reliance ind
TRANSCRIPT
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September 2006
Reliance Industries Limited
RIL’s Existing Refinery At Jamnagar, Gujarat
2
Contents
Summary
Business Review
Reliance Industries: An Overview
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RIL – Unique Business Model
World classexecution
capabilities toimplement large
projects
Financialprudence &
conservatism
Verticallyintegrated;global scaleoperations
Steady cashflows; Proven
financialstrength &
stability
Benchmarkedefficiencies andcontrolled costs
Strengtheningpresence in new
growth - Oil &Gas, R&M
India’s only private sector company in Fortune Global 500
4
Reliance Industries – India’s Proxy
Revenues of US$ 19.9 billion
Cash Profit of US$ 2.9 billion
Net Profit of US$ 2 billion
98% of revenues from Refining and
Petrochemicals, 2% from E&P & others
India and Reliance
Revenues equivalent to 2.8% of India’s GDP
8.2% of India’s total exports
Contributing 8% India’s indirect taxes
4.7% of the total market capitalization,
11.5% weightage in Sensex
What is good for India is good for Reliance
Note: All numbers for FY 2005-06
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Fortune Global 500
India’s only private sector company in Fortune Global 500 list
Amongst the 200 most Profitable Companies in the Fortune Global 500
Among the top 25 Climbers – change of 75 ranks
Global
Rank
Net Sales 342 75
Net Profit 194 11
Net Worth 226 19
Assets 351 6
6
Consistent Growth
4,938
9,30410,549
12,866
16,725
19,976
3,000
6,000
9,000
12,000
15,000
18,000
21,000
FY-01 FY-02 FY-03 FY-04 FY-05 FY-06
Turnover (US$ Million)
Turnover CAGR of 32% and Net Profit CAGR at 29% over 5 years
567664
864
1,180
1,731
2,033
-
300
600
900
1,200
1,500
1,800
2,100
FY-01 FY-02 FY-03 FY-04 FY-05 FY-06
Net Profit (US$ Million)
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Strong Fundamentals
Strong Cash flows Existing businesses generating cash flows of US$ 2.9 billion per annum
Solid Balance Sheet
Total Assets have grown from US$ 4.3 billion to US$ 20.8 billion over the last 10
years
Conservative gearing
Debt to Equity ratio of 0.47, Net Gearing at 29% as on June 30, 2006
Top end credit ratings
Baa2 Stable Outlook by Moody’s
BBB Stable Outlook by S&P (above Sovereign Rating)
AAA by CRISIL (S&P-India) for the past 12 years
Experience in multi-billion dollar projects on the strength of cash
flows with marginal recourse to external borrowings
8
Plastics(PE, PP, PVC, PET)
Textiles
Petrochemicals(LAB, EO)
Oil and GasExploration
PetroleumRetailing
Oil and GasProduction
Polyester(Fiber, Filament)
FiberIntermediates
(PX, PTA & MEG)
Olefins andAromatics
PetroleumRefining
Unique level of integration among the global players
Oil to Textiles: Value from Integration
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Dominant market share in India
Domestic Leadership & Global Rankings
Leading Global PositionLeading Market Shares in India
Leading domestic market shares and global positions
1
3
4
6
Polyester(Fibre & Yarn)
Refining (1)
Paraxylene
PurifiedTerephthalicAcid
7MEG
Amongst top 10 global playersin all its core businesses
Polyester (2) 56%
Fibre Intermediates (2) 87%
Polymers (2) 67%
Refining 28%7 Polypropylene
(1) A t a ny si ng le l ocat io n (2) Petrochemicals market share incl. IPCL
10
Tenets of RIL’s Value Creation Journey
Ability to identify and pursue high growth businesses
Superior execution capabilities in setting up world-class projects in record time
Global competitiveness and leadership position in most businesses
Low cost manufacturer and quality service provider
Integration across the value chain
Financial conservatism and prudent financing norms
High standards of Health, Safety and Environment
Consistently Enhancing Stakeholder Value
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Exploration & Production (E&P)Exploration & Production (E&P)
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Upstream Business Approach
Large High-QualityExploration Portfolio
Exploration
Excellence to add resources
at low finding cost
Create AttractiveProject Inventory
Capitalise OnGrowing DomesticNatural Gas Market
Growth inShareholders
Value
Superior Project Executionwith focus on time
management & costs
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Large High-Quality Exploration Portfolio
