For the second time in one year, Reliance Industries Ltd has confounded analysts by posting an increased net profit, despite a 54 per cent rise in interest costs and a first-time income tax outgo of Rs 45 crore.
The countrys largest private sector company has posted a net profit of Rs 1,323 crore against Rs 1,305 crore for 1995-96, a small 1.3 per cent rise over last years growth rate of 23 per cent.
Higher volumes managed to nudge gross sales to Rs 8,730 crore, though sales growth remained stagnant at 12 per cent compared with last years rate of 12.12 per cent.
Inter-division sales rose to Rs 2289 crore compared with Rs 2060 crore in the previous year.
The slowdown in net profit growth is attributable largely to a rise in interest and depreciation costs, as well as the income tax outgo. Interest costs rose to Rs 170 crore from Rs 110 crore, while depreciation touched Rs 410 crore from Rs 337 crore.
Analysts at Daewoo Securities said Reliance was able to pay lower than the 12.9 per cent on pre-tax book profits as provided for under the Minimum Alternate Tax (MAT) by changing the method of calculating depreciation for certain assets from the straight line method (SLM) to the written down value method (WDV). Under the Companies Act, the rate of depreciation on SLM is lower than the WDV method (5.28 per cent as against 15.33 per cent for continuous plant and machinery).
An analysis of how Reliance worked out a lower tax outgo shows that it had set off depreciation for a prior period of Rs 942 crore and other tax breaks under MAT (possibly due to deductions like backward area benefits of Rs 349 crore against its declared profit before tax of Rs 1368 crore, to end up with a MAT-chargeable income of Rs 349 crore. MAT charged at 12.9 per cent on this income would therefore amount to Rs 45 crore.
The company exceeded analysts average expectations of a Rs 1,078 crore net profit by posting profits of Rs 1,323 crore. The earning per share (EPS) has risen marginally from Rs 28.49 to Rs 28.8, while the dividend has been upped by 5 per cent to 65 per cent.
Second-half margins have risen slightly to 22.47 per cent, compared with 22.3 per cent in the first six months of 1996-97. Analysts cited buoyant second-half polymer prices and lower costs of ethylene imports as possible causes for the improved margins.
Announcing the results after its board meeting in Mumbai yesterday, the company said its total net worth stood at Rs 8,471 crore against Rs 7,747 crore for last year. .Analysts said there has been a noticeable improvement in the companys performance for the second half, helped to a great extent by high volumes and better polymer prices.
Nearly 4.15 lakh tonnes of additional capacity, excluding Reliances Hazira naphtha gas cracker, was added in the second half, raising the companys total capacity from 1.5 million tonnes to over six million tonnes.
The additional capacity includes 80,000 tonnes of polyester staple fibre, 60,000 tonnes of polyester filament yarn, one lakh tonnes of polyvinyl chloride, and 1.75 lakh tonnes of polypropylene. The Hazira cracker alone contributed extra production of over one million tonnes.
