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This Project On Reliance Industries

Limited is prepared by:

Name : Nikhil Javeri

Heriot Watt ID : H00114377

Subject : Financial AnalysisLecturer : Mr. Milind

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Contents

Topic Page NumberCompany Overview 4Some Major Products & Brands 5Balance Sheet 6Profit & Loss Account 7Cash Flow Statement 8Liquidity Ratios 9Cash Flow Ratios 11

Gearing Ratios 12Management Performance Ratios 14Investor Ratio 16Companys Growth Performance 17Companys Stock Performance 20Financial and Non Financial Parameters 21Companys Performance - Present & Future 22

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Company Overview

The Reliance Group, founded by Dhirubhai Ambani in 1966 is India's largest private

sector enterprise, with businesses in the energy and materials value chain.

Starting with textiles in the late seventies, Reliance pursued a strategy of backwardvertical integration - in polyester, fibre intermediates, plastics, petrochemicals,

petroleum refining and oil and gas exploration and production - to be fullyintegrated along the materials and energy value chain.

Reliance enjoys global leadership in its businesses, being the largest polyester yarnand fibre producer in the world and among the top five to ten producers in the

world in major petrochemical products.

Reliance continues to cross newer & bigger milestones in its quest for what isknown as "Growth is Life".

Reliance Industries Limited is listed on the Bombay Stock Exchange, National StockExchange and the London Stock Exchange.

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Some of the Major Products & Brands

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Balance Sheet as on 31 st March, 2011

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P/L account for the year ended 31st

March, 2011

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Cash Flow Statement

Graph showing net cash flow from operating, investing & financing activities

-30000

-20000

-10000

0

10000

20000

30000

40000

2007 2008 2009 2010 2011

Operating Activities

Investing Activities

Financing Activities

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Liquidity Ratios

(All Figures in Rs. Crores)

1) Current Ratio =

Over a period of 5 years, the current assets have increased by 220% whereas thecurrent liabilities have increased by 155%. The higher rise in the level of currentassets has been due to the high level of fixed deposits being made. However, amajor concern building for the company has been that the amount of advancesand debtors has also been increasing steadily. But, the positive aspect is that for

every rupee of liability, the company has 1.46 rupee worth asset.

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2007 2008 2009 2010 2011

Current Ratio

Current Ratio

Current assets

Current liabilities

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2) Quick Ratio =

The inventory level has remained constant over the last year since the focus of business was to make no investment of enhancing the stocks further due to manylong-term investments made during the year. The ratio has now moves towards

standardization. In the current scenario, the company can easily meet itsimmediate obligations promptly.

0

0.2

0.4

0.6

0.8

1

1.2

2007 2008 2009 2010 2011

Quick Ratio

Quick Ratio

Current assets - inventories

Current liabilities

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Cash Flow Ratios

1) Stock to Working Capital Ratio =

This ratio shows the amount of funds that are blocked in stocks. In 2007, there wasa huge blockage seen in the amount of funds available for the firm since large

amounts of funds were invested in stocks. There has however, been a sharp fall inthis figure and now, the amount of working capital has significantly improved in

respect to the amount of stocks.

0

50

100

150

200

250

300

2007 2008 2009 2010 2011

Stock to Working Capital Ratio

Stock to Working CapitalRatio

Closing Stock x 100

Working Capital

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Gearing Ratio

1) Debt Equity Ratio =

This is a very important tool for financial analysis. It shows the relation betweenexternal and internal equities of the company. The creditors and the owners have a

close watch on these ratios. The company has maintained its debts to under 50%over the years except in the year 2009 where the ratio had raised to around 60%.

Over the last year, there has been a significant rise in the shareholders equitywhich is a good sign.

0

10

20

30

40

50

60

70

2007 2008 2009 2010 2011

Debt Equity Ratio

Debt Equity Ratio

Total Debt x100%

Ordinary share capital + reserves

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2) Proprietary Ratio =

The proprietary ratio of the company is 53.19% in the year ending March 2011.This means that for every one rupee of total assets, there is a contribution of 53

paise coming from the shareholders and 47 paise coming from outsider creditors.This shows that contribution of shareholders is more than outsiders which shows afavorable long-term solvency of the company. This has remained constant over a

period of time.

