Reliance Industries Limited Financial Presentation April, 1999.
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Transcript of Reliance Industries Limited Financial Presentation April, 1999.
Reliance Industries Limited
Financial Presentation
April, 1999
A. Economic Environment
B. Financial Performance
C. Business Review and Strategy
D. Jamnagar Complex
- Reliance Industries
- Reliance Petroleum
E. Summary and Outlook
Index
Economic Environment
Stable Economic Outlook for India
GDP Growth Rates (1999)
2.3%
-4.0%
1.8%2.5%
3.7%
0.9%
7.0%
5.6%
-0.5% -0.5% -1.3%
-5%
-3%
-1%
1%
3%
5%
7%
Source: Morgan Stanley
Most Asian economies have begun the recovery process -
India remains among the better performers
Indian Rupee Displays Relative Stability
The Indian rupee has been among the most stable currencies in the region
Value on % change
Currency 1 Jul 97 21 Apr 99 since July 97
Indonesian Rupiah 2430 8700 -72%
Malaysian Ringitt 2.52 3.8 -34%
Korean Won 887.3 1189 -25%
Thai Baht 28.75 37.61 -24%
Taiwanese Dollar 27.85 32.76 -15%
Indian Rupee 35.76 42.80 -16%
Prevailing 10 Year Interest Rate
1.6%
5.9%
7.5%
6.3%
5.1%
6.9%
4.1%
6.1%
12.0%
-1%
1%
3%
5%
7%
9%
11%
13%
Downward Bias in Interest Rates Likely
Long term interest rates in India will have to decline to
regional levels so as to sustain economic growth
Commodity prices are still down year-on-year, but are not losing further ground
Commodity Prices Still Down YOY
-14%-12%
-25%
-18%
-30%
-25%
-20%
-15%
-10%
-5%
0%Base Metals Prec Metals Energy Softs
Commodity Prices (% change over past 1 yr)
JP M
org
an C
om
modit
y indic
es
Recovery in crude prices reflects anticipated production cuts
- demand side fundamentals remain weak
Crude Prices Have Moved Up in 1999
0
5
10
15
20
25
Low of $9
Current $15.50
Financial Performance
Performance Highlights
Reliance continues to lead the Indian private sector with highest sales, profits, assets, and net worth
Record production level of 7.06 million tonnes in 1998-99 - increase of 26%
Record performance despite the challenges posed by damage caused to the SBM
Acquisition of polyester capacity of 65,000 tonnes - contributing to restructuring of industry
Exports up 87% at Rs. 685 crores (US$ 161 mn)
Feedstock Price Trends
Average feedstock prices declined 30% - 60%, despite the recent recovery on the back of rising crude prices
International Prices (US$ / T )
Average Average % 1997-98 1998-99 Change
Crude ($/bbl) 17.3 12.1 (30%)
Naphtha 192 132 (31%)
PX 488 290 (40%)
EDC 359 155 (57%)
International Product Price Trends
(US$ / T )
Average Average % 1997-98 1998-99 Change
POY 1166 878 (25%)
PSF 1073 671 (38%)
PTA 553 365 (34%)
MEG 633 373 (41%)
PE 722 491 (32%)PVC 694 456
(34%)
PP 665 453 (32%)International product prices are on an average down by 30%-40% despite the recent price rallies
Domestic Product Price Trends
Domestic product prices have also declined, though less sharply than international prices, due to cushioning effect of the weakening rupee
( Local prices in Rs. / kg )
Average Average % 1997-98 1998-99 Change
POY 65.5 56.3 (14%)PSF 58.9 46.3 (7%)PTA 26.5 23.1 (13%)MEG 30.6 24.2 (21%)PE 39.7 35.5 (11%)PVC 35.0 28.4 (19%)PP 34.4 31.7 (8%)
Recent Trends in Intl. Product Prices
International Prices (US$ / T )
Jan- Apr %Mar 99 99 change
POY 710 730 3%PSF 587 600 2%PTA 313 335 7%MEG 317 295 (7%)PE 468 515 10%PVC 433 470 9%PP 417 450 8%
International product prices have moved up due to regional shut-downs, low inventory levels, and rising feedstock prices
Recent Trends in Domestic Product Prices
Domestic plastics prices have also gone up in line with international trends
( Local prices in Rs. / kg )Jan- Apr %
Mar99 99 change
POY 52.7 54 2%PSF 40.8 40.5 (1%)PTA 22.8 22.5 (1%)MEG 22.2 21.0 (5%)PE 34.2 36.2 6%PVC 25.2 29 15%PP 28.7 32.4 13%
Income Statement
The net profit is after accounting for additional operating costs of Rs.141 crores ($ 33 mn); claims not included