4 Blocks ~23,000 Sq.
KM
11 Blocks(including
KGD6)
~ 74,000 Sq.KM
1 Blocks
~ 26,000 Sq.KM
5 Blocks
~ 52,000 Sq.KM
4 Blocks
~ 42,000 Sq.KM
9 Blocks
~ 114,000Sq. KM
Pre NELP
NELP I
NELP IV
NELP V
NELP III
NELP II
Domestic
41 Blocks (including PMT & 5 CBM)
Acreage Holding: 340,000 Sq. KM
Overseas
2 Blocks – Oman and Yemen
Panna-Mukta
& Tapti 2Blocks ~
2,700 Sq. KM
1994 KG D6Gas
Discovery
NEC GasDiscovery
KGD6-MA1 Oil
Discovery
World’s largest
gas discovery in2002
RIL is the India’s largest private sector E&P player
5 CBMBlocks
14
International Business
OMAN YEMEN COLOMBIA
21,140 square km, 100% PI 2,464 square km, 25% PI 15,718 square km
Work Program on scheduleFirst well to be spudded next year
Producing around 10,000 bpdEfforts to increase production
TEA signed with Eco-petrolTechnical evaluation under
progress
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Creating Attractive Project Inventory
' 0 6 -0 7 ' 07 -0 8 ' 0 8 -0 9 '0 9 -10 '1 0 -1 1
NEC25
Tapti
NRPOD
KGD6
& CBM
KG III6
Panna Mukta
EPOD
Panna-Mukta EPOD, Tapti NRPOD & KGD6 under implementation
Target to complete projects at globally competitive costs.
Continued focus on exploration to maintain inventory
Development using globally proven technologies
Capitalise on RIL’s project management skills
Significant contribution to RIL cash-flow on project completion
16
Reserves
World largest gas discovery in 2002 - Krishna-Godavari basin (14 TCF OGIP) –
with further potential upside under exploration
Discovery in NEC-25- puts Mahanadi offshore to petroliferous map of India (2.3
TCF OGIP)
CBM Gas – puts Coal Bed Methane in the map of India (3.65 TCF OGIP)
Crude oil discovery notification was made for the MA1 well in KGD6
Signifies a large geological play that could result in future discoveries
Testing done in 2 zones located 3 kms below sea level
FY09 will be a watershed change with E&P contributions
to overall revenue increasing significantly
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KG D6 – Highlights
Development of KG-D6 project progressing as planned
Successful exploration efforts reduce finding costs
17 exploratory wells drilled, notified 14 discoveries to the DGH
Aker Kvaerner appointed as the engineering consultant
Bechtel is the PMC
Development Plan for discovery of D1 & D3 fields, currently the most prolific
fields in block D6, has been approved
Capex at US$ 2.4 billion for production profile of 40 MMSCMD
High EBITDA potential
18
Gas Transportation
48 inch – 1,400 KM East West Pipeline
across Andhra, Karnataka,
Maharashtra and Gujarat
EWP to provide access to potential gas
markets in its corridor
Leverage deficit gas market in India –
current shortfall>100 MMSCMD
EWPL commissioning synchronized
with KGD6 development
Project implemented by Reliance Gas
Transportation Infrastructure Limited
Work on schedule to ensure first gas delivery in FY09
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E&P - Summary
Diversified and high-potential exploration portfolio
Successful exploration efforts reduce finding costs
Development of KG-D6 project progressing as planned
NEC25: Six discoveries declared as Commercial – development plan under
preperation
CBM: Commenced drilling in Rajasthan Blocks
Environmental Clearance obtained for Sonhat Block
Opportunistic expansion of international portfolio
E&P likely to contribute 15-20% of revenue by 2010
Refining & Marketing (R&M)Refining & Marketing (R&M)
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Key Industry Trends
Rapid economic growth : “Fueling” energy demand Rapid economic growth : “Fueling” energy demand
Structural changes in demand composition Structural changes in demand composition
Increase in light-heavy spread Increase in light-heavy spread
