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Reliance Industries Limited Financial Presentation April 18, 2000

Reliance Industries Limited Financial Presentation April 18, 2000. Index. Performance Highlights Operating Environment Financial Performance Business Review Reliance Petroleum Power & Telecom Stock Buyback Programme Summary. Performance Highlights.

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Reliance Industries Limited Financial Presentation April 18, 2000

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  1. Reliance Industries Limited Financial Presentation April 18, 2000

  2. Index Performance Highlights Operating Environment Financial Performance Business Review Reliance Petroleum Power & Telecom Stock Buyback Programme Summary

  3. Performance Highlights • Reliance continues to lead the Indian private sector with highest sales, profits, assets, and net worth • Record production volume of 8.9 million tonnes in the year 1999-2000 - an increase of 26% • Net external sales up 54% for the year • Rs. 25,000 crores (US$ 6 bn) Jamnagar refinery and petrochemicals complex completed in record time frame • Acquisition of control over Raymond Synthetics’ polyester capacity of 75,000 tonnes per year • Exports up 164% at Rs. 1,811 crores (US$ 415 mn) • 14 new oil and gas exploration blocks awarded - RIL the No. 1 E&P player in the private sector in India

  4. Financial Highlights - Q4 1999-2000 Sales Rs 6,594 crores $ 1,512 mn +83% Gross Profit Rs 1,593 crores $ 365 mn +88% Cash Profit Rs 1,284 crores $ 294 mn +95% Net Profit Rs 654 crores $ 150 mn +72% All-time record performance for the quarter - nearly 75-100% growth on all major financials

  5. Financial Highlights - 1999-2000 Sales Rs 20,301 crores $ 4,654 mm +40% EBDIT Rs 4,746 crores $ 1,088 mm +43% Cash Profit Rs 3,738 crores $ 857 mm +44% Net Profit Rs 2,403 crores $ 551 mm +41% EPS Rs 22.4 / share $ 0.50 / share +25% Cash EPS Rs 34.6 / share $ 0.80 / share +27% Reliance continues to lead the Indian private sector - highest sales, profits, assets, and net worth

  6. Operating Environment

  7. Positive Demand Environment in Asia Positive external balances, low inflation and stable FX rates will be the key themes in Asian economies in 2000-01

  8. Economic Recovery in India • GDP growth in India for the year 2000-01 is likely to be in the 6% - 7% range • Inflation rates are marginally higher than the previous year, but still in the 4% - 5% band • Long term interest rates have declined significantly - the 10 year Treasury rate is around 10.50% per annum • Foreign exchange reserves have crossed US$ 37 billion, imparting considerable stability to the Indian rupee The bulging FX reserves of US$ 37 billion, and the declining interest rate scenario, provide for a stable environment

  9. Crude Price Trends (Brent) High 32.75 Current 21.81 Low - 9 There are indications of a return to price stability in the crude markets: the 15 year average is US$ 18 - 20 range

  10. Petrochemicals - Price Movements International Prices (US$ / T ) April 2000 % above % below price recent bottom previous peak PE 710 +60% -16% PP 650 +60% -33% PVC 800 +98% -6% POY 1150 +121% -38% PSF 930 +38% -49% PTA 530 +36% -52% PX 475 +103% -67% MEG 640 +113% -8% Naphtha 240 +150% -18% Prices of most products are still significantly lower than 1995 peak prices - naphtha close to previous cycle high

  11. Petrochemicals - Trends and Outlook • Petrochemicals demand in Asia has remained strong even at higher price levels - operating rates are high • Project cancellations/delays over the last few years bode well for regional demand - supply balance • New gas based plants coming up in the Middle East enjoy lower feedstock cost advantage, but have significant capital cost/production inefficiencies and freight penalty • Optimism that petrochemicals price and margin recovery will be sustained Globally competitive and fully integrated producers like RIL well positioned to benefit from the petrochemicals upcycle

  12. International Feedstock Price Trends (US$ / T ) Average Average % April % 1998-99 1999-00 Change 2000 below price peak Crude ($/bbl) 12.05 21.87 +81% 21.93 -33% Naphtha 121 199 +64% 240 -18% EDC 160 340 +113% 450 -2% Average feedstock prices were sharply higher during the year - driven by the firm trend in crude prices

  13. International Product Price Trends (US$ / T ) Average Average % April 2000 1998-99 1999-00 Change prices POY 878 964 +10% 1150 PSF 671 793 +18% 930 PTA 365 441 +21% 530 MEG 373 527 +41% 640 PE 491 650 +32% 710 PVC 456 662 +45% 650 PP 453 580 +28% 800 Average international product selling prices were generally 20% - 40% higher

  14. Domestic Product Price Trends ( Local prices in Rs. / kg ) Average Average % April 2000 1998-99 1999-00 Change prices POY 56.3 60.9 +8% 63.6 PSF 43.0 52.2 +22% 56.0 PTA 23.1 28.2 +22% 32.1 MEG 24.2 31.8 +31% 35.4 PE 35.5 42.7 +20% 47.0 PVC 28.4 37.9 +34% 41.0 PP 31.7 37.7 +19% 39.5 Domestic product selling prices, as in the past, tracked international trends

