FINANCIAL MANAGEMENT

A report on the Company analysis of

Reliance Industry Ltd.

In partial fulfillment of the requirement for awarding the degree of

MASTER OF BUSINESS ADMINISTRATION

Under the Guidance of Faculty DR. A. Senthil Kumar

By Section: C Team no: 3
CB.BU.P2MBA20061 Jagan Chidambaram R
CB.BU.P2MBA20070 Kannan G
CB.BU.P2MBA20076 Madhusudhanan R
CB.BU.P2MBA20079 Mithra V
CB.BU.P2MBA20114 Saranya S
TABLE OF CONTENT
Introduction:

Reliance Industries Limited (RIL) is an Indian multinational conglomerate company

headquartered in Mumbai, Maharashtra, India. Reliance owns businesses across India engaged in
Oil, natural gas, energy, petrochemicals, textiles, retail and telecommunications. Reliance is one of
the most profitable companies in India, the largest publicly traded company in India by market
capitalisation and the largest company in India as measured by revenue after recently surpassing the
government-controlled Indian Oil Corporation. On 10 September 2020, Reliance Industries became
the first Indian company to cross $200 billion in market capitalisation.

The company is ranked 96th on the Fortune Global 500 list of the world's biggest corporations as of
2020. It is ranked 8th among the Top 250 Global Energy Companies by Platts as of 2016. Reliance
continues to be India's largest exporter, accounting for 8% of India's total merchandise exports with
a value of ₹1,47,755 crore and access to markets in 108 countries. Reliance is responsible for almost
5% of the government of India's total revenues from customs and excise duty. It is also the highest
income tax payer in the private sector in India.

Traded in:

Included In Details

BSE 100 BSE: 500325

BSE 200 NSE: RELIANCE
SENSEX Series EQ
NIFTY 50 ISIN-INE002A01018
BSE 500

Mission:

RIL mission is to maximise stakeholders' value by finding, producing and marketing oil and
natural gas and to provide sustainable growth while catering to the needs of customers, partners,
employees and the local communities in which they do business. It will conduct our business in a
manner that protects the environment as well as the health and safety of our employees,
contractors and the local communities in which they do business.

Vision:

Towards energy security for the nation

History:

1960–1980:

The company was co-founded by Dhirubhai Ambani and Champaklal Damani in 1960's as Reliance
Commercial Corporation. In 1965, the partnership ended and Dhirubhai continued the polyester
business of the firm. In 1966, Reliance Textiles Engineers Pvt. Ltd. was incorporated in Maharashtra.
It established synthetic fabrics mill at Naroda in Gujarat. On 8 May 1973, it became Reliance
Industries Limited. In 1975, the company expanded its business into textiles, with "Vimal" becoming
its major brand in later years. The company held its Initial public offerings in 1977. The issue was
over-subscribed by seven times.
In 1979, a textiles company Sidhpur Mills was amalgamated with the company. In 1980, the
company expanded its polyester yarn business by setting up a Polyester Filament Yarn Plant in
Raigad, Maharashtra with financial and technical collaboration with E. I. du Pont de Nemours & Co.

1981–2000

In 1985, the name of the company was changed from Reliance Textiles Industries Ltd. to Reliance
Industries Ltd. During the years 1985, the company expanded its installed capacity for producing
polyester yarn by over 1,45,000 tonnes per annum. The Hazira petrochemical plant was
commissioned in 1991. In 1993, Reliance turned to the overseas capital markets for funds through a
global depository issue of Reliance Petroleum. In 1996, it became the first private sector company in
India to be rated by international credit rating agencies. In 1995, the company entered the telecom
industry through a joint venture with NYNEX, USA and promoted Reliance Telecom Private Limited in
India. In 1998, RIL introduced packaged LPG in 15 kg cylinders under the brand name Reliance Gas.
The years 1998 saw the construction of the integrated petrochemical complex at Jamnagar in
Gujarat, the largest refinery in the world.