49

50

51

52

53

54

55

2007 2008 2009 2010 2011

Propreitary Ratio

Propreitary Ratio

Shareholders Equity___

Total Assets

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Management Performance Ratio

1) Gross Profit Ratio =

This ratio shows the amount of profits the company earns on the sale of goods. There has been a growth in profits from 2007 to 2008 due to higher

proportionate increase in level of sales. However, there has been acontinuous decline in level of gross margins due to the increasing level of

cost of goods and overheads which has led to decline in gross profit margins.However, the sales have been increasing as such the amount of gross profit

has been increasing year-on-year.

0

2

4

6

8

10

12

14

16

2007 2008 2009 2010 2011

Gross Profit Ratio

Gross Profit Ratio

Gross Profit x 100%

Sales (Revenue)

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2) Net Profit Ratio =

The net profit margin symbolizes the amount of profits that thecompany enjoys after all expenses are provided for. The net profit hasbeen constantly decreasing due to the increasing competition RIL sees

in the local market, decreasing value of oil prices globally and increasingcosts that are affecting the margins. However, a merit for the company

has been that the company has had increased amounts of profitscontinuously over the years without having any loss over the period of

time.

0

2

4

6

8

10

12

2007 2008 2009 2010 2011

Net Profit Ratio

Net Profit Ratio

Gross Profit x 100%

Sales (Revenue)

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Investor Ratio

1) Return on shareholders equity =

This ratio signifies the amount of profit earned for every rupee investedby the shareholders. The ratio was significantly high in 2007 and 2008

but there was a steep decline in the subsequent 2 years. However, in theprevious year there was a steep rise showing a promising figure for the

investors.

0

2

4

6

8

10

12

14

16

18

20

2007 2008 2009 2010 2011

Return on Equity

Return on Equity

Profit after tax x 100%

Shareholders equity

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Companys Growth Indicators

Turnover (Rs. Crores)

Turnover is an indicator of the companys actual growth. RIL has had a verysharp increase in its turnover margins over the years. It has increased by almost500% over the last decade. Even during the phase of recession, there had been a

marginal growth in the revenues. There is a growth of around 30% in the revenuesover the last year.

The companys heavy investments and entry into the retail sector in India inthe year 2008 has shown a drastic positive impact on its revenues. It can be seen

that post 2008, the company has had very high volumes of sales over the past 3years The company firmly believes that the Indian economy is heading towards a

major leap and this leap would further fuel its revenues.

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Profit after Tax (Rs. Crores)

The net profits have seen an even sharper rise over the period of time at RIL. The

graph clearly shows steep rises in the profits over the last year. There has been agrowth of around 25% over the last year. Over a period of 10 years, the company

has seen a growth of more than 600% in its profits.

The net profits have been increasing due to the improvement of profit margins inthe refining and petrochemicals segment. In 2010, both the refining and

petrochemicals segment has given earnings of close to 40% in their respectiveareas. This has massively boosted the profits after tax. This has been accelerated

further due to high operating profit margins as well.

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Earnings per Share (Rs.)

Bonus Share (1:1) issued in 2009-10

Earnings per share determine the amount that the investor would get back at theend of the financial year. Higher rate of EPS shows that the investor would be able

to realize back his investment at a faster rate.

The company has seen a drastic rise in EPS. This is mainly seen due to the fact thatthere had been increased level of net profits in the last year. The company strongly

believes that the shareholders are the ultimate owners of the business and thecompany provides maximum returns to shareholders investments made. Over thelast decade, the EPS has grown by over 500% which strongly shows the increased

profits among shareholders.

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Companys Stock Performance

The above chart shows the stock performance of RIL for a period of 10 years. If assessed closely, it can be understood that there has been a drastic rise in the levelof stock over the period of 10 years. About a decade back, RIL was trading at under

Rs. 100 per share and currently, the value of the stock has jumped to around Rs.800 per share. This shows a clear 800% rise in the value of stock over a period of 10

years which is large.

Moreover, RIL will continue to outperform the market in my view due to its diverseagendas and its increased focus on retail and natural gas sector which will push the

companys profits to a much higher level. Over the past 2 -3 years, the stock hasbeen underperforming, and then, there was a catch up when recently it reached Rs

900 levels from almost Rs 700 levels.

