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Reliance Industries Limited Financial Presentation April, 1999

Reliance Industries Limited Financial Presentation April, 1999. Index. A. Economic Environment B. Financial Performance C. Business Review and Strategy D. Jamnagar Complex - Reliance Industries - Reliance Petroleum E. Summary and Outlook . Economic Environment.

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Reliance Industries Limited Financial Presentation April, 1999

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  1. Reliance Industries Limited Financial Presentation April, 1999

  2. Index • A. Economic Environment • B. Financial Performance • C. Business Review and Strategy • D. Jamnagar Complex • - Reliance Industries • - Reliance Petroleum • E. Summary and Outlook

  3. Economic Environment

  4. Stable Economic Outlook for India Source: Morgan Stanley Most Asian economies have begun the recovery process - India remains among the better performers

  5. Indian Rupee Displays Relative Stability Value on % change Currency 1 Jul 97 21 Apr 99 since July 97 Indonesian Rupiah 2430 8700 -72% Malaysian Ringitt 2.52 3.8 -34% Korean Won 887.3 1189 -25% Thai Baht 28.75 37.61 -24% Taiwanese Dollar 27.85 32.76 -15% Indian Rupee 35.76 42.80 -16% The Indian rupee has been among the most stable currencies in the region

  6. Downward Bias in Interest Rates Likely Long term interest rates in India will have to decline to regional levels so as to sustain economic growth

  7. JP Morgan Commodity indices Commodity Prices (% change over past 1 yr) Commodity Prices Still Down YOY Commodity prices are still down year-on-year, but are not losing further ground

  8. Crude Prices Have Moved Up in 1999 Recovery in crude prices reflects anticipated production cuts - demand side fundamentals remain weak

  9. Financial Performance

  10. Performance Highlights • Reliance continues to lead the Indian private sector with highest sales, profits, assets, and net worth • Record production level of 7.06 million tonnes in 1998-99 - increase of 26% • Record performance despite the challenges posed by damage caused to the SBM • Acquisition of polyester capacity of 65,000 tonnes - contributing to restructuring of industry • Exports up 87% at Rs. 685 crores (US$ 161 mn)

  11. Feedstock Price Trends International Prices (US$ / T ) Average Average % 1997-98 1998-99 Change Crude ($/bbl) 17.3 12.1 (30%) Naphtha 192 132 (31%) PX 488 290 (40%) EDC 359 155 (57%) Average feedstock prices declined 30% - 60%, despite the recent recovery on the back of rising crude prices

  12. International Product Price Trends (US$ / T ) Average Average % 1997-98 1998-99 Change POY 1166 878 (25%) PSF 1073 671 (38%) PTA 553 365 (34%) MEG 633 373 (41%) PE 722 491 (32%) PVC 694 456 (34%) PP 665 453 (32%) International product prices are on an average down by 30%-40% despite the recent price rallies

  13. Domestic Product Price Trends ( Local prices in Rs. / kg ) Average Average % 1997-98 1998-99 Change POY 65.5 56.3 (14%) PSF 58.9 46.3 (7%) PTA 26.5 23.1 (13%) MEG 30.6 24.2 (21%) PE 39.7 35.5 (11%) PVC 35.0 28.4 (19%) PP 34.4 31.7 (8%) Domestic product prices have also declined, though less sharply than international prices, due to cushioning effect of the weakening rupee

  14. Recent Trends in Intl. Product Prices International Prices (US$ / T ) Jan- Apr % Mar 99 99 change POY 710 730 3% PSF 587 600 2% PTA 313 335 7% MEG 317 295 (7%) PE 468 515 10% PVC 433 470 9% PP 417 450 8% International product prices have moved up due to regional shut-downs, low inventory levels, and rising feedstock prices

  15. Recent Trends in Domestic Product Prices ( Local prices in Rs. / kg ) Jan- Apr % Mar99 99 change POY 52.7 54 2% PSF 40.8 40.5 (1%) PTA 22.8 22.5 (1%) MEG 22.2 21.0 (5%) PE 34.2 36.2 6% PVC 25.2 29 15% PP 28.7 32.4 13% Domestic plastics prices have also gone up in line with international trends

  16. Income Statement The net profit is after accounting for additional operating costs of Rs.141 crores ($ 33 mn); claims not included

  17. US GAAP/ IAS Reconciliation Approximately 40% of the variation with US GAAP relates to change in the method of providing depreciation The balance variation is nominal reflecting adoption of conservative accounting policies

  18. Business Mix Reliance remains focussed on the petrochemicals business

  19. Growth in Production and Sales • Sales revenue growth of 9%, contributed by: • Impact of sales volume growth 26% • Impact of decline in avg. product selling prices (17%) • Robust growth in domestic demand - over 95% of production sold within India • Value added export opportunities captured - Exports up 87% at Rs. 685 crores (US $ 161 mn) Production volume increased 26% to a record level of 7.06 million tonnes, despite temporary dislocation in the feedstock supply system at Hazira