2001 – 2020

In 2001, Reliance Industries Ltd. and Reliance Petroleum Ltd. became India's two largest companies
in terms of all major financial parameters. In 2001, Reliance Petroleum was merged with Reliance
Industries. In 2002, Reliance announced India's biggest gas discovery at the Krishna Godavari basin in
nearly three decades and one of the largest gas discoveries in the world during 2002. The volume of
natural gas was in excess of 7 trillion cubic feet, equivalent to about 120 crore barrels of crude oil.
This was the first ever discovery by an Indian private sector company. In 2002, RIL purchased a
majority stake in Indian Petrochemicals Corporation Ltd. India's second largest petrochemicals
company, from the government of India, RIL took over IPCL's Vadodara Plants and renamed it as
Vadodara Manufacturing Division. In 2005 and 2006, the company reorganised its business by
demerging its investments in power generation and distribution, financial services and
telecommunication services into four separate entities. In 2006, Reliance entered the organised
retail market in India with the launch of its retail store format under the brand name of 'Reliance
Fresh’. By the end of 2008, Reliance retail had close to 600 stores across 57 cities in India.[12] In
November 2009, Reliance Industries issued 1:1 bonus-shares to its shareholders. In 2010, Reliance
entered the broadband services market with acquisition of Infotel Broadband Services Limited,
which was the only successful bidder for pan-India fourth-generation (4G) spectrum auction held by
the government of India. In the same year, Reliance and BP announced a partnership in the oil and
gas business. BP took a 30 per cent stake in 23 oil and gas production sharing contracts that Reliance
operates in India, including the KG-D6 block for $7.2 billion. Reliance also formed a 50:50 joint
venture with BP for sourcing and marketing of gas in India. In 2017, RIL set up a joint venture with
Russian Company Sibur for setting up a Butyl rubber plant in Jamnagar, Gujarat, to be operational by
2018. In August 2019, Reliance added Fynd primarily for its consumer businesses and mobile phone
services in the e-commerce space
TOP MANAGEMENT TEAM

Mukesh D Ambani – CEO, Chairman & Managing Director

Alok Agarwal - Chief Financial Officer

K Sethuraman - Group Co. Secretary & Compliance Officer

Savithri Parekh - Joint. Co. Secreatary & Compliance Officer

Srikanth Venkatachari - Jt. Chief Financial Officer

Executive Directors Non- Executive Directors Independent Directors

Hital R Meswani K V Chowdary Adil Zainulbhai

Nikhil R Meswani Nita M Ambani Arundhati Bhattacharya

P M S Prasad Dipak C Jain

Pawan Kumar Kapil Raghunath A Mashelkar

Raminder Singh Gujral

Shumeet Banerji

Yogendra P Trivedi

Products:

RIL expertise lies in developing products and markets from 'concept to fruition' and beyond. RIL
focus on innovation has helped it to emerge as a trendsetter in various markets and be known
worldwide for our unbeatable range of products. RIL operations span from the exploration and
production of oil and gas to the manufacture of

Petroleum products
Polyester products & intermediates
Plastics
Polymer intermediates
Chemicals
Synthetic textiles and
Fabrics.
Market:

RIL accounts for nearly half of the country’s Oil and Natural Gas market share

Capacity:

1. The Jamnagar Refinery is a private sector crude oil refinery owned by Reliance Industries
Limited in Jamnagar, Gujarat, India.
2. The refinery was commissioned on 14 July 1999 with an installed capacity of 668,000 barrels
per day (106,200 m3/d).
3. It is currently the largest refinery in the world.

Turnover:

Reliance Industries Limited reported a consolidated turnover of over 6.5 trillion Indian rupees in
fiscal year 2020. This was a 5.4 percent growth compared to the previous fiscal year. The
conglomerate giant made most of its revenues from its refining petrochemicals and retail
businesses.

Shareholding Pattern:

Holder's Name No of Shares Share Holding %

6762037614 100%
No of Shares

3323114981 49.14%
Promoters

1658393598 24.53%
Foreign Institutions

336794806 4.98%
N Bank Mutual Funds

13092276 0.19%
Central Govt

139287417 2.06%
Others

580230955 8.58%
General Public

531025231 7.85%
Financial Institutions

180098350 2.66%
GDR
Competitors:

RIL has two major domestic competitors Bharat petroleum and Hindustan petroleum that are
state controlled.

Bharat Petroleum Corporation Limited (BPCL):

The company is India's 2nd largest downstream oil company and is ranked 275th on the
Fortune list of the world's biggest corporations as of 2019.