  15. Financial Performance

  16. Income Statement for 1999-2000 Record performance despite steep increase in feedstock prices and high volatility in product prices

  17. US GAAP Reconciliation The difference is mainly on account of change in method of depreciation, deferred taxation and foreign currency assets

  18. Business Mix Reliance remains focussed on the petrochemicals business

  19. Profitability Ratios Significant improvement in all key profitability ratios - OPM, NPM, and RONW

  20. Liquidity Ratios Total Assets have increased to over Rs. 29,000 crores Debt:Equity ratio maintained at 0.88:1 Net interest cover up at 8.1 times

  21. Growth in Production and Sales • Sales revenue growth of 39.5%, contributed by: • Impact of sales volume growth 22.1% • Impact of increase in average product selling prices 17.4% • Net external sales up 54% for the year • Robust growth in domestic demand - over 90% of production sold within India • Value added export opportunities captured Production volume increased 26% to a record level of 8.9 million tonnes

  22. Stability of Operating Margins Operating margins improved to 20% This was the result of : • Strong volume growth • Higher product prices mitigating higher operation costs • Gains from productivity, cost control, and efficiencies • Higher degree of integration and value addition • Rationalisation of customs duties Ability to operate plants at peak rates and sell most of the production in the domestic markets, differentiates Reliance from other global petrochemical producers

  23. Export Revenues Increase Sharply • RIL’s total exports increased 164% from Rs. 685 crores ($ 161 mn) to Rs. 1,811 crores ($ 415 mn) • Manufactured exports increased 116% from Rs. 685 crores ($ 161 mn) to Rs. 1,478 crores ($ 339 mn) • RIL has also entered into long term arrangements with RPL for exports of various petroleum products • During the year, RIL exported Rs. 333 crores ($ 76 mn) of petroleum products sourced from RPL Current export revenues alone provide nearly 4 times cover for RIL’s FX denominated interest liability

  24. Export Revenues to Rise Further • Export revenues are likely to increase further in the year 2000-01 to $ 500 - 600 mn (Rs. 2200 - 2600 crores) • RIL’s requirement of feedstocks can be almost entirely sourced from the Jamnagar complex • RIL to have substantial net foreign exchange earnings in the year 2000-01 • Exports driven primarily by superior economics - thrust on value added exports and speciality grades Reliance to emerge as one of the largest manufacturer exporters in India

  25. Export Revenues Trends RIL’s exports represent less than 10% of total revenues, even after a 20 times increase in absolute terms in 4 years

  26. Conservative Financial Management • Top-end domestic AAA credit rating - international rating constrained by sovereign ceiling • RIL’s cash flows for less than 2 years are sufficient to extinguish its entire net debt • Foreign exchange risks largely eliminated - ECBs represent just over 2 years’ export revenues • RIL has repatriated FX of nearly US$ 800 mn (nearly Rs. 3,500 crores) from its offshore ECB proceeds RIL FX exposure additionally covered by the natural hedge in its petrochemicals business - rupee outlook also stable

  27. Capex/ Expansion Framework • RIL will allocate upto 50% of its internal accruals over the next 3 years for capacity expansion/debottlenecking • Additional capacities to be implemented at around 50% - 60% of the current replacement cost of comparable assets • This will ensure lower capital intensity and attractive returns through the business cycle • Increased focus on specialities in new capacity creation RIL will implement necessary capex plans and acquisition strategies to maintain and enhance its leadership in rapidly growing domestic markets

  28. Capex/Expansion Plans • Reliance intends to double its polyester capacity in 3 years, through acquisitions and fresh capacity creation • Debottlenecking of naphtha cracker planned from 750,000 tpa to 1 million tpa of ethylene • Plans for PE debottlenecking, and setting up new capacity for PTA and MEG in line with polyester expansion RIL’s capex is unlikely to exceed Rs. 1,000 crores (approx. US$ 250 million) in the year 2000-01

  29. 2000-01 Capex Covered by Depreciation Capex for 2000-01 will be less than 80% of depreciation, indicating the strong free cash flow generation

  30. Free Cash Flows are Rising Free cash flows are increasing as profits rise and the proportionate spending on capex reduces

  31. Capex Trends vis-à-vis Total Assets Future capex, as a proportion of Total Assets, will be significantly lower - less than 5% for 2000-01

  32. CWIP Declines to Rs. 300 Crores Post Jamnagar, entire asset base is generating returns - CWIP has declined to insignificant levels

  33. Tax Liability Maintained at 2%-4% PBT RIL’s tax liability has been maintained in the 2%-4% range since MAT imposition - MAT rate now reduced to 7.5%

  34. Business Review

  35. Globally Ranked Capacities Global Rank POY 4 PSF 5 PTA 6 PX 3 PP 6 PE (swing) 10 RIL has emerged as a significant global producer of petrochemicals in all its major products