  20. Stability of Operating Margins Operating margins remained stable around 18.6%, despite additional operating costs arising from SBM damage. This was the result of : • strong volume growth • lower feed stock prices • integration and value addition • gains from productivity and cost reduction • depreciation of the Indian rupee by 7% in 1998-99, enhancing pricing flexibility Ability to operate plants at peak rates and sell most of the production in the domestic markets, differentiates Reliance from other global petrochemical producers

  21. Profitability Ratios 24% compounded annual net profit growth over 5 years 15% compounded annual EPS growth over 5 years

  22. Liquidity Ratios Total Assets have increased 16% to over Rs. 28,000 crores Liquidity Ratios comparable to leading global chemical companies provide comfort

  23. Conservative Financial Management • Reliance is the only Indian company having international rating constrained by the sovereign ceiling • Net gearing of 28% reflects conservative policies • Net Debt: Cash Flow ratio of 1.4x indicates the company’s ability to retire its entire debt in less than 2 years • Forex exposure on account of international borrowings of $ 1.3 billion fully hedged by dollar assets • Forex debt service outflow of about $ 110 mn. adequately covered by export revenues alone • Increasing export revenues provide additional hedge

  24. Exports To Rise Significantly • Exports revenues up 87% to Rs. 685 crores ($ 161 mn) • Export revenues will increase about 200% to $ 400-500 mn (around Rs. 2,000 crores) p.a. by the year 2000-01 • RIL’s imports of feedstocks will drop with the commissioning of the Jamnagar complex • RIL to have substantial net foreign exchange earnings by 2000-01 Reliance to emerge amongst the largest manufacturer exporters from the country

  25. International Peer Group Comparison Stock Price on Currency 31 Mar 98 31 Mar 99 % Change RIL INR 177 130 -26% ICI GBp 1065 554 -48% Eastman USD 67 42 -37% Shanghai CNY 4 2.9 -28% Yizheng CNY 4.8 3.4 -28% DuPont USD 68 58 -15% Formosa TWD 33 31 -6% Chemical stock prices globally have generally reflected tough operating conditions for the industry

  26. Business Review and Strategy

  27. 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 95% revenues from domestic market • Leading the market in all its products with market shares ranging from 32% to 85% • Globally competitive capital and operating cost position Reliance contributes over 1% of India’s GDP and 1.5% of government’s revenue receipts

  28. Business Review - Polyester • Domestic demand growth healthy at 16 % per annum • Reliance’s volumes grew at a faster rate, partly due to its acquisition of polyester capacity

  29. Historic Polyester Demand Trends Polyester consumption in India in ‘000 tonnes 10 year CARG 19%

  30. Strong Potential for Demand Growth Polyester* Consumption Total (mn tpa) Per capita (kgs) India 1106 1.1 China 3755 3.0 US 2203 7.8 World 15268 2.5 *Data for PFY and PSF China consumes about 3 times as much polyester as India - indicating strong potential for continuing demand growthc

  31. Business Review - Plastics • Robust growth in domestic demand at 19 % per annum • Imports of around 200,000 tonnes of PP indicate potential for import substitution from Reliance’s new plant

  32. Historic Plastics Demand Trends Polymer consumption in India in ‘000 tonnes 10 year CARG 15%

  33. Strong Potential for Demand Growth Plastics* Consumption Total (mn tpa) Per capita (kgs) India 2308 2.4 China 11785 9.6 US 19487 72.2 World 77012 13.2 *Data for PE,PP, and PVC Strong domestic demand growth likely to continue with China consuming nearly 4 times as much plastics as India

  34. Robust Growth in Domestic Demand Historic Future growth CARG Estimates Growth Drivers (last 5 yrs) (per annum) Polyester 14% 10%-15% - lower prices (PFY, PSF, PET) - substitution of cotton Fibre Intermed. 17% 10%-15% - growth in polyester PTA, MEG) demand Plastics 12% 12%-15% - JPMA implementation (PE, PP, PVC) - edible oil packaging - Substitution of traditional materials like metals, wood, glass - Convenience, presentation

  35. Business Review - Oil and Gas • Oil and gas business now accounts for 2.4 % of revenues • Government approval awaited for the proposal to expand gas production from Tapti fields by over 4 times

  36. Growing Market Shares • Acquisition of 65,000 tonnes of polyester capacity during 1998-99 will lead to further expansion in market share • Plastics market share will increase with the commissioning of the new PP plants