Shortage of complex refining capacity Shortage of complex refining capacity
Stricter environmental regulations Stricter environmental regulations
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Stretched Global Refining System
Global utilisation rates at its highest in the last 2 decades
0
10
20
30
40
50
60
70
80
90
1965 1970 1975 1980 1985 1990 1995 2000 2005
0
2
4
6
8
10
12
14
16
18
20
Oil co ns ump tio n Ref ining Cap acity Surp lus Capac ity
MMBD
Source: BP Statistical Review of World Energy, June 2005HART’S World Refining and Fuel Services, Dec’05
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0%
5%
10%
15%
20%
25%
30%
% o
f G l o b a l
R e f i n i n g C a p a c i t y
0
-
5
5
-
1 0
1 0
-
1 5
1 5
-
2 0
2 0
-
2 5
2 5
-
3 0
3 0
-
3 5
3 5
-
4 0
>
4 0
Age of Refining Capacity (Years)
Source: Based on data from BP Statistical Review of World Energy, June 2005
72% of global weighted average refining capacity is aging
Insignificant Capacity Additions in recent past
24
Global Crude Oil Availability Trends
Global Crude Oil Availability Trends (2005-2020)
32.3
32.8
32.6
32.5
1.4
1.21.2
1.3
1.05
1.1
1.15
1.2
1.25
1.3
1.35
1.4
2005 2010 2015 2020
Years
S u l p h u r ( w t % )
31.9
32
32.1
32.2
32.3
32.4
32.5
32.6
32.7
32.8
32.9
A P I G r a v i t y
( D e g r e e s )
API Gravity Sulphur (%)
Global crude oil basket likely to become heavier and sourer,thus favoring higher complexity refineries
Source: HART’S World Refining and Fuel Services, Dec’05
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Structural Strengthening of GRMs
Increasing Demandfor Light & MiddleDistillate Products
Increasing Demandfor Light & MiddleDistillate Products
Expanding US &Global Economy
Expanding US &Global Economy
SignificantDemand Growth
in Asia
SignificantDemand Growth
in Asia
Clean FuelsSpecifications
Clean FuelsSpecifications
Increasing GlobalHeavy, Sour Crude
Slate
Increasing GlobalHeavy, Sour Crude
Slate
Growth Capexdiverted to Clean
FuelsInvestments
Growth Capexdiverted to Clean
FuelsInvestments
Rising GreenfieldProject Costs
Rising GreenfieldProject Costs
Global RefiningMargins
MTBE Phase-outMTBE Phase-out
28
RIL Jamnagar - World-Class Refinery
World’s 3rd largest refinery with capacity of 33 million tonnes per annum
A complex refinery integrated with petrochemicals, captive power & port –
Nelson Complexity Index of 11.3
Proximate to crude supply sources and markets
Consistently earning $2 - $3 / bbl GRMs above the Singapore Complex Margin
Exporting products to the most quality conscious markets such as the US,
Europe and Japan – 51% of refinery volume exported in Q1 FY07
Top quartile performer in productivity,efficiency and technical complexity
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5.16.1
8.8
10.3
12.4
2.21.42.3
0
2
4
6
8
10
12
14
2002-03 2003-04 2004-05 2005-06 QI FY07
$ / b b l
RIL N Y Harbour Mediterranean
Rotterdam Singapore
Record GRM with RIL outperforming global benchmarks
Source: Reuters / Company Data
Consistently High GRMs
30
R&M – Business Strategies
Cost leadership, Operational excellence
Feedstock flexibility - Increasingly heavier crude basket
Superior product slate
Increasing focus on exports
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Reliance Petroleum: A snapshot
A refinery for the world, located in India
Investments of US$ 6bn; Being set up in an SEZ at Jamnagar
Refining capacity of 580,000 BPSD – to be 6th largest at a single location
Nelson Complexity of 14.0
Sustainable competitive advantages; shall allow major margin upside under
favorable global industry dynamics
On fast track implementation, to be fully operational by Dec’08
A Reliance value creation initiative
32