1997-98 1998-99
Rs. Crs. $ mn. Rs. Crs. $ mn. Growth
Sales 13,404 3,394 14,553 3,430 9%
Op. Profit 2,551 646 2,710 639
PBDIT 2,887 731 3,318 782 15%
Interest 504 127 729 172
Depreciation 667 169 855 202
Tax 63 16 30 7
Net Profit 1,653 418 1,704 402 3%
Cash Flow 2,383 603 2,589 610
US GAAP/ IAS Reconciliation
Indian GAAP US GAAP IAS
Rs. Crs. $ mn Rs. Crn. $ mn Rs. Crn. $ mn
Net Profit 1,704 402 1,378 325 1,509 356
Difference (326) (77) (195) (46)
% Variation (19% ) (19% ) (11% ) (11% )
Approximately 40% of the variation with US GAAP relates to change in the method of providing depreciation
The balance variation is nominal reflecting adoption of conservative accounting policies
Business Mix
Reliance remains focussed on the petrochemicals business
Textiles2.2%
Polyester22.2%
Oil and Gas2.4%
Chemicals15.3%
Plastics & Int.
36.1%
Fibre Int.21.7%
Growth in Production and Sales
Sales revenue growth of 9%, contributed by:
–Impact of sales volume growth 26%
–Impact of decline in avg. product selling prices(17%)
Robust growth in domestic demand - over 95% of production sold within India
Value added export opportunities captured - Exports up 87% at Rs. 685 crores (US $ 161 mn)
Production volume increased 26% to a record level of
7.06 million tonnes, despite temporary dislocation in the
feedstock supply system at Hazira
Stability of Operating Margins
Operating margins remained stable around 18.6%, despite additional operating costs arising from SBM damage.
This was the result of :
strong volume growth lower feed stock prices integration and value addition gains from productivity and cost reduction depreciation of the Indian rupee by 7% in 1998-99, enhancing pricing flexibility
Ability to operate plants at peak rates and sell most of the production in the domestic markets, differentiates Reliance from other global petrochemical producers
Profitability Ratios
1997-98 1998-99
OPM % 19.0% 18.6%
NPM % 12.3% 11.7%
RONW % 21% 19%
EPS – Rs. ($) 17.6(0.45) 18.0(0.42)
Cash EPS – Rs. ($) 24.7(0.63) 27.1(0.64)
24% compounded annual net profit growth over 5 years
15% compounded annual EPS growth over 5 years
Liquidity Ratios
1997-98 1998-99
Gross Debt : Equity 0.80 0.88
Net Debt: Equity 0.33 0.39
Net Gearing (% ) 25% 28%
Net Interest Cover 6.8x 6.9x
Net Debt/ Cash Flow 1.2 1.4
Total Assets have increased 16% to over Rs. 28,000 crores
Liquidity Ratios comparable to leading global chemical companies provide comfort
Conservative Financial Management
Reliance is the only Indian company having international rating constrained by the sovereign ceiling
Net gearing of 28% reflects conservative policies
Net Debt: Cash Flow ratio of 1.4x indicates the company’s ability to retire its entire debt in less than 2 years
Forex exposure on account of international borrowings of $ 1.3 billion fully hedged by dollar assets
Forex debt service outflow of about $ 110 mn. adequately covered by export revenues alone
Increasing export revenues provide additional hedge
Exports To Rise Significantly
Exports revenues up 87% to Rs. 685 crores ($ 161
mn)
Export revenues will increase about 200% to $ 400-
500 mn (around Rs. 2,000 crores) p.a. by the year
2000-01
RIL’s imports of feedstocks will drop with the
commissioning of the Jamnagar complex
RIL to have substantial net foreign exchange
earnings by
2000-01
Reliance to emerge amongst the largest manufacturer exporters from the country
International Peer Group Comparison
Chemical stock prices globally have generally reflected tough operating conditions for the industry
Stock Price on
Currency 31 Mar 98 31 Mar 99 % Change
RIL INR 177 130 -26%
ICI GBp 1065 554 -48%
Eastman USD 67 42 -37%Shanghai CNY 4 2.9 -28%
Yizheng CNY 4.8 3.4 -28%
DuPont USD 68 58 -15%
Formosa TWD 33 31 -6%
Business Review and Strategy
Among top 10 producers globally of all its major products