Revenue  ₹342,916 cr 

Operating income  ₹11,968 cr 
Net income  ₹8,527 cr
Total assets  ₹136,930 cr

Hindustan Petroleum Corporation Limited (HPCL):

It has a market share of about 25% amongst the public sector companies. The company is
ranked 367th on the fortune global 500 list.

Revenue ₹298,618 cr 

Operating income ₹10,039 cr 
Net income ₹6,690 cr
Total assets ₹107,258 cr
 RATIO ANALYSIS

A-Liquidity Ratio:

Liquidity ratio describes the ability of Reliance Industry Limited to meet its short run
obligation.

LIQUIDITY MAR 20 MAR 19 MAR 18 MAR 17 MAR 16

RATIOS
Current 0.63 0.73 0.59 0.62 0.69
Ratio
Acid-test 0.45 0.52 0.39 0.42 0.44
Ratio

1) Current ratio: The higher current ratio reflects short term solvency. The general norm for the
current ratio in India is 1.33 but, RIL manages to secure highest current ratio of only 0.73 in
MAR19 which is far lesser than the general norm. It affects the short-term solvency of RIL
thus, it results in failure of meeting RIL’s uncertain obligation.

2) Acid-test ratio: 1:1 is maintained to be the ideal quick ratio indicating that the business has
enough assets which may be immediately liquidated for paying off the current liabilities. If it
is less than 1, company cannot pay off its current liabilities outstanding in the short term
entirely. RIL manages to secure highest Acid-test ratio of only 0.52 in MAR19 which is far
lesser than the ideal quick ratio.

B- Leverage Ratio: Leverage ratio refers to the use of debt finance. It helps in assessing the risk
arising from the use of debt capital.

LEVERAGE MAR 20 MAR 19 MAR 18 MAR 17 MAR 16

RATIOS
Interest Coverage 3.63 4.34 7.13 11.43 11.43
Ratios
Debt Equity Ratio 0.64 0.70 0.62 0.70 0.72

1) Debt equity ratio: The ratio shows the relative contributions of creditors and owners. A high
debt-equity ratio indicates a business uses debt to finance its growth. If a debt-equity ratio is
lesser it means the business hasn't relied on borrowing to finance operations. Investors are
unlikely to invest in a company with a very low debt-equity ratio. Ideal debt-equity ratio is
around 1 to 1.5. In RIL debt-equity ratio is very low which means RIL hasn’t relied on
borrowings to finance operation.

2) Interest coverage ratio: The ratio determines whether company can pay off its debts.
Creditors can use the ratio to decide whether they will lend to the company. A lower ratio
may be unattractive to investors because it may mean the company is not poised for growth.
The ratio of RIL keeps on decreasing from “11.43 on MAR16” to “3.63 on MAR20” also RIL’s
ability to pay off its debts decreasing.
C - Turnover Ratios: The ratio measures how efficiently the assets are employed by the company.

TURNOVER RATIO MAR 20 MAR 19 MAR 18 MAR 17 MAR 16

Inventory Turnover 8.07 8.43 6.44 6.24 5.89

Ratio
Asset Turnover Ratio 0.51 0.56 0.47 0.42 0.45

1) Inventory Turnover Ratio: It reflects the efficiency of inventory management. The higher
the ratio, the more efficient the management of inventories. Ideal inventory turnover ratio is
between 5 and 10 which indicates that you sell and restock your inventory every 1-2
months. This ratio will have good balance between having enough inventory on hand and
not having to reorder too frequently. RIL’s STOR is efficiently management throughout the
five years.

2) Asset Turnover Ratio: It measures the value of business sales revenue relative to the value
of company assets. It’s an indicator of the efficiency with which a company can use assets to
generate revenue. Ideal asset turnover ratio should be between 0.25 and 0.5. Hence RIL
manages to utilize its assets efficiently to generate revenue throughout the five years.

D- Profitability Ratio: It measure the relationship between Profit and Revenue. It reflects the final
result of Business operations.