Superior Configuration and Product Slate
Sustainable twin benefits:
To process heavier/sourer crude
with avg. API of 24
To meet superior product specs for
European and US markets (Euro
IV)
RPL’s to produce superior spec productsto make it a truly global refinery
Product Base Range
(MMTPA)
Diesel 12.0 - 13.0
Gasoline 8.0 - 10.0
Jet 1.0 - 2.0
Petcoke 2.0 - 3.0
Alkylates* 2.0 - 3.0
Polypropylene 0.50 - 0.90
Sulphur 0.50 - 0.60
* High Octane gasoline used in the developed
markets, trades at a significant premium
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Feedstock Flexibility
RPL expected to be among the top
5% of refineries with extra heavy
crudes (below 26 API) processing
capabilities
A high light-heavy crude price delta
scenario may lead to significant
margin advantage
High level of flexibility to enable RPL to process opportunistic crudes
Feedstock No. of
Refineries
% of
Total
Extra heavy crude 31 4.7%
Heavy crude 114 17.2%
Medium crude 260 39.3%
Light crude 135 20.4%
Extra light crude 121 18.3%
Total 661 100.0%
Source: Based on data from Oil & Gas Journal
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Summary of progress in recent months
Engineering completion on schedule
Basic engineering nearly done
25% of detailed engineering completed
Over 5000 engineers / managers working across locations globally
Major purchase commitments made
Critical and long lead equipments ordered
Steel and piping bulks committed; Deliveries being effected already
Infrastructure and construction activities progressing rapidly
Staffing at Bechtel and others contractor offices saturated
Project expected to be completed on time and within budget
Project on fast track completion : Positive for margins
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Project cost and timeline risks mitigated
Early commitment of high value and long lead equipments
Benefits of ‘repeat’ approach maximised
Booked shop capacities ahead of the competition
Competitive prices and delivery schedules
De-risking from price volatility of various commodities
Current procurement status highly conducive
Purchase commitments made for over 3/4th of project equipment
All long-lead items of equipment & packages committed
Engineering design work at advanced stage, further minimises the risk
High confidence level for capex & project schedule
Petrochemicals - PolymersPetrochemicals - Polymers
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Polymer : Demand Supply
0
50
100
150
200
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
50%
60%
70%
80%
90%
100%
MMTA
Capacity Demand Op. Rate
Polymer Demand Supply : Global
0
25
50
75
100
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
50%
60%
70%
80%
90%
100%MMTA
Capacity Demand Op. Rate
Polymer Demand Supply : Asia
CAGR % 00 - 05 05-10
Demand 4.6% 4.8%
Capacity 3.6% 5.1%
CAGR % 00 - 05 05-10
Demand 7.0% 6.5%
Capacity 5.6% 5.1%
Asian demand growth outpacing capacity additionSource: CMAI
38
India on a Inflection Point
Polymer Consumption (MMT)
4 5
6 7
9 1 0 1
1 1 4
1 6 1
7 2 0
2 3
2 5
2 7
3 0
1 . 0 1 . 1 1 . 4
1 . 7
1 . 8
1 . 9
2
. 4
2
. 7 3 . 1 3 . 3 3
. 7 3 . 8 4 . 1 4 . 1
3
0 . 9
4 . 4
1 9 9 0
1 9 9 1
1 9 9 2
1 9 9 3
1 9 9 4
1 9 9 5
1 9 9 6
1 9 9 7
1 9 9 8
1 9 9 9
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
China
India
GDP (Billion US $ Constant)
1418
1176
991
601
700
898
1910
1654
1271
1081
946
816
543406483
746
278273
353
407
437 471
576
665
495458409373
311280
1 9 9 1
1 9 9 2
1 9 9 3
1 9 9 4
1 9 9 5
1 9 9 6
1 9 9 7
1 9 9 8
1 9 9 9
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5 *
China
India
China 6 times India China’s GDP 2.5 times India
India has potential to replicate China but with a time lag
Is India at aninflection
point?
