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1
Reliance Industries Limited
Financial Presentation H1 FY 2001-02
October 31, 2001
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
Value Creation
Summary
Contents
4
Operating Environment
5
Strong Performance under Difficult Environment
Strong operational and financial performance achieved in
continuing adverse industry environment
General economic slowdown in India and globally led to weak
demand conditions for several of Reliance’s products
Focus on high operating rates, specialities, productivity gains,
integration and reduction in financial costs have contributed to
continued profit growth
Increase in overall uncertainty in view of the recent global
developments
Reliance’s operational and financial strengths have enabled it to maintain performance in difficult industry conditions
6
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160
200
240
280
320Crude Oil Brent (US$/BBL)
Naphtha FOB AG (US$/MT)
Volatility in Feedstock Prices
Feedstock price volatility has created uncertainty over petrochemicals industry margins
7
Trend in Feedstock & Product Prices - International % change in international prices H1 FY’02 over H1 FY’01
International product prices have generally declined in greater proportion than feedstock prices
1%
-5%
-8%
-8%
-13%
-14%
-14%
-16%
-32%
-53%
-6%
PX
POY
PTA
Crude
Naphtha
PE
PP
PSF
MEG
PVC
EDC
Raw Material
8
% change in domestic prices H1 FY’02 over H1 FY’01
Declines in domestic prices are less pronounced due to RIL’s superior customer relationships and effective supply chain management initiatives
5%
5%
-6%
-7%
-9%
-10%
-11%
-16%
-51%
-6%
PX
POY
Naphtha
PP
PTA
PSF
MEG
PE
PVC
EDC
Trend in Feedstock & Product Prices - Domestic
Raw Material
9
Petrochemicals Industry Margins Under Pressure
Global petrochemical margins under pressure during H1
Leading international petrochemicals companies in US, Europe
and Asia have reported weak performances
Historically low product prices - currently trading 20%-50% below
10 year averages
Uncertain future outlook for margins in view of:
- global demand slowdown
- continued volatility in feedstock prices
The global petrochemicals industry is currently passing through one of the most uncertain and difficult times in recent years
10
RIL’s H1 Performance Highlights
Capacity utilisation 104%
Production volumes 5.7 mn. tonnes, up 9%
Domestic sales 88% of total sales
Exports US$ 328 mn. (Rs.1,569
crores)
Market shares polyester 53%
intermediates
78%
polymers 50%
RIL has achieved high capacity utilisation rates despite weak demand conditions for some products
11
H1 Financial PerformanceH1 Financial Performance
12
RIL+RPL - Financial Highlights
H1 FY 2001-02Rs.crs. $ mn.
Sales 30,000 6,300
Operating Profit 4,600 1,000
Cash Flow 3,500 800
Net Profit 2,200 500
Total Assets 52,000 11,000
Reliance continues to be the No. 1 business group in India in terms of all major financial parameters
13
RIL Income Statement for Q2 FY 2001-02
Lower interest costs have contributed to profit growth
Q2 FY 2001-02 Q2 FY 2000-01 % ChangeRs.crs. $ mn. Rs.crs. $ mn.
Sales 6,234 1,302 6,721 1,459 -7%
Trading Sales - - 1,673 363
Total Sales 6,234 1,302 8,394 1,822
EBITDA 1,414 295 1,408 306
Interest 255 53 333 73
Depreciation 422 88 381 83
Tax 34 7 34 7
Deferred Tax 1 - - -
Net Profit 702 147 660 143 6%
Cash Profit 1,124 235 1,041 226 8%
14
RIL Income Statement for H1 FY 2001-02
Strong performance in the continuing adverse global and domestic environment in the petrochemicals industry
H1 FY 2001-02 H1 FY 2000-01 % ChangeRs.crs. $ mn. Rs.crs. $ mn.
