Impressive performance

At a time when other companies are announcing a billion-dollar mark in sales, Reliance Industries has underlined its size by announcing more than a billion dollars in net profits.

For good measure, the company's presentation of its annual results includes a 25-year perspective that shows cumulative growth rates of between 25 per cent and 30 per cent on most parameters "" rivalling Warren Buffet "" and underline how far the company has travelled.

The investments planned and the growth potential of its core businesses suggest that this track record will be maintained, despite the much bigger scale today. It all makes for impressive reading.

As for the financial results for FY 2004, they reflect the global conditions in its core petrochemicals and petroleum refining businesses.

The company's fourth quarter results, with earnings beating expectations, have been a relief for a market grappling with political uncertainty.

Much of the good news is because of the upturn in the global petrochemical cycle. Chinese demand has had a beneficial impact on petrochemical and petroleum product consumption, and this has driven the top line.

Also, as a result of the under-building of capacities, margins in the business have grown. The upshot is that Reliance has been able to raise product prices.

In the refining business, the international scenario is much the same. Chinese demand, tight global inventory and the lack of capacity additions have resulted in Asian refinery margins going up to record highs.

Back home, diesel demand turned positive and Reliance was able to operate its refinery at 109 per cent of capacity. As for the disappointments, the company's roll out of retail outlets for marketing petroleum products has been slower than anticipated, and analysts have aired concerns about the impact of lower offtake from the public sector units this year.

The loss in the telecom business was also more than expected, and the business has had its share of teething troubles. On the other hand, IPCL is doing much better, while Reliance's investment in Reliance Energy is paying handsome dividends.

The good news not just for the company but for the country as well is the large amount of capital expenditure lined up by the company. The Reliance management plans to spend Rs 35,000 crore on capital expenditure over the next five years, much of it in oil exploration, but also in petrochemicals and retail outlets.

Moreover, as the company management points out, in spite of the upturn in the petrochemical cycle, current margins are half of what they were in the mid-1990s, which means that there's plenty of scope for improvement.

Analysts expect mid-cycle margins to be reached by 2005 or 2006. And even if refining margins ease, increased demand for diesel and LPG should lead to top line growth, while the setting up of retail outlets will give the company higher marketing margins.

But perhaps the biggest upside for Reliance lies in the oil and gas exploration business, which currently accounts for less than 1 per cent of turnover, but which has immense potential going forward, once commercial production of natural gas commences.

So far as telecom is concerned, Reliance Infocomm has already garnered a 22 per cent market share, and RIL plans no incremental investment in telecom. Deregulation in the power sector will greatly benefit Reliance Energy.

In short, with the company's main businesses reflecting the upsurge in the global and domestic economies and with its new businesses on the verge of taking off, Reliance Industries is poised for strong growth ahead.