In my opinion, RIL is a heavyweight which has been underperforming over the last

two years. However, looking forward to the weak financial arena, this stock isbound to outperform. Institutional ownership for the stock has been on the lower

side so there is no reason for the stock to underperform looking forward to itsprospects.

How hot is this stock?

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Financial and Non - Financial parameters

Reliance Industries Limited (RIL) is Indias largest private sector company on allmajor financial parameters with a turnover of INR 2,58,651 crore (US$ 58.0 billion),cash profit of INR 34,530 crore (US$ 7.7 billion), net profit of INR 20,286 crore (US$4.5 billion) and net worth of INR 1,51,540 crore (US$ 34.0 billion) as of March 31,2011.

Total Assets at RIL crossed Rs. 2,80,000 crore mark (US$ 63.8 billion). This amountof total assets is unparalleled in the Indian Private sector.

RIL has declared Dividend of 80% and Dividend Payouts of Rs 2,385 Crore, one of the highest in the Indian Private Sector.

Exports of RIL crossed Rs. 1,40,000 crore mark ( US$ 32.9 billion). The companysexports constituted 13.4% of India's total exports.

RIL is the first private sector company from India to feature in the Fortune Global500 list of 'World's Largest Corporations'.

RIL ranks 68th in the Financial Times FT Global 500 list of the world's largestcompanies. RIL is ranked amongst the 50 Most Innovative Compa nies - 2010' inthe World in a survey conducted by the US financial publication - Business Week incollaboration with the Boston Consulting Group (BCG).

In 2010, BCG also ranked RIL as the second highest Sustainable Value Creators forcreating the most shareholder value over the decade in the world.

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Company s Performance Analysis The Present & Future

Reliance Industries Limited (RIL) has been pursuing its vision and ongoing progress,since it has over a period of time being continuously investing across integratedenergy chain. The focus of RIL has also been towards serving needs and aspirationsof millions of Indian customers as it keeps investing in new technologies and newerbusinesses. Time has shown that Reliance has been showing enormous gratitudetowards its stakeholders.

Financial year (FY) 2011 has been a very successful year for the business of oil and

gas. RIL completed two years of operations in its Godavari Basin. Over the period of time, it has provided natural gas and crude oil supplies to the nation which has inturn provided increased value to its shareholders.

In FY 2011, the company has also entered into a Joint Venture with USA. ThisVenture entered into, would provide unconventional natural gas and oil resourcesfor operating new businesses. The Company believes that the combination of strengths and unparallel opportunities to meet the rising global energy demand.

For the sixth continuous year, RIL has been featured in the Fortune Global 500 listof the worlds largest corporations. It ranks 175 th on basis of revenues and 100 th based on its profits.

Reliance Retail has been expanding over time significantly. In the FY 2011, RelianceRetail has opened 90 new stores across the country. There have been greaterservices provided, increased value of merchandizes and wider range of productsthat has given Reliance Retail robust growths during the period. RRL now operates

around 40 stores with leading brands like Marks & Spencer (19 stores), Diesel (7stores), Paul & Shark (4 stores), Ermenegildo Zegna (6 stores) and Timberland (6stores).

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Reliance expanded its presence in the optics business as it added 51 new stores inFY 2011 having more than 100 stores in key markets in the country. The retail chain

offers various products like Vision Express frames, lenses, contact lenses,sunglasses and accessories.

Reliance also introduced Hamleys toy shop by opening 2 stores during the year.

Reliance iStore is another store which has various Apple products andmerchandises and currently operates 17 stores in the country.

Across India, Relaiance Retail serves more than 2.5 million customers every week.Its loyalty program, Reliance One has following of more than 6.75 millioncustomers.

Since the 36 th Annual General Meeting, Mr. Ambani has been introducing variouslines of business plans that have had a budget more than any other non-governmental expenditure budget. He said that it has taken 3 decades to create anenterprise value of $80 billion, but now he is looking of making Reliance a $160enterprise in within a decade.

According to Goldman Sachs, RIL is expected to generate cash flows of $18 billionfrom the year 2011 till 2014. RIL has set high values and equally high standards topursue such humongous growth targets by establishing into various new fields of business.

The company has the ambition and equal potential of becoming the largestcompany in the world on basis of its net worth.

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