  36. Reliance’s Leading Business Position • Among top 10 producers globally of all its major products • Unique vertical integration from crude refining to fabrics and plastics - capturing value addition of over 1000% • Deriving over 90% revenues from domestic market • Leading the market in all its product categories with market shares ranging from 47% to 87% • Globally competitive capital and operating cost position RIL alone contributes over 1% of India’s GDP and 1.5% of government’s revenue receipts

  37. Growing Market Shares RIL’s market share 1998-99 1999-2000 % change Polyester 44% 47% +3% (PFY, PSF, PET) Fibre Intermed. 84% 87% +3% (PTA, MEG, PX) Plastics 56% 56% - (PE, PP, PVC) • Polyester market share expansion driven by acquisitions • Plastics market share maintained in the face of additions to industry capacity

  38. Robust Growth in Domestic Demand Historic Future growth CARG Estimates Growth Drivers (last 5 yrs) (per annum) Polyester 14% 8% - 15% - Lower prices (PFY, PSF, PET) - Substitution of cotton Fibre Intermed. 15% 8% - 15% - Growth in polyester PTA, MEG, PX) demand Plastics 12% 10% - 15% - 8% cut in excise (PE, PP, PVC) - JPMA implementation - Edible oil packaging - Telecom (Cables and Ducting) Domestic demand growth momentum likely to be maintained in double digit range

  39. Excise Duty Cuts to Boost Demand • The Union Budget for 2000-01 has reduced excise duties on plastics by 8%, from 24% to 16% • For the first time, this brings excise duties on plastics to the same level as alternative packaging materials • The cost advantage enjoyed, on this account, by aluminium, glass, etc. now stands removed • Consumer choice to be driven solely on product attributes, and not on artificial duty-based cost considerations • Lower end prices to customers to boost demand Excise duty reduction on plastics has removed the cost advantage enjoyed by alternative packaging materials - demand likely to receive a major boost

  40. Foodgrains Packaging opened to Plastics • Foodgrains/sugar packaging in the country has been opened up to plastics, for the first time in decades • Earlier, all foodgrains/sugar were to be packaged in jute bags, despite 100% cost penalty over PE/PP woven sacks • Jute Packaging Material Act 1987 (JPMA) relaxed w.e.f. March 31, 2000 - limit for foodgrains/sugar reduced from 100% to 90%, and urea from 20% to 15% • Whole new markets opened up for PE/PP - significant increase in consumption • Jute availability inadequate for growing foodgrains/sugar production - growth of 140 mn tonnes in last 10 years A single new market for packaging of foodgrains/sugar has opened, unlocking vast demand potential for PE/PP

  41. Strong Potential for Demand Growth Total demand in ‘000 tonnes/year PFY & PSF PP, PE, PVC India 1305 2308 China 3755 11785 World 15268 77012 Chinese consumption at 3-4 times current Indian levels, indicates potential for sustained demand growth

  42. Business Review - Polyester • Domestic polyester demand growth at 7% per annum • Reliance’s volumes increased faster, partly owing to acquisition of polyester capacity

  43. Business Review - Plastics • Domestic demand increased at 7% per annum • RIL’s volumes increased industry growth

  44. Business Review - Oil and Gas • Oil and gas business now accounts for 2.4 % of revenues

  45. New Oil & Gas Initiative • RIL has been awarded a total of 14 offshore blocks under GOI’s New Exploration Licencing Policy (NELP) • Deep and shallow water offshore blocks awarded on the basis of international competitive bidding • RIL the No. 1 E&P player in the private sector in India • RIL’s exploration acreage exceeds 1,00,000 sq. kms off the West and East coast of India • RIL to invest approximately Rs. 200 crores ($ 50 million) per year over the next 3 - 4 years in exploration activities RIL is leveraging on the in-house knowledge base and skill sets developed in the producing Panna, Mukta, and Tapti, oil and gas fields

  46. Significant Incentives - NELP • US$ denominated prices for oil and gas • No signature, discovery or production bonus • No mandatory state participation • No cess on oil and/or gas • Significantly lower royalties • Freedom to market the oil & gas production in the domestic market • No customs duty on the items imported for the project • 100% cost recovery for the cost incurred • 100% tax deduction for all expenditure (incl. capex)

  47. Moving up the Value Chain - Specialities Speciality as %age of total volume Premium over 1995-96 1999-2000 2000-01 commodity PE 5% 13% 26% 12% PP NA 17% 30% 13% POY Nil 10% 22% 14% PSF 9% 41% 45% 10% Near doubling of speciality grades to differentiate RIL from commodity producers, enhance margins, enable expansion into new markets, and deliver superior overall value

  48. Tariffs - WTO Commitments Current WTO Bound import tariffs Rates POY 20% 20% PSF 20% 20% PTA 20% 40% MEG 20% 40% PE 30% None PP 30% None PVC 30% 40% • Import tariffs on POY, PSF have already reached WTO bound rates • Tariffs on polymers likely to also gradually decline to 20% range in the next 3-5 years

  49. Strong Performance under Declining Tariffs Strong performance in a declining import tariff environment: global competitiveness demonstrated

  50. Reliance Petroleum

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