PROFITABILITY MAR 20 MAR 19 MAR 18 MAR 17 MAR 16

RATIOS
EBITDA Margin 17.12 16.25 18.92 18.21 19.61

Gross Profit Margin 8.96 9.68 12.60 13.14 14.05

Net Profit Margin 6.66 6.98 9.19 9.80 10.81

Return on Equity 8.68 10.22 12.29 11.37 12.89

Return on Capital 10.62 10.45 11.42 9.22 7.18

Employed
Return on Assets 3.37 3.94 4.41 4.19 4.96

1) EBITDA Margin Ratio: The ratio measures the margin left after meeting all expenses. It
reflects the operating efficiency of the firm. The EBITDA Margin for BP is 12, Royal Dutch
Shell is 16, Exxon Mobil is 18 during the year 2018. When compared to this RIL managed to
secure good EBITDA Margin throughout the years.
 2) Gross Profit Margin Ratio: The ratio measures the difference between revenue from
operation and cost of goods sold. The gross profit percentage keeps on decreasing from
2016 to 2020. There is no hike in percentage with corresponding to preceding year. This is
mainly due to international politics and invasion of electric cars.

3) Net Profit Margin Ratio: The ratio measures the earnings left for shareholders as a
percentage of total revenue. The net profit margin seemed to be declining from 2016 to
2020. According to Corporate Institute of Finance January 2020, the average net profit
margin for the oil and gas industry was 6.8%. Despite its decline RIL manages to secure
decent net profit throughout the years.

4) Return on Equity: The ratio measures the profitability of equity funds invested in the firm.
Simply Wall St data shows Oil and Gas industry has a return on equity of 4.0% for the year
2020. RIL manages to provide more return of equity than Industry standards.

5) Return on Capital Employed: The ratio helps to determine whether company is doing a good
job of generating profits from its Capital. A higher return of capital shows higher percentage
of the company's value which can ultimately be returned as profit to stockholder. The ideal
return on capital should be equal to at least twice current interest rates. In RIL return on
capital is decently good.

6) Return on Assets: The ratio measures the percentage of how profitable a company's assets
are in generating revenue. Return on Assets over 5% are generally considered good. In RIL
return on assets were found poor. RIL were generating lesser profit from its assets than
industry standards.

E - Valuation Ratio: It indicates how the company and its equity are assessed in the capital market

VALUATION MAR 20 MAR 19 MAR 18 MAR 17 MAR 16

RATIOS
Enterprise Value 973,695.06 1,076,884.43 703,682.16 573,921.28 464,818.70
(Cr.)
EV-EBITDA 9.53 11.64 9.49 10.32 8.65

Market value to 1.56 2.09 1.78 1.49 1.34

Book value Ratio

1) EV-EBITDA ratio: It reflects profitability, growth, risk and liquidity. It is a popular valuation
tool that helps investors compare companies in order to make an investment decision. An
EV/EBITDA value below 10 is considered as healthy. RIL manages to secure healthy
EV/EBITDA for the year 2020,2018 & 2016. In the year 2019 & 2017 EV/EBITDA ratio were
found unhealthy.
 2) MV to BV ratio: It compares the company current market price to its book value per share.
The ratio exceeds the value of 1, it means that the company has contributed to the creation
of wealth of shareholders. RIL price to book value ratio is above 1 throughout the five years.
The Market value of RIL is 2.09 in MAR2019 which means that the RIL has created the wealth
of one rupee for every rupee invested in RIL.

Major Investment done by Reliance Industry Ltd.

Name Amount (Rs. cr.) No of Shares Percentage (%)

ABSL Equity 7,059.54 1,294,502 3.39%
Fund
ABSL Frontline 20,000.00 5,364,718 8.52%
Equity
Axis Bluechip 20,000.00 4,445,126 8.52%
Fund
HDFC Equity 20,000.00 2,858,319 4.84%
Fund
ICICI Pru 10,000.00 5,799,504 7.65%
Bluechip Fund
Kotak Standard 20,000.00 10,513,935 10.62%
Multicap Fund
SBI - ETF 10,000.00 49,909,960 14.90%
Nifty 50
Mirae Emerging 15,849.00 1,592,455 4.49%
Bluechip Fund

Mirae Emerging Bluechip

Fund ABSL Equity Fund

ABSL Frontline Equity

SBI - ETF Nifty 50

Kotak Standard Multicap

Fund Axis Bluechip Fund

ICICI Pru Bluechip Fund

HDFC Equity Fund
Weighted Average Cost of Capital (WACC)
WACC is the average after-tax cost of a company’s various capital sources, including common
stock, preferred stock, bonds, and any other long-term debt. In other words, WACC is the average
rate a company expects to pay to finance its assets.

