ready to deliver superior returns. 5 .678 crore (US$ 725 million) and the net profit of Rs. Reliance Petroleum Limited (RPL) started crude processing on 25th December 2008 and achieved successful production of various products. During the year. RPL has also declared its first un-audited quarterly results today.
where the emphasis is on addressing the diverse needs of its customers and facilitating value added performance. Unique financial engineering capabilities. new product design. Reliance. multi-billion dollar projects in record time frames. Ability to create world class assets at 30%+ capital cost advantage compared to peer group. These include project identification. Our expertise is extensively offered to help develop products and markets from 'concept to fruition' and beyond. product and market development. Attracting and retaining the best people. We at Reliance are inspired by a sole objective: to help you build a better business .one committed to excellence. We invite you to build an alliance and gain access to our vast pool of resourcesdedicated professionals with a proven track record and grow with us. The knowledge and core competency that Reliance has acquired and developed over the years in the Polymer business has made it a major force globally. It's our people what sets us apart. and nurturing the „entrepreneurial‟ spirit. to its existing customers and potential entrepreneurs as well. Demonstrated ability to implement complex. At its core is the Polymer Research and Technology Centre (PRTC).CORE COMPETENCIES RELIANCE INDUSTRIES LTD Reliance‟s core competence lies in its ability to conceptualize and implement multi-billion dollar projects. Our core Reliance belief is to nurture our customers and help them grow. In pursuit of our above goals. We provide them comprehensive solutions backed by world class and proven services at every stage and round the clock. 6 . Largest inhouse pool of intellectual capital. over a period of time has painstakingly built a highly specialized and dedicated team of technical and commercial experts who provide round the clock support. raw material selection and testing beside a host of 'industry specific' solutions.
and nurturing the „intrapreneurial‟ spirit Unique financial engineering capabilities Demonstrated ability to implement complex. Reliance will seek to win and retain consumers by delivering clean and unadulterated fuels to correct quantities. shareholder families . multi-billion dollar projects in record time frames Ability to create world class assets at 30%+ capital cost advantage compared to peer group Absorption of diverse and complex technologies and optimal operation of plants RELIANCE PETROLEUM LTD Reliance has received government approvals for establishing about 5.the largest by any business house India‟s largest. Reliance generates over 3% of India‟s GDP Reliance contributes over 5% of the government‟s total tax revenues .800 retail outlets for marketing of transportation fuels across India and aims to establish these outlets by March 31. 2004. 7 . This petroleum retailing initiative presents a unique opportunity to Reliance to get close to the final consumer across the length and breadth of India. and the amongst the world‟s largest.over 5 million retail investors Reliance is now playing a leadership role in creation of a world class infocom infrastructure in India Largest in-house pool of intellectual capital Attracting and retaining the best people.
and quick synchronization of entire refinery complex within a world record timeframe of 3 months Capacity utilisation of 101% achieved in the second quarter of operations . through forward integration from refining into marketing.a unique achievement even in the global context 8 . Reliance will further enhance long-term shareholder value.Thus. with capacity of 27 mn tpa . and most complex. RPL operates the largest. over global peer group Flawless start-up. combined with a world-class differentiated retail customer experience. refinery in India. with over 25% of total domestic capacity World‟s largest grassroots refinery.the 7th largest refinery in the world at any single location 30% + capital cost advantage.
which it believes will result in RIL gaining "dominant market leadership". and Investing in high growth opportunities. Implementing vertical integration. Achieving economies of scale. It has the ability to increase production beyond the rated capacity through debottlenecking of operations at marginal costs. entering the business of retail marketing of petroleum products in India. The company has also announced that it proposes to increase production from existing refining assets.STRATEGY RELIANCE INDUSTRIES LTD Building and sustaining leadership position across its product categories in the domestic markets. Focusing on prudent financial management. Pursuing attractive export opportunities. investing in pipeline distribution infrastructure and accessing global markets. The major elements of RPL's growth strategy for the future will be maximising production from existing assets. and Aspire to be the lowest cost manufacturer/service provider. This increased production from existing assets will contribute to increased profitability. Investing in businesses that can scale rapidly and generate returns over an extendable period of time. Identifying new businesses with high growth potential. enhancing global competitiveness. RELIANCE PETROLEUM LTD Reliance Petroleum (RPL) has outlined a growth strategy which will focus on leveraging its competitive strengths to secure leadership position in refining and marketing of petroleum products and enhance long-term shareholder value. The 9 . Improving its technology.
