RELIANCE Industries Limited (RIL) has always been a rebel, defying most market predictions. With a 57 percent increase in sales and a 29 percent rise in its bottomline—despite depressed global prices—it's defiance is more than evident as it gets set to become the largest Indian private company.
As per the six-monthly results released recently, the company registered a total income of Rs 6,502 crore. With this, Reliance could be all set to become the largest Indian private company by year end, snatching that mantle from TELCO. Assuming that the increase in Reliance's second-half sales over the first half is proportional to last year's, the company could well tot up a total income of more than Rs 14,000 crore in 1997-98. Moreover, its first-half net profit of Rs 840 crore is the highest-ever achieved by any private Indian company and the annualised earnings per Rs 10 share have crossed Rs 36.
The Reliance scrip, which had started gaining since October 3, jumped up by over 20 per cent within a week to touch Rs 433.15 on October 9. Speculators and profit bookers, however, brought the price down immediately after and analysts fear that the scrip may slide further down to hover around Rs 360. While the brake on the price momentum was applied mainly by speculators who wanted to book profits, the fact that RIL failed to provide for minimum alternative tax (MAT) for the first half seems to have disappointed market punters.
The future, though, looks brighter. Between October 1996 and end-1997, the company would have commissioned 10 new world-scale plants. Explains one analyst: "All these plants will increase volumes tremendously during the second half, adding to their bottomline." In addition, the company has paid Rs 238 crore as interest during the first half—more than the total interest burden of Rs 170 crore in 1996-97. The interest payout in the second half of the year could be a bare minimum. Analysts add that since there has been a debate about abolishing MAT, the company's management may have found it prudent to wait for the second half before apportioning any amount to MAT.
Clearly, it is the company's volumes strategy combined with backward integration and the resultant cost competitiveness that has defied the slump in the global petrochemicals industry. For instance, polyester staple fibre (PSF) prices dropped by 15-17 per cent in the first half over the corresponding period last year; but Reliance's volumes during the first six months of the current year have grown by 78 per cent, which has helped maintain the 19 per cent operating margin despite lower international prices and higher raw material cost.
Further, during the last two years, Reliance has raised $1.3 billion (Rs 4,680 crore) from international markets which will bring its average cost of debt down from 12.6 per cent to 9.5 per cent by March 1998. Says Mohan K.R. Swamy, equity analyst with BZW: "Despite a regime of falling polymer and polyester prices, Reliance's performance is encouraging. We estimate a net profit of Rs 1,680 crore by the end of the year after fully providing for MAT." Only, this consistent rebel might outperform once again.