Sales 12,624 2,637 12,856 2,791 (2%)
Trading Sales - - 2,153 467 -
Total Sales 12,624 2,637 15,009 3,258 (16%)
EBITDA 2,716 567 2,643 574 3%
Interest 512 107 631 137 (19%)
Depreciation 818 171 747 162 10%
Tax 64 13 62 13 -
Deferred Tax 2 - - - -
Net Profit 1,320 276 1,203 261 10%
Cash Profit 2,138 447 1,950 423 10%
15
Income Statement - Consolidated H1 2001-02 Q2 FY 2001-02 H1 FY 2001-02
Rs.crs $ mn. Rs.crs. $ mn.
Sales 6,234 1,302 12,624 2,637
Total Expenditure 4,996 1,044 10,211 2,133
Operating Profit 1,238 259 2,413 504
Share in Income of Associates 220 46 502 105
Other Income 163 34 251 52
Interest 256 53 514 107
Depreciation 422 88 818 171
Tax 35 7 66 14
Net Profit 908 190 1,768 369
Consolidated net profit reflects the true picture of RIL’s returns on its investments
16
Segment Information
Petrochemicals Refining Others
Segment Revenue 11,902 17,331 722
Segment Results (EBIT) 1,378 1,371 416
Capital Employed 15,544 18,318 5,034
Return on Capital Employed (ROCE) 18% 15% 17%
Return on Capital Employed significantly higher than cost of capital for a large petrochemical and refining enterprise
Rs CroresRs Crores
17
Factors Contributing to RIL’s Profit Growth
Lower raw material prices
Greater focus on speciality products, contributing to higher
margins
Continued focus on cost, productivity and efficiency
Interest cost savings, owing to prepayment and refinancing
Aggressive efforts to enhance sales realisation through speciality grades, and cost reduction measures have delivered results
18
RIL Profitability Ratios
Margins have improved in a tough operating environment
H1 FY 2001-02 FY 2000-01
OPM %* 19.2% 17.4%
NPM % 14.9% 13.2%
ROE % 19.6% 18.1%
ROCE % 18.4% 18.0%
EPS - Rs. ($) 25.1 (0.52) 22.8 (0.49)
Cash EPS - Rs($) 40.6 (0.85) 38.1(0.83)
* excluding FX gains
19
At the current market price, RIL shares are trading at 7.5 times consolidated EPS
H1 FY 2001-02
NPM % 20.0%
ROE % 25.4%
ROCE % 15.6%
EPS - Rs. ($) 33.6 (0.70)
Consolidated Profitability Ratios
20
RIL Liquidity Ratios
RIL’s strong cash flows and refinancing efforts have enabled reduction of interest costs
H1 FY 2001-02 FY 2000-01
Debt : Equity 0.72 0.72
Gearing 44% 41%
Interest Cover 3.7x 3.3x
Total Debt/Cash Flow 2.0x 1.8x
21
Reliance is India’s Largest Exporter Reliance is by far the largest exporter in India - manufactured
exports of US$ 1.08 billion (Rs. 5,150 crores) in the first half
The current exports represent 120 times growth over the annual
exports of Rs. 86 crores (US$ 25 million) just 5 years ago
Individually too, RIL and RPL are India’s top 2 exporters - still
only 12% of RIL’s and 21% of RPL’s sales come from exports
RIL’s manufactured exports were US$ 328 mn (Rs. 1,569
crores) in the first half
RIL exports products to over 90 countries, including to the most
quality conscious customers globally
Reliance’s high exports demonstrate the international quality of its products, and its ability to compete against global leaders
22
Business ReviewBusiness Review
23
RIL’s Product Mix
Composition of RIL’s sales