  37. Strong Customer Franchise • Distinctive customer preference for delivering superior value • Reliance’s differentiation strategy is built around: • World class quality of products • Wide range of grades compared to other producers • Reliable supplies at globally competitive prices • Nation-wide network to service fragmented local markets • Just in time deliveries for even the smallest customer - significant savings in inventory costs • Free technology assistance/ consultancy for all customers • Prompt service and extensive customer contact

  38. Strong Customer Franchise • Loyal customer base: • Long term relationships - 70%-80% of key customers for major products have been with Reliance for over 3 years • Negligible customer loss • Market penetration - Over 90% of top customers in key products source most of their requirement from Reliance • High quality revenues - Over 90% of receivables get cleared in less than two weeks time • Market reputation and customer relationships are key long term competitive advantages

  39. Impact of Finance Bill, 1999 • Marginal variation of 2% - 3% in effective custom tariffs on Reliance’s major feedstocks and products • No significant impact as Reliance is selling most products at up to 15% discount to landed price of imports • Across the board marginal cuts in excise duties on all major products of Reliance - increase in demand Impact of budget proposals - Neutral

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

  41. Advantage Reliance under Zero Tariffs • Future reduction in import tariff estimated at around 10-15% over the next 3-5 years • Historic rate of depreciation of the Indian rupee at 5%-7% per annum adequate to offset impact of import tariff cuts • Reliance has sufficient pricing flexibility as it is currently selling 5%-15% below the landed price of imported goods • Savings to Reliance from reduction in tariff on raw materials, chemicals, catalysts, consumable, stores and spares, presently ranging up to 60% • Savings from reduction in tariffs on capital goods Reliance to benefit from an all round cut in import tariffs

  42. Structure of Polyester Industry • Fragmented and uncompetitive industry structure - over 40 producers in India’s 1.3 mn ton market, compared to just 4 large producers controlling the 5 mn ton US market • Capacity totaling 100,000 tonnes is already closed due to poor economics • Most small players employ high leverage and are in default of loan and interest payments to banks and FIs • Destructive variable cost linked pricing by losing players puts further pressure on industry margins • Industry consolidation is both desirable and inevitable Industry restructuring has already begun with Reliance playing a pivotal role in the process

  43. Reliance’s Role in Industry Restructuring • Reliance acquired ICI polyester unit (30,000 TPA) a few years ago • Acquired polyester business of India Polyfibres (22,000 TPA) and JK Corp (43,000 TPA) during 1998-99 • Reliance’s acquisition strategy is focused at maintaining market leadership in a regional excess supply context • Reliance to leverage its technical skills, financial strength, nationwide network, customer relationships, and access to key inputs, in creating value through acquisitions Reliance working towards a more competitive industry structure by leveraging its strengths to acquire capacities

  44. Jamnagar Complex - Reliance Industries

  45. Jamnagar Petrochemicals Complex • Rs. 5,500 crore (US $ 1.3 billion) petrochemicals complex comprising 1.4 million tpa PX plant and 600,000 tpa PP plant • Project commissioning has commenced • Globally competitive plants enjoying economies of scale and benefits of integration • Enhancement of feedstock, product, energy, and logistics integration

  46. Paraxylene (PX) Project • World’s largest plant with three lines of 467,000 tonnes per annum caapcity each • Reliance to become world’s third largest producer after BP-Amoco and Exxon- Mobil • Two lines being commissioned ahead of schedule in Q2 1999-2000, and the third line in Q3 1999-2000 • About 50% of the output to be captively consumed • Substantial scope for domestic sales

  47. Polypropylene (PP) Project • One PP line of 200,000 tpa commissioned in April 99 - 200,000 tpa to be commissioned in Q2 1999-2000 and the last 200,000 tpa in Q4 1999-2000 • Reliance’s total PP capacity to touch 1 million tonnes • Strong domestic demand growth of 21% p.a. • JPMA implementation and mandatory packaging of edible oil to be key growth triggers • Asia to remain large net importer of about 1 million tonnes of PP in 1999

  48. Jamnagar Complex - Reliance Petroleum

  49. Project Highlights • World’s largest grassroots refinery with capacity of 27 million tpa - over 25% of domestic capacity • High complexity refinery with Nelson’s index of nearly 14 (including petrochemicals complex) compared to about 5 for average Asian refinery • Fully integrated $6 bn (Rs. 25,000 crores) complex with refinery, petrochemicals, power plants, port, and related infrastructure • Global competitiveness resulting from scale, technology, complexity, and integration • 25%-30% of the refinery’s output to be consumed captively

  50. Project Highlights • 50% higher capacity achieved - project cost of Rs. 14,250 crores (US $ 3.4 bn) • Capital Cost/ Ton has declined by 15% from Rs. 6,238 /T to Rs. 5,278 /T • Entire project financing fully tied up • Unit-wise commissioning process has already begun - refinery to be fully commissioned in Q2 1999-2000 well ahead of schedule

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