Unique vertical integration from crude refining to fabrics and plastics - capturing value addition of over 1000%
Deriving over 95% revenues from domestic market
Leading the market in all its products with market shares ranging from 32% to 85%
Globally competitive capital and operating cost position
Reliance’s Leading Business Position
Reliance contributes over 1% of India’s GDP and 1.5% of government’s revenue receipts
Business Review - Polyester
Industry Reliance
(Prodn. in
‘000 tonnes)97-98 98-99
%change 97-98 98-99
%change
Polyester(PFY, PSF, PET)
1143 1327 16 468 592 26
Fibre Int.(PTA, MEG)
1204 1600 33 963 1339 39
•Domestic demand growth healthy at 16 % per annum
•Reliance’s volumes grew at a faster rate, partly due to its acquisition of polyester capacity
246297
341394
488553
619
777
975
1141
0
200
400
600
800
1000
1200
Historic Polyester Demand Trends
Polyester consumption in India in ‘000 tonnes
10 year CARG 19%
Strong Potential for Demand Growth
China consumes about 3 times as much polyester as India - indicating strong potential for continuing demand growthc
Polyester* ConsumptionTotal (mn tpa) Per capita (kgs)
India 1106 1.1
China 3755 3.0
US 2203 7.8
World 15268 2.5
*Data for PFY and PSF
Business Review - Plastics
Industry Reliance
(Prodn. in ‘000tonnes) 97-98 98-99
%change 97-98 98-99
%change
Plastics(PE, PP, PVC)
1684 1831 9 945 1025 8
•Robust growth in domestic demand at 19 % per annum
• Imports of around 200,000 tonnes of PP indicate potential for import substitution from Reliance’s new plant
Historic Plastics Demand Trends
772 800
1,0361,236
1,4221,564
1,957
2,308
2,736
664648
0
500
1,000
1,500
2,000
2,500
3,000Polymer consumption in India in ‘000 tonnes
10 year CARG 15%
Strong Potential for Demand Growth
Strong domestic demand growth likely to continue with China consuming nearly 4 times as much plastics as India
Plastics* Consumption
Total (mn tpa) Per capita (kgs)
India 2308 2.4
China 11785 9.6
US 19487 72.2
World 77012 13.2
*Data for PE,PP, and PVC
Robust Growth in Domestic Demand
Historic Future growth CARG Estimates Growth Drivers(last 5 yrs) (per annum)
Polyester 14% 10%-15% - lower prices(PFY, PSF, PET) - substitution of
cotton
Fibre Intermed. 17% 10%-15%- growth in polyester PTA, MEG) demand
Plastics 12% 12%-15% - JPMA implementation(PE, PP, PVC) - edible oil packaging
- Substitution of traditional
materials like metals, wood, glass- Convenience, presentation
Business Review - Oil and Gas
Reliance’s prodn. 1997-98 1998-99 % change
Oil (in KT) 141 314 123
Gas (in KT) 262 536 105
• Oil and gas business now accounts for 2.4 % of revenues
• Government approval awaited for the proposal to expand gas production from Tapti fields by over 4 times
Growing Market Shares
Reliance’s marketshares 1997-98 1998-99 % change
Polyester(PFY, PSF, PET)
41% 45% + 4%
Fibre Intermed.(PTA, MEG)
80% 84% + 4%
Plastics(PE, PP, PVC)
56% 56% -
• Acquisition of 65,000 tonnes of polyester capacity during 1998-99 will lead to further expansion in market share
• Plastics market share will increase with the commissioning of the new PP plants
Strong Customer Franchise
Distinctive customer preference for delivering superior value
Reliance’s differentiation strategy is built around:
World class quality of products
Wide range of grades compared to other producers
Reliable supplies at globally competitive prices
Nation-wide network to service fragmented local markets
Just in time deliveries for even the smallest customer - significant savings in inventory costs
Free technology assistance/ consultancy for all customers
Prompt service and extensive customer contact
Loyal customer base:
– Long term relationships - 70%-80% of key customers for major products have been with Reliance for over 3 years
– Negligible customer loss
– Market penetration - Over 90% of top customers in key products source most of their requirement from Reliance