Petrochemicals businesses dominate RIL’s portfolio - share of oil and gas business likely to increase
Chemicals11%
Plastics & Int.34%
Fabrics1%
Polyester22%
Fibre Int.29%
Oil & Gas3%
24
Oil & Gas - Update
RIL is India’s largest private sector E&P operator in India, with
total acreage of over 175,000 square kms
Well balanced E&P portfolio comprising 25 onshore and
offshore, deep and shallow water blocks
Exploration work progressing well - drilling of first well likely next
year
Exploration capex expected to be Rs. 1,500 - 2,000 crores (US $
300 - 400 million) over next 3 years
Oil and Gas operations are likely to make an enhanced contribution to RIL’s future revenue and profit growth
25
Oil and Gas - Production Growth
8%
Oil Production in kTGas Production in kTOE
Oil
191206
150
200
250
H1 FY'01 H1 FY'02
Gas
335 334
300
350
H1 FY'01 H1 FY'02
Output from the 2 currently producing oil and gas fields of Panna-
Mukta and Tapti (PMT) has further increased in H1
26
Polyester - Production Growth
Reliance
355
412
300
350
400
450
H1 FY'01 H1 FY'02
16%9%
Production in ‘000 tonnes
Industry
707
772
650
700
750
800
H1 FY'01 H1 FY'02
Polyester demand increased by only 3% during the first half, reflecting weak demand conditions in the domestic markets
27
Polyester - Prospects
Demand slowdown in H1 due to seasonal factors, Diwali timing,
inventory drawdown, and lower demand from apparels segment
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
Polyester demand in India likely to grow at double digit rates over
the long term - CARG of 15% over last 10 years
Reliance has a strategy in place for countering temporary demand slowdown and taking advantage of the long term growth opportunity
28
Fibre Intermediates - Production Trend
RIL’s lower production only reflects RIL’s planned shutdowns and the impact of new industry capacity operating at fuller levels
Production in ‘000 tonnes
Reliance
1489
1402
1350
1400
1450
1500
H1 FY'01 H1 FY'02
Industry
18271804
1750
1800
1850
H1 FY'01 H1 FY'02
-1% -6%
29
Polymers - Production Growth
16%
Production in ‘000 tonnes
Industry
1455
1683
130014001500160017001800
H1 FY'01 H1 FY'02
Reliance
763
841
700
750
800
850
H1 FY'01 H1 FY'02
10%
Polymers demand has shown further strong growth of 15% during the first half - on top of 11% growth in FY 2000-01
Higher relative industry production growth reflects the impact of new industry capacities operating at fuller rates during H1
30
Polymers - Update
Healthy demand growth for RIL’s polymers during H1:
- PP 17%
- PE 12%
- PVC 16%
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 50% market share
31
Reliance PetroleumReliance Petroleum
32
RPL - Mixed Demand Trends
LPG and gasoline continue to register strong demand growth
Negative growth rates for middle distillates
Y-o-Y growth in half yearly demand
LPG 10.2%
Gasoline 5.8%
HSD -5.3%
SKO -5.6%
All Products -1.5%
33
RPL – Higher Operating Rates
RPL’s high operating rates despite the domestic demand slowdown reflect : Integration with group’s downstream operations Ability to tap exports markets Flexibility of product slate
