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. RILs 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. RILs Jamnagar refinery, is the worlds 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 RILs 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 companys strategy to integrate upstream in the oil and gas industry and foray into the retail industry will provide significant opportunities for growth. Given RILs reputation for prompt execution, we expect rapid expansion of its retail stores. The companys 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 : y One of RILs core competencies is to conceptualise & implement multibillion dollar projects ontime & in a cost efficient manner.

y 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. y These 3 facilities together accounted for approximately 84 % of RILs gross fixed assets for the year ended march 31st,2005. y Swot Analysis : Strengths y y y y y Technological Skills Distribution channels Production Quality High resource & surplus Unique growth visibility

Weakness y Failure in Forward Integration y Un-utlised high resource & surplus Opportunities y Increase in demand in Chinese & Indian market y Gas from KG basin y Local Indian market visibility & growth Threats y y y y Possibility of 100 % FDI Windfall taxes Competition Government

RIL Product Mix :

Oil & Gas 3% Fibre Int. 29% Polyester 22%

Chemicals 11%

Plastics & Int. 34%

Fabrics 1%

Shareholders 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% SubsidiaryCompanies 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 :

Today Reliance Industries Ltd. Sensex NIFTY 1.27% 0.56% 0.64% 1 Month 4.07% 11.29% 11.34% 3 Months 1 Year 3 Years 14.08% 16.06% 20.08%

9.25% 10.38% 13.37% 17.17% 13.50% 18.60%

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

Financial Analysis of Reliance Industries ltd.

Liquidity ratios and solvency: Liquidity implies a firms 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 Current Ratio Quick Ratio Debt Equity Ratio Mar-06 0.83 0.67 0.48 Mar-07 0.77 0.69 0.45 Mar-08 1.01 0.94 0.46 Mar09 1.08 0.9 0.65 Mar 10 1.11 0.76 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 Operating Profit Margin(%) Gross Profit Margin(%) Net Profit Margin(%) Return On Capital Employed(%) Return On Net Worth(%) Mar-06 17.87 13.67 11.13 17.37 20.08 Mar-07 18.26 13.95 10.64 18 19.49 Mar-08 16.76 13.14 14.45 15.68 24.66 Mar09 17.01 13.35 10.65 10.96 13.36 Mar 10 15.6 10.13 8.35 11.35 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 march09 to march10 from 13.35% to 10.13%.As compared to march06,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 march06 to march10 varyin with different percentages.As compared to march06,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 Earning Retention Ratio Mar-06 82.56 Mar-07 86.5 Mar-08 86.01 Mar-09 85.92 Mar-10 84.16

Earning retention ratios: Since the earning retention ratio is increasing from 82.56 % to 84.16 % from march06 to march10,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 shareholders earn from their shares. After charging depreciation and after payment of tax, the remaining amount will be distributed by all the shareholders.
Market Ratios EPS Mar-06 65.08 Mar-07 85.71 Mar-08 133.86 Mar-09 97.28 Mar-10 49.64

Management efficiency ratios :

Management Efficiency Ratios Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio Mar-06 9.6 19.99 9.6 0.96 1.21 0.96 Mar-07 10.65 28.29 10.65 1.13 1.26 1.13 Mar-08 10.57 26.87 10.57 1.29 1.15 1.29 Mar-09 12.92 26.29 12.92 1.01 0.79 1.01 Mar-10 8.29 23.67 8.29 0.94 1.07 0.94

Inventory Turnover Ratio:This ratios shows how many times a companys 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 Oil Mar '10 12 mths

BPCL Mar '09 Net Profit Before Tax Net Cash From Operating Activities Net Cash (used in)/from Investing Activities Net Cash (used in)/from Financing Activities Net (decrease)/increase In Cash and Cash Equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents 12 mths

MRPL Mar '10 12 mths

IOC Mar '10 12 mths

Reliance Mar '10 12 mths 20547.44 20490.22 -18204.5 -10999.6 -8713.88 22176.53

1017.57
6212.34 -9908.75 -2285.32 -5981.73 -11139.67

28.58 1691.85 14106.09 688.65 2723.53 2075.47 1883.33 1411.1 -645.22 24.28 194.98 190.7 1761.61 -464.7 4676.1 -3694.23 517.17 798.02

Balance Sheet Comparision : ( in crores )

Balance Sheet ( in crores ) Reliance Mar '10 Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt 3,270.37 3,270.37 0 0 125,095.97 8,804.27 137,170.61 11,670.50 50,824.19 62,494.69

IOC Mar '10 2,427.95 2,427.95 0 0 48,124.98 0 50,552.93 18,292.45 26,273.80 44,566.25

BPCL Mar '10 361.54 361.54 0 0 12,725.17 0 13,086.71 10,443.87 11,751.33 22,195.20

Essar Oil Mar '10 1,218.13 1,218.13 1,153.21 0 2,302.31 0 4,673.65 9,470.59 883.14 10,353.73

HPCL Mar '10 339.01 339.01 0 0 11,218.96 0 11,557.97 1,375.88 19,926.49 21,302.37

Total Liabilities

199,665.30 95,119.18 Reliance Mar '10 IOC Mar '10

35,281.91 BPCL Mar '10

15,027.38 32,860.34 Essar Oil Mar '10 HPCL Mar '10

Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets

215,864.71 62,604.82 153,259.89 12,138.82 19,255.35 26,981.62 11,660.21 362.36 39,004.19 10,517.57 17,073.56 66,595.32 0 48,018.65 3,565.43 51,584.08 15,011.24 0 199,665.30

71,780.60 30,199.53 41,581.07 21,268.63 22,370.25 36,404.08 5,799.28 1,315.11 43,518.47 15,870.43 0 59,388.90 0 39,236.28 10,271.56 49,507.84 9,881.06 18.17 95,119.18

25,412.52 11,743.17 13,669.35 2,517.75 12,201.32 12,028.86 2,662.68 342.36 15,033.90 9,850.04 0 24,883.94 0 15,409.86 2,580.59 17,990.45 6,893.49 0 35,281.91

13,802.50 1,493.15 12,309.35 4,318.75 203 3,969.44 2,033.30 1,350.75 7,353.49 1,025.94 0 8,379.43 0 10,160.34 22.81 10,183.15 -1,803.72 0 15,027.38

24,988.37 9,681.70 15,306.67 3,887.59 11,387.22 12,579.22 2,437.34 243.17 15,259.73 5,382.21 0 20,641.94 0 16,257.87 2,105.21 18,363.08 2,278.86 0 32,860.34

Contingent Liabilities Book Value (Rs)

25,531.21 23,586.81 392.51 208.21

5,682.54 361.97

22,091.84 29.3

4,598.74 341.32