WACC = (D/(D+E)) * Kd + (E/(D+E)) * Ke

Where D =Total debt

E=Total shareholder equity

Kd=Cost of debt

Ke=Cost of equity

Year 2020 2019 2018 2017 2016

Cost of 17.55 17.39 17.93 17.75 13.39

Equity
Cost of 6.23 5.44 3.15 1.84 1.84
Debt
Effective Tax 23.6 27.9 27.0 25.5 22.9
Rate
WACC 12.96 9.01 8.01 7.85 7.68

Interpretation: Reliance is suffering severe economic loss. It failed to gain economic profit since
2011. It was the caused the stock to range-bound from 2011 to 2016. The Peaking capex cycle in
petrochemicals and refineries business changed the nature of Reliance in terms of share price. There
are many more businesses which has the potential to influence the numbers of Reliance. The
number has not undergone any positive signs.
 Pattern of Financing
(in Rs. Cr.)

Long Term
Years Equity Reserves & Surplus Borrowings
2020 6,339 4,46,992 1,97,631
2019 5,926 3,81,186 2,07,506
2018 5,922 2,87,569 1,44,175
2017 2,959 2,59,876 1,52,148
2016 2,948 2,27,765 1,41,647
2015 2,943 2,14,712 1,20,777
2014 2,940 1,94,882 1,01,016
2013 2,936 1,77,433 70,960
2012 2,979 1,62,726 65,352
2011 2,981 1,45,027 66,236

Pattern of Financing
500,000
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

Equity Reserves & Surplus Long Term Borrowings

Analysis: RIL’s pattern of financing was hugely dominated by the long-term debt. It preferred debt
over the equity because the cost of equity is very high and the return expected by the equity
shareholder will be higher than the rate of return required by the other investors. It also requires
underwriting commission, brokerage cost and other issue expenses.

Forms of Long-Term Finance: June 25 2019, RIL signed pacts with overseas lenders to avail long-
term loans of Rs12,900 crore to finance its capital expenditure. It announced its rights issue of
Rs.53,125 crore in its April 30, 2020. British Petroleum acquired 49 percent stake in RIL’s fuel
retailing business for Rs7,629 crore. It raised Rs 14,370 crore via overseas syndicated loans to fund
routine capital expenditure in petroleum businesses. This would be among the largest fundraising
efforts by an Indian company in fiscal 2020.

CAPITAL STRUCTURE
A combination of the long-term debt of a corporation, unique short-term debt, common equity, and
preferred equity. The capital structure is how a company uses different sources of funds to finance
its overall operations and growth.

Debt comes in the form of bond issues or long-term bonds that are due whereas equity is known as
common stock, preferred stock or earnings that are retained. Short-term debt is also considered part
of the capital structure, such as working capital needs. But the RIL is not selling the company's
preferred shares and debentures to the public.

Components of Capital Structure:

1) Shareholders Fund
Equity and Preference Share

2) Borrowers Fund
Debenture and Term loan

Capital Structure (Reliance Industry Limited)

 (in Rs. Cr.)
PERIOD Authorised Issued PAIDUP
Instrument Capital Capital Shares Face Capital
From To (Nos) Value
2019 2020 Equity Share 14000 6339.27 6339267510 10 6339.27
2018 2019 Equity Share 14000 6338.69 6338693823 10 6338.69
2017 2018 Equity Share 14000 6334.65 6334651022 10 6334.65
2016 2017 Equity Share 5000 3251.28 3251278100 10 3251.28
2015 2016 Equity Share 5000 3240.38 3240376321 10 3240.38

AUTHORISED CAPITAL

A company can raise the maximum equity capital that is mentioned in the company's
Association Memorandum and Articles of Association. Share premium, however, is excluded from
the authorized capital definition.

ISSUED CAPITAL
Issued capital is the shareholders ' nominal value of shares. The issued share capital and
share premium is the amount invested in the company by the shareholders. It is also referred to as
the subscribed capital or share capital.

PAID UP CAPITAL
The value of the capital of a company is supported by shareholders; Paid-up capital may be less
than the total capital of a corporation because it is not allowed to offer all the shares it has been
approved to sell. Paid-up capital can also represent how a business relies on equity financing.

ANALYSIS: When compared to Authorized Capital, RIL issued much lesser share capital for the year
2018-2020 than 2016-2018.