Operating Rates (April - Sept 2001)
84% 86% 87% 91%
107%
Asia-Pacific
India-excl.RPL
Europe N. America RPL
34
Capacity Utilization – RPL vs. Indian Peers
H1 Capacity
Utilization
RPL 107%
IOC (Incl. CPCL & BRPL) 85%
BPCL (Incl. KRL & NRL) 101%
HPCL 94%
MRPL 53%
RPL has operated at significantly higher capacity utilisation rates compared to other Indian refineries
35
RPL - Income Statement for H1 FY 2001-02
RPL is India’s largest private sector company in terms of sales
H1 FY2001-02 H1 FY2000-01 %Rs.crs. $ mn. Rs.crs. $ mn. Change
Gross Sales 17,331 3,620 14,308 3,106 21%
EBITDA 1,830 382 1,479 321 24%
Interest 489 102 456 99
Depreciation 407 85 297 64
Tax 67 14 54 12
Net Profit 867 181 672 146 29%
Cash Profit 1,274 266 969 210 31%
36
RPL - Factors Contributing to Profit Growth
High capacity utilisation rates of 107% leading to 14% volume
growth from 12.6 to 14.4 million tonnes
Improved product mix to take advantage of niche opportunities
Import tariff rationalisation in October, 2000, as well as in March
and April, 2001, leading to higher effective import tariff
differentials
Stability of earnings through risk management
Advantageous price setting mechanism for export cargoes
Ongoing productivity gains and cost reductions
Strong volume growth and superiority of RPL refinery’s configuration have contributed significantly to net profit growth
37
Trends in Benchmark GRMs
RPL has reported consistently higher and less volatile GRMs
July-Sep Oct-Dec Jan-Mar Apr-June July-Sep
2000 2000 2001 2001 2001
RPL 6.4 6.4 5.3 5.7 4.9
US Gulf Coast 1.3 2 3.3 3 1
Mediterranean 5 4.8 2.9 2.8 1
Rotterdam 2.6 3.1 2.5 2.4 1.2
Singapore 4.5 2.7 3.1 2.3 1.5
38
RPL - Factors Contributing to Higher GRMs
High complexity - Ability to process heavy and sour varieties of
crude oil
Superior product slate - leading to higher value addition per
barrel
Ability to optimise product mix in response to market conditions
Favourable location and access to world class infrastructure -
leading to lower freight/logistics costs
World class risk management techniques employed to hedge
margins
RPL’s fundamental strengths ensure superior GRMs, even under difficult industry conditions
39
RPL - Profitability Ratios
RPL’s ROE ranks amongst the highest in refining companies globally
Q2 FY2001-02 Q2 FY2000-01
OPM % 9.31 9.34
NPM % 4.86 4.47
ROE % 17.7% 23.2%
Annualised EPS - Rs. ($) 3.34 (0.07) 3.13 (0.07)
Annualised CEPS - Rs. ($) 4.90 (0.10) 4.50 (0.10)
40
RPL - Profitability Ratios
RPL’s ROE ranks amongst the highest in refining companies globally
H1 FY2001-02 H1 FY2000-01
OPM % 9.8 9.8
NPM % 5.0 4.7
ROE % 19.5 20.9
Annualised EPS - Rs. ($) 3.34 (0.07) 3.13 (0.07)
Annualised CEPS - Rs. ($) 4.90 (0.10) 4.51 (0.10)
41
RPL - Liquidity Ratios
RPL’s strong liquidity ratios reflect healthy cash flows and conservative financial position
H1 FY2001-02 FY2000-01
Debt : Equity 0.83 0.83
Gearing 45.1% 43.9%
Interest Cover 3.26 2.98
Total Debt / Cash Flow 2.26 2.95
42
RPL - India’s Largest Exporter
RPL is India’s largest exporter with exports of US$ 1,375 mn (Rs.
