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Reliance 98-99 net up at Rs 17 billion; post-reforms gain put at 1250 per cent

The net profit of textile giant, the Ahmedabad-based Reliance Industries Limited, has increased to Rs 17.04 billion during the year ended March 1999 from Rs 1.26 billion, which showed a growth of 1250 per cent or a 14 fold increase in textile manufacturing since 1991, when economic liberalisation and reforms began in India.

Addressing the 25th Annual General Meeting in Bombay today, RIL chairman, Dhirubhai H Ambani told its shareholders that the company's total income has moved from Rs 21.06 billion in 1991 to Rs 151.61 billion in 1999, a growth of 620 per cent or a seven-fold increase.

While its total production has also increased from 0.45 million tonnes to 7.06 million tonnes in 1999, which shows a growth of 1469 per cent or 16 times higher for the same period.

He said that RIL's total assets have shot up from Rs 27.12 billion to Rs 281.56 billion, showing a growth of 940 per cent or a ten-fold increase since 1991.

The significant strengths developed over these past few years are expected to help Reliance's business generate a substantial cash flow, Ambani stated and added that RIL is committed to deployment of these cash flows within a conservative financial framework, and in the overall interest of stakeholders.

Ambani spelt out some of the specifics of Reliance's capital allocation framework during the AGM, to enable investors to get a better understanding of Reliance's future growth strategies.

He said, in the past two decades of its growth, Reliance has endeavoured to rank among global players, not just in terms of size, but also competitiveness, and has put in place world-scale production facilities.

This step was a pre-requisite to create a lasting foundation for achieving long term profit growth and necessarily a capital expenditure to be incurred on a substantial scale, he further added.

''Several investors have urged us to implement growth plans so as to ensure that Reliance further enhances its market leadership and competitive position. Reliance will allocate upto 50 per cent of its internal accruals over the next three years to implement this profit oriented growth strategy,'' Ambani added.

Ambani further said that the company will also pursue other avenues for development of its cash flows such as strategic acquisition opportunities, debt reduction, financially attractive investments in affiliates. The returns from such investments and their true valuation, will be reflected in Reliance's financial statements through the proposed consolidation of accounts, enhanced distributions to shareholders through appropriate dividend and stock buy-back policies, he said.

He said that implementation of Reliance's stock buy-back programme will depend upon Indian guidelines being in conformity with international norms and informed that Reliance aims to optimise its weighted average cost of capital to levels of its international peer group, to further enhance competitiveness.

Reliance will endeavour to achieve its capital efficiency targets, of generating 20 per cent compounded growth in earnings per share and a return of 20 per cent on shareholders funds, over the next five years. He said the company's current expansion and de-bottlenecking programmes will entail an outlay of about Rs 10 billion per year over the next three years.

This is well below the level of 50 per cent of expected internal cash accruals, specified in the capital allocation framework, he pointed out. Reliance expects to achieve substantial cost advantages from the creation of these facilities, leading to higher profitability.

Its existing cost positions, already globally competitive, will further improve, he assured and said these expansions will also help RIL enhance market leadership and meet customer needs in a more efficient manner, while leveraging on it existing competitive advantages.

Ambani said that since these expansions require marginal levels of investment in relation to cost of selling up a greenfield capacity, lower capital intensity and substantially higher returns will be ensured.

Reliance expects these investments to generate rates of return significantly higher than its cost of capital, through business cycles, he said. Ambani added that these expansion opportunities are expected to generate returns in excess of 25 per cent and take Reliance's total production capacity up from nine million tonnes per annum, post-Jamnagar, to over ten million tonnes per annum.

RIL aims to be the lowest cost and the most competitive, polyester producer in the world, and to participate in this growth, Reliance intends to de-bottleneck its existing multi-feed naphtha cracker, the world's largest, from 7.5 lakh tonnes to nearly one million tonnes of ethylene per annum, he said.

Ambani said that Reliance's export revenues, including deemed exports of Rs 6.85 billion ($ 161 million) placed it among the top five manufacturer-exporters in India. The company's export revenues are likely to increase further to around Rs 20 billion ($ 500 million) over the next few years, upon the commissioning of the Jamnagar petrochemicals complex.

Reliance is likely to attain the position of the largest manufacturer-exporter from India. Even at these levels, Reliance's export revenues will constitute only around 10-15 per cent of its total income.

As a result of assessments, modification, upgrades, or Replacements planned, ongoing or already completed, Ambani believed the year 2000 issue, as it relates to the company's own date dependent systems, will not pose any significant problems for the company's business, processes and operations. It is anticipated that all mission critical systems will be certified year 2000 compliant by July 1999, he added.

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Reliance Industries's chairman Dhirubhai Ambani's speech at the AGM on June 24, 1999 in Bombay