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Reliance's stellar results difficult to sustain

NetScribes/Janaki Krishnan & Salil Panchal

Reliance Industries Ltd (RIL) is likely to find the going tough in the coming months in spite of posting record sales in the first half of the current fiscal.

First, Reliance Petrochemicals Ltd (RPL), which contributed around 14 per cent of RIL's revenues in the second quarter, is not going to contribute any more to the parent's topline as the chief merchant exporter for the company. Second, the company's fate remains largely affected by crude oil prices, which have been extremely volatile of late.

RIL has reported a substantial sales growth of 73 per cent to Rs 150.1 billion for the first half-year. But excluding merchant sales through RPL, sales grew by only 48 per cent to Rs 128.6 billion in the same period.

"If we look at the RPL dependence and the crude oil prices at the global markets, Reliance's topline could be affected in coming months,'' said KG Maulik of Kaji & Maulik Stock Brokers, a corporate brokerage firm.

Marketmen, however, put the company's figures above the industry average. RIL posted a 20 per cent growth in net profit to Rs 13.4 billion, and a 33 per cent rise in operating profit to Rs 26.43 billion in the first half.

The promoters also announced plans to raise their stake in RIL to 51 per cent from the present 40 per cent in the coming months. "It would be done through secondary market purchases over a period of time,'' RIL managing director Anil Ambani told investors and analysts. The share buyback programme would be open till June 2001.

Currently, apart from the promoters' 40 per cent, 20 per cent is with domestic institutions, 20 per cent with foreign institutional investors (including 7 per cent through GDR holdings), and the rest is with the public.

The RIL scrip witnessed steady trading interest on Tuesday at the Bombay Stock Exchange and closed 0.63 per cent higher at Rs 303.15, hours before the results announcement.

Ambani also said that RIL will not consider its ADR plans for Reliance Telecom in the immediate future, but would prefer to convert its current GDRs into ADRs.

Along with the results, RIL disclosed that it will divest 49 per cent stake in its wholly-owned subsidiary Reliance Infocom to strategic investors over time. Reliance Infocom is the holding company for all of RIL's infocom ventures. The company also announced plans for a private gateway.

Commenting on the infocom plans, an analyst with a leading retail brokerage outfit said, "The cash flow will sustain investments in coming months."

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