RPL has obtained approval for India's largest ever syndicated foreign currency term loan facility for $750 million (Rs.500 crores). Also. The company proposes to enter retail marketing of controlled products and is now evaluating a multi-pronged strategy.250 crores which is Rs. 10 . RPL is the first Indian company to offer an opportunity to all shareholders for participating in an international offering of its shares . The competitive advantage of low per tonne capital cost will be further enhanced when the capacity is increased through debottlenecking. and/or development of its own distribution and marketing infrastructure.project cost is Rs. 14. This is lower by 30 per cent as compared to the capital costs for refineries set up recently. 5. The other agreements are expected to be finalised shortly.it already announced that it will be sponsoring international offers of GDRs against the existing equity shares held by Reliance Industries and all other categories of shareholders. encompassing potential joint ventures and alliances. 3. RPL's memorandum of understanding with Indian Oil Corporation for the formation of a joint venture for marketing and the company's participation in the process of disinvestment of IBP reflects this strategy. acquisitions of marketing and distribution assets. Agreements for $500 million have already been signed. RPL has announced that the average capacity utilisation for the first two months of the current quarter was a record 107 per cent.278 a tonne.
this has enabled Reliance to complete the integration across the energy and materials value chain . logistics advantages. enhanced flexibility and reduced volatility in the earnings stream.REASONS FOR MERGER Reliance Petroleum Limited (RPL) merged into Reliance Industries Limited (RIL) In a physical sense. cost efficiencies. rationalization of business processes and optimization of fiscal incentives. power and textiles. The merger of Reliance Industries Limited and Reliance Petroleum Limited seeks to consolidate businesses across the value chain. All these factors will enhance shareholder value. These would result in strong financials. This is consistent with global industry trends. productivity gains. petrochemicals.ranging from oil and gas exploration and production. The merger will bring about operational synergies. 11 . the merger places Reliance in the reckoning for a place in the Fortune Global 500 list of the world's largest corporations. In a competitive sense. Above all. the merger has created a firm foundation for Reliance to compete with other global energy majors. refining and marketing. supported by a robust balance sheet and strong operational synergies.
RIL consolidates a worldclass. complex refinery that complements its‟ existing refining assets. Shareholders as they participate in the integrated energy chain of RIL. giving it direct control of the world‟s largest refinery complex. 12 . as per the approval granted by the Hon High Courts of Mumbai and Gujarat. Below is the analysis from top brokerage houses across the country on the deal and who stands to benefit in the scheme of arrangement. RIL said it would issue one share for every 16 held in the unit. BENEFIT OF RIL-RPL MERGER: India‟s most valuable company (by market capitalization) – Mukesh Ambanicontrolled Reliance Industries Limited (RIL) has decided to absorb its Reliance Petroleum Limited (RPL) unit through a share swap arrangement. The merger is expected to reduce the earnings volatility for RPL. as per the scheme of merger. Accordingly. Shareholders of RPL received 1 share of RIL in lieu of every 16 shares of RPL held by them.92 crore new equity shares of RIL have been allotted to the shareholders of RPL. 6. The merger creates a platform for reinforcing the Company's position as an integrated energy company on a global scale. RIL will additionally gain from reduced operating costs arising out of the combined operations.The merger of Reliance Petroleum Limited (RPL) with Reliance Industries Limited (RIL) has enabled seamless integration of operational scale and financial synergies That existed between the two Companies. Assets and liabilities of RPL have been transferred to RIL with effect from 1st April 2008. Through this merger. The merger enhances value for shareholders of both Companies.
Assets and liabilities of RPL have been transferred to RIL with effect from 1st April 2008. as per the approval granted by the Hon. The merger is EPS accretive and results in the Company: Operating two of the world's largest and most complex refineries Owning 1.92 crore new equity shares of RIL have been allotted to the shareholders of RPL. The merger creates a platform for reinforcing the Company's position as an integrated energy company on a global scale. Accordingly. RIL consolidates a worldclass. RIL will additionally gain from reduced operating costs arising out of the combined operations. The merger of Reliance Petroleum Limited (RPL) with Reliance Industries Limited (RIL) has enabled seamless integration of operational scale and financial synergies That existed between the two Companies. The merger is expected to reduce the earnings volatility for RPL shareholders as they participate in the integrated energy chain of RIL. High Courts of Mumbai and Gujarat. Shareholders of RPL received 1 share of RIL in lieu of every 16 shares of RPL held by them. as per the scheme of merger.RPL merger with RIL: Value creation through scale and synergies.24 million barrels per day (MBPD) of crude processing capacity. Through this merger. 6. The merger enhances value for shareholders of both Companies. largest at any single location in the world Owning 25% of the world's most complex refining capacity Emerging as the 4th largest producer of polypropylene globally Becoming the world's largest producer of ultra-clean fuels at a single location 13 . complex refinery that complements its‟ existing refining assets.