– High quality revenues - Over 90% of receivables get cleared in less than two weeks time
Market reputation and customer relationships are key long term competitive advantages
Strong Customer Franchise
Impact of Finance Bill, 1999
Marginal variation of 2% - 3% in effective custom tariffs on Reliance’s major feedstocks and products
No significant impact as Reliance is selling most products at up to 15% discount to landed price of imports
Across the board marginal cuts in excise duties on all major products of Reliance - increase in demand
Impact of budget proposals - Neutral
Strong Performance under Declining TariffsStrong Performance under Declining Tariffs
Strong performance in a declining import tariff environment: global competitiveness demonstrated
1993 1994 1995 1996 1997 1998
Peak Tariff (% ) 110 85 65 50 40 40
Peak Tariff (% ) –RelianceProducts
110 85 65 45 30 30
OPM (% ) 20 18 19 19 19 19
Net Profit (Rs.Crs.)
322 576 1065 1305 1323 1653
US $ 103 183 338 380 368 418
Future reduction in import tariff estimated at around 10-15% over the next 3-5 years
Historic rate of depreciation of the Indian rupee at 5%-7% per annum adequate to offset impact of import tariff cuts
Reliance has sufficient pricing flexibility as it is currently selling 5%-15% below the landed price of imported goods
Savings to Reliance from reduction in tariff on raw materials, chemicals, catalysts, consumable, stores and spares, presently ranging up to 60%
Savings from reduction in tariffs on capital goods
Advantage Reliance under Zero Tariffs
Reliance to benefit from an all round cut in import tariffs
Structure of Polyester Industry
Fragmented and uncompetitive industry structure - over 40 producers in India’s 1.3 mn ton market, compared to just 4 large producers controlling the 5 mn ton US market
Capacity totaling 100,000 tonnes is already closed due to poor economics
Most small players employ high leverage and are in default of loan and interest payments to banks and FIs
Destructive variable cost linked pricing by losing players puts further pressure on industry margins
Industry consolidation is both desirable and inevitable
Industry restructuring has already begun with Reliance playing a pivotal role in the process
Reliance’s Role in Industry Restructuring
Reliance acquired ICI polyester unit (30,000 TPA) a few years ago
Acquired polyester business of India Polyfibres (22,000 TPA) and JK Corp (43,000 TPA) during 1998-99
Reliance’s acquisition strategy is focused at maintaining market leadership in a regional excess supply context
Reliance to leverage its technical skills, financial strength, nationwide network, customer relationships, and access to key inputs, in creating value through acquisitions
Reliance working towards a more competitive industry structure by leveraging its strengths to acquire capacities
Jamnagar Complex - Reliance Industries
Jamnagar Petrochemicals Complex
Rs. 5,500 crore (US $ 1.3 billion) petrochemicals complex comprising 1.4 million tpa PX plant and 600,000 tpa PP plant
Project commissioning has commenced
Globally competitive plants enjoying economies of scale and benefits of integration
Enhancement of feedstock, product, energy, and logistics integration
Paraxylene (PX) Project
World’s largest plant with three lines of 467,000 tonnes per annum caapcity each
Reliance to become world’s third largest producer after BP-Amoco and Exxon- Mobil
Two lines being commissioned ahead of schedule in Q2 1999-2000, and the third line in Q3 1999-2000
About 50% of the output to be captively consumed
Substantial scope for domestic sales
Polypropylene (PP) Project
One PP line of 200,000 tpa commissioned in April 99 - 200,000 tpa to be commissioned in Q2 1999-2000 and the last 200,000 tpa in Q4 1999-2000
Reliance’s total PP capacity to touch 1 million tonnes
Strong domestic demand growth of 21% p.a.