6,410 crores) in FY 2001
H1 exports of RPL’s products have increased 67% to US$ 759 mn
(Rs. 3,581crores)
RPL exported 3.6 million tonnes of products during H1 - Gasoline,
HSD, and naphtha were the largest items of exports
RPL’s products have been exported to 14 countries, including to
the most quality conscious customers globally
RPL’s exports reflect global competitiveness, international quality of products, operational flexibility and world class logistics capabilities
43
RPL - Future Growth Strategies Capacity increase possible through debottlenceking at marginal
cost - capital cost advantage will be further enhanced
Investments in pipeline infrastructure - will result in smooth evacuation of products and enhanced cost competitiveness
Evaluating a multi-pronged strategy to enter the business of retail marketing of controlled products in India:
- potential joint ventures and alliances
- acquisitions of marketing and distribution assets (participating in disinvestment of government owned oil PSU IBP)
- development of its own distribution and marketing infrastructure
RPL’s entry into marketing will enhance integration and provide opportunities for generating attractive returns
Cellular BusinessCellular Business
45
Reliance’s GSM Circles
Reliance’s
existing GSM
mobile
operations span
1/3rd of India’s
geographical
area and cover
nearly 400
million people
46
Reliance Telecom - Update
Reliance has successfully established an extensive GSM network in the central and eastern part of the country
54% growth in GSM based cellular subscriber base over last six
months as compared to industry growth rate of 34%
Subscriber base has crossed 300,000 mark with services in 118
cities across 15 states
Leading market shares in most circles
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
47
Kolkata GSM Circle
Kolkata circle forms a synergistic fit with Reliance’s existing GSM cellular operations in the Eastern region
Won the Kolkata GSM license for Rs. 78 crores (US$ 16
million) under the fourth cellular license bidding
Presence in Kolkata circle to offer synergy in operations and
marketing efforts in the entire Eastern region
Acquisition of Kolkata circle to enable superior roaming
facilities throughout the region
Roll out plans being finalised
Reliance InfocomReliance Infocom
49
National footprint with licences signed for providing fixed line
services in 18 circles
Fixed line licences also enable tapping of mobile segment through
WLL services – in addition to existing GSM business
First company to receive National Long Distance (NLD) LOI
Work on 60,000 route kms, world class IP backbone on schedule
– project on target for completion by end 2002
Participating in process for disinvestment of VSNL, India’s
monopoly international long distance carrier - ILD services to be
opened up to private sector in April, 2002
Reliance Infocom - Current Status
Reliance Infocom’s comprehensive business model targets opportunities in high growth voice and data markets
50
Reliance Infocom to be the holding company for all infocom and
related businesses of Reliance group
Reliance Infocom to invest up to Rs. 25,000 crores (US$ 5 bn)
over the next 5 years
Project proposed to be financed with 2:1 debt:equity
RIL is the lead investor with 45% equity stake
Reliance Infocom - Investment Plans
Reliance’s infocom investments are likely to yield attractive returns, and create superior value for RIL’s shareholders
Value CreationValue Creation
52
RIL’s Share Price Performance
RIL shares have consistently outperformed the broad market over all time frames - Compounded return of 19 % per annum over the last 5 years
% changePeriod RIL Sensex Nifty
1 year -16% -20% -17%
2 year 8% -33% -27%
3 year 130% 5% 16%
5 year 142% -7% 4%
10 year 206% 59% -
53
RIL’s Share Buyback Philosophy
Our consistent and transparent policy regarding share buyback:
Rs. 303 not an automatic trigger for buyback
Share price decline part of global market meltdown
RIL shares have been outperforming Sensex and other
leading stocks over all time frames
Buyback not a mechanism for providing exit to short term
traders / speculators / operators
Investment of cash flows directed towards highest return
investments
RIL’s share buyback program is focussed on enhancing value for long term shareholders
54
RIL’s Beta Has Declined
Significant reduction in share price volatility, beta and WACC achieved over the last few years
RIL Beta
0.5
1.0
1.5
2.0
1995 1996 1997 1998 1999 2000 2001
55
Value Creation
Market recognition of value creation in the company has led to superior share price performance
Consistent focus on value creation as operating managers:
Through margin improvement – focus on productivity
improvements and higher margin products
Through capital efficiency – stretching and sweating existing
assets, focus on high returns investment for future growth
Through financial efficiency - continuous innovation to lower
financial costs and reduce the cost of capital
SummarySummary
57
SummaryRIL is on track to deliver more than 11 million tonnes in
production volume in the current financial year
RIL has reported good performance in a very difficult industry
environment, reflecting the strength of its cost and market
positions, and the success of its business strategies
Global petrochemicals margins are likely to remain under
pressure, owing to the world-wide slowdown in demand
RIL’s future investments in oil and gas and infocom are likely to
generate attractive returns in the medium to long term
Reliance will endeavour to continue to perform well and create superior value for all its shareholders, despite the tough operating environment for the global petrochemicals industry
58
Reliance Industries Limited
India’s World Class Corporation