Source :CMAI
Source :Nation Master
China’sInflection
point
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India’s Leading Petrochemical Player
Reliance’s global scale, competitiveness and emphasis on specialtyproducts allow for leadership in the industry
Diverse ProductRange
Polymers, Polyester, Polyester Intermediaries
Cracker Products (Ethylene and Propylene)
Chemicals (Linear Alkyl Benzene, Normal Paraffin)
MarketDominance
67% of domestic polymers market
56% of domestic polyester market
UnrivalledPerformance
Capacity utilisation rates 100% plus
Record production of nearly 13.5 million tonnes in FY06
Recently added capacity of 1.56 million tonnes
StrategicAcquisition of
IPCL
IPCL - India’s 2nd largest petrochemicals company
Enhanced competitive advantages - feedstock
integration; infrastructure sharing
40
Polymer Portfolio: Market Trends
Growth Opportunities
Indian per capita consumption 4.5kg Vs 75 Kg in developed countries
8% GDP growth will boost all round consumption
India experiencing retail, automobile and construction boom
Asia and Mid East Emerging as production Hub
75% of Global Ethylene expansion is in Asia and Mid East
India’s participation in export of converted product to West will increase
Emergence of Global markets
Reliance has locational, structural and cost advantages
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Cash Cost Competitiveness Asia / ME
Base : Crude Dubai @ US$ 60/bbl
Asia/ME Cash Cost compititiveness
0
200
400
600
800
1000
1200
1400
Asian/MECrackers
C a p a c i t y ( K T A )
0
100
200
300
400
500
600
700
800
900
1000
C a s h C o s t ( $ / M T )
Capaci ty Ethy lene Cash Cost
R I L H a z i r a
Middle East Gas Crackers
Asian Naphtha Crackers
Reliance : Ethylene Cash cost among the lowest in Asian Naphtha crackers
42
Polymers - Priorities and Growth Strategies
Improved cost position in manufacturing
Volume growth and value improvement in ‘basics’
Expansion of speciality portfolio
Enhance customer relationship
Enhance speed to market through R&D and Application development
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Petrochemicals - PolyesterPetrochemicals - Polyester
44
Producer KTA
DuPont 841
Celanese 605
Hoechst 395
AKZO 316
Eastman 302
Rhone Poulenc 248
Teijin 219
Toray 172
ICI 155
Monsanto 146
Producer KTA
Nan Ya 1035
Reliance 779
KoSa 700
Teijin 698
Sam Yang/SS (Huvis) 658
Hualon 575
Far Eastern 604
DuPont 583
Tuntex 561
Toray 543
Polyester Production: Changing Trends
Producer KTA
Reliance 1700
Nan Ya 1080
Sanfangxiang 1050
Yizheng 945
Yuandong 900
Tuntex 885
Far Eastern 781
Huvis 750
Rongsheng 650
Tongkun 640
1982: RIL commissioned first polyester plant of 10 KTA
1980 2000 2005
RIL: Leadership in two decades
US, EU, Japan Taiwan, Korea China, India
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Chain Delta: More Stable
Lower volatility improves investment framework
0
100
200
300
400
500
600
700
800
900
Q1
'97
Q3
'97
Q1
'98
Q3
'98
Q1
'99
Q3
'99
Q1
'00
Q3
'00
Q1
'01
Q3
'01
Q1
'02
Q3
'02
Q1
'03
Q3
'03
Q1
'04
Q3
'04
Q1
'05
Q3
'05
Q1
'06
Q3
'06
PX delta PTA delta mod PES delta
Average 3 yr avg
US$/Mt
Average $605
46
India: Textile Vision 2010
Source: CRISIL
MMT
Polyester to drive future growth of textile industry in India
2.9 3.2
1.7
4.10.4
0.8
2004 2010
Cotton Polyester Other MM F
Cotton projected to grow @
2%, the growth rate recorded
in past 10 years.
15% growth required in MMF
production as cotton faces
natural restrictions on supply
2% p.a
15% p.a
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Strong growth momentum across Polyester sector
Polyester Summary
Rising Cotton prices combined with lower availability to encourage polyester
consumption in India
Consumption to grow substantially from low base
Positive fiscal environment to improve polyester demand
Reliance well positioned to improve its leadership in volume, product portfolio
and earnings
SummarySummary
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Reliance: Superior Stock Performance
Outperforming most benchmarks in last one year
Relative Stock Performance
0
50
100
150
200
250
A u g - 0 5
S e p - 0 5
S e p - 0 5
O c t - 0
5
O c t - 0
5
N o v - 0
5
N o v - 0
5
D e c - 0
5
D e c - 0
5
J a n - 0 6
J a n - 0 6
F e b -
0 6
F e b -
0 6
M a r - 0
6
M a r - 0
6
A p r - 0
6
M a y - 0 6
M a y - 0 6
J u n - 0 6
J u n - 0 6
J u l - 0
6 J u l - 0
6
A u g - 0 6
A u g - 0 6
S e p - 0 6
RIL Sensex MSCI AXJ S&P 500 Chem
50
Strong growth momentum in all major businesses
Summary
Significant value enhancement of portfolio through investments in Exploration
and Production of oil and gas – on target for first gas production in 2008
Positive outlook on refining margins and volume growth with full capacity
utilisation
Stable margins expected in Polymers business
Volume growth in Polyester with expanded capacity
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Thank YouThank You