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Reliance net down 17% in 4Q

Apr 30, 2001

The Indian conglomerate, Reliance Industries Ltd., has declared its annual results. The company reported a strong financial performance led by commissiong of its Jamanagar complex. The sales and profits are the largest in the private sector.

(Rs m) 4QFY00 4QFY01 Change FY00 FY01 Change
Sales 65,940 64,440 -2.3% 203,010 280,080 38.0%
Other Income 2,610 1,780 -31.8% 6,870 3,830 -44.3%
Expenditure 52,620 51,090 -2.9% 162,420 228,290 40.6%
Operating Profit (EBDIT) 13,320 13,350 0.2% 40,590 51,790 27.6%
Operating Profit Margin (%) 20.2% 20.7% 20.0% 18.5%
Interest 3,090 2,910 -5.8% 10,080 12,160 20.6%
Depreciation 5,730 5,470 -4.5% 12,780 15,650 22.5%
Profit before Tax 7,110 6,750 -5.1% 24,600 27,810 13.0%
Tax 570 1,350 570 1,350
Profit after Tax/(Loss) 6,540 5,400 -17.4% 24,030 26,460 10.1%
Net profit margin (%) 9.9% 8.4% 11.8% 9.4%
No. of Shares (eoy) 1,054 1,054 1,054 1,054
Diluted Earnings per share* 24.8 20.5 22.8 25.1
P/E Ratio 16.7 13.7
*(annualised)

The turnover of the company has increased substantially. The manufacturing sales increased by 29%, which was driven largely by volumes higher by 19% and realisations up 13%. Merchant sales of the company amounted to Rs 22.8 bn, which represents exports of petroleum products from RPL. The increase in volumes is due to commissioning of the Paraxylene (PX) and Polypropylene (PP) capacity. Better realisations could have been led by focusing on higher value added products. Production increased by 16% to touch 10.4 m tonnes

However, sales QoQ have declined, which is largely due to the new Jamnagar capacities coming onstream in the last quarter of FY00. Consequently, the effect of new capacities has been nullified in 4QFY01. Also, the company shut down operations temporarily post Gujarat earthquake, contrary to statements made earlier by the company, resulting in revenue loss.

The growth in operating profit is largely volume driven as the operating environment in the current fiscal was challenging with feedstock prices ballooning. The escalation in oil prices led to the prices of naphtha, the key ingredient, rising significantly; consequently, applying downward pressure on the OPM. Nevertheless, the company has been able to better OPM in the last two quarters of fiscal '01 by approximately 50 basis points. For the year ended March '01 the OPM has declined by 150 basis points. Margins could also have been supported by higher realisations on export sales through rupee depreciation.

Depreciation is another element of the income statement indicating timing of the Jamanager capacity coming onstream. Depreciation charge for 4QFY00 was considerable higher than charges for the previous quarters. Consequently, depreciation is flat in 4QFY01. However, on aggregate basis for the fiscal ended March '01 the depreciation charge has increased as additional non-cash expense was passed through the income statement. Also, the company changed its depreciation policy from straight line method (SLM) to written down value (WDV) resulting in in higher provisioning of Rs 1.6 bn.

Pre-tax profit growth has remained subdued as compared to operating profits as other income declined substantially. The company repatriated foreign currency monetary assets amounting to Rs 38.6 bn leading to lower interest earnings and Rupee depreciation benefits. Also, interest bearing, optionally fully convertible debentures of RPL were converted into equity.

Post tax profits have been impacted by effective tax rate for FY01 doubling YoY. This is because the company falls under the minimum alternative tax (MAT) provisions.

At Rs 343 the company trades on a multiple of 16.7x 4QFY01 annualised earnings and 13.7x on full year earnings. Historically, the three year average P/E ratio is 13x.

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