JPMA implementation and mandatory packaging of edible oil to be key growth triggers
Asia to remain large net importer of about 1 million tonnes of PP in 1999
Jamnagar Complex -Reliance Petroleum
Project Highlights
World’s largest grassroots refinery with capacity of 27 million tpa - over 25% of domestic capacity
High complexity refinery with Nelson’s index of nearly 14 (including petrochemicals complex) compared to about 5 for average Asian refinery
Fully integrated $6 bn (Rs. 25,000 crores) complex with refinery, petrochemicals, power plants, port, and related infrastructure
Global competitiveness resulting from scale, technology, complexity, and integration
25%-30% of the refinery’s output to be consumed captively
Project Highlights
50% higher capacity achieved - project cost of Rs.
14,250 crores (US $ 3.4 bn)
Capital Cost/ Ton has declined by 15% from Rs.
6,238 /T to Rs. 5,278 /T
Entire project financing fully tied up
Unit-wise commissioning process has already begun
- refinery to be fully commissioned in Q2 1999-2000
well ahead of schedule
Substitution of imports in deficit domestic markets - per capita consumption amongst the lowest in the world
Distribution & Marketing of 5 controlled products through Oil PSUs during the transition period upto 2002
Model agreement for offtake of 50% of controlled output with IOC signed - similar agreements to be concluded with BPCL and HPCL for the remaining 50%
Oil PSUs to lift products on a “Take or Pay basis”
Refinery gate pricing during transition period based on import parity
Reliance to directly market decontrolled products - already leading player in marketing of kerosene and LPG
Agreement with IOC for post-transition marketing in JV
Marketing of Products
Summary and Outlook
Petrochemicals Prices
Feedstock and product prices are showing signs of recovery - prices currently holding above previous lows
Recovery in prices of oil and oil derivatives driven so far mainly by supply side factors
Sustained recovery in prices and margins will require better demand climate, and may still be some time away
The worst in prices seems to be behind us for now
Reliance continues to create value in the most difficult times witnessed by the global petrochemicals industry
Cash Flows and Investments
Large capex programs in RIL and RPL nearing
completion with commissioning of Jamnagar
complex
Reverse cash flows from the Jamnagar complex to
be fully reflected from the next financial year
Significant cash flows even at current levels of
prices and margins - substantial upside from cycle
reversal
Utilisation of cash flows - value enhancing
acquisitions, reduction of net debt, and distribution
to stock-holders
• Record production of over 7 mn tonnes achieved in the year 1998-99 - more than 25% above initial targets
• Jamnagar petrochemicals complex being commissioned well ahead of schedule
• Capacities to increase by further 50% to more than 9 million tonnes per annum over the next two years
• Production volume for 1999-2000 likely to be in the range of 8 to 8.5 million tonnes
Reliance’s Future Outlook
Commissioning of Jamnagar petrochemicals complex and acquisitions will drive Reliance’s future growth
Reliance Industries Limited
India’s World Class Corporation