subject to necessary approvals. RIL will issue 6. It is a significant step in our goal to be among the largest global corporations.RIL.643 crore. No fresh treasury stock created RIL to be a top 10 private sector refining company globally RIL to become the world‟s largest producer of Ultra Clean Fuels at single location Merger to unlock greater efficiency from scale and synergies Merger to be EPS accretive RIL to have 3.7 million shareholders 14 . Chairman and Managing Director. thereby increasing its equity capital to Rs 1. Reliance Industries Ltd said: “This merger follows Reliance Industries‟ philosophy of creating enduring value for all our stakeholders. The exchange ratio recommended by both boards is 1 (one) share of RIL for every 16 (sixteen) shares of RPL.RPL MERGER HIGHLIGHT MUMBAI. Commenting on the merger. 2 March 2009: The Boards of Directors of Reliance Industries Limited (RIL) and Reliance Petroleum Limited (RPL) today unanimously approved RPL‟s merger with RIL.” Merger is India‟s largest ever RPL shareholders to receive 1 (one) share of RIL for every 16 (sixteen) shares of RPL RIL‟s holding in RPL to be cancelled. Mukesh Ambani.92 crore new shares.
0% Offer price was Rs.227. the promoter holding in RIL will reduce from 49. Based on the recommended merger ratio.574 crore to Rs 1. RIL will cancel its holding in RPL. The appointed date of merger of RPL with RIL is 1st April 2008.92 crore new equity shares to the existing shareholders of RPL. This will result in a 4. RIL will issue 6. Consequently.46 for one share of RIL 15 . RPL shareholders will receive 1 (one) share of RIL for every 16 (sixteen) RPL shares held by them.4% increase in equity base from Rs 1.0% to 47.643 crore.TENDER OFFER Under the terms of the proposed merger.
In Crores) Particulars PAT Dividend No.98 11986045.60* 15737.67 2084.74 Shares Market Per Share 761.28 3. EPS (Earning Per Share) = = = = = = = = = = = = PAT/ No.28 Rs.32 1897. of Ordinary Shares 1897.32/ 15737.05 MPS / EPS 326.36 times MPS* No. 2.12. of Ordinary Shares 15309. of Ordinary Pre-Merger 15309.65 BEFORE MERGER 1.98 Post-Merger 16235.VALUATION: The financial details of Tata Chemicals before merger and after merger are given as follows: (All amounts are in Rs. DPS (Dividend Per Share) 3. Dividend / No.67 32703.568 Crore Rs.98 Rs.98 97.85 / 97.05 15737. P/E (Price-Earnings) Ratio 4.05 / 15737.60 1074. Market Value 16 . of Ordinary Shares 761.
2.74 35145074.65* 32703. EPS (Earning Per Share) = = = = = = = = = = = = PAT/ No. DPS (Dividend Per Share) 3.64 21.37 Rs. And hence. because of this reason.28RS. After the merger the share price of Reliance Industries Ltd has increased. of Ordinary Shares 16235. to 49. because of the increase in the number of shares and in the profit after tax And also the DPS (Dividend per Share) been reduced as the dividend amount also increased but not upto that extent increased in the number of shares . 17 . MPS / EPS 1074.64 Rs.74 6. P/E (Price-Earnings) Ratio 4. the market capitalization also increased.67/ 32703.74 49.65 times MPS* No.AFTER MERGER 1.191 Crore Rs.65/49. Thus. Market Capitalization increased also because of the increase in the rise of the number of the ordinary shares. of Ordinary Shares 2084.67/ 32703. of Ordinary Shares 1074. as the market price of the share goes up. Dividend / No. the P/E Multiples has also increased after the merger. Market Value INTERPRETATION: From the above valuation it can be stated that after the merger the Earning per Share has reduced from 97.64 Rs.
CONCLUSIONS: We believe the deal is a win-win situation for both companies. complex refinery with minimal residual project risk. Through this merger. There will be further gains from reduced operating costs arising from synergies of a combined operation. the merger is expected to reduce Earnings volatility and allows them to participate in RIL's full energy value chain. The merger will enhance value for shareholders of both companies. It creates a platform for value-enhancing growth and reinforces RIL‟s position as an integrated global energy company. RIL consolidates a world-class. while complementing RIL‟s product range. The merger will unlock significant operational and financial synergies that exist between RIL and RPL. Both the companies have lots of benefit and synergy between each other. stronger Balance Sheet and lower cost of capital post merger. The merger is EPS accretive for RIL. as RIL will have improved Cash-flow. 18 . For RPL shareholders.
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