Financial Statement Analysis

Financial Statement Analysis of Reliance Industries (RIL)

Source: finshots.in

Source: https://twitter.com/Flattradein/status/1718951947116708233/photo/1

Vision statement for Reliance petrochemical & natural gas

Oil to Chemicals Business: Accelerate new energy and materials businesses while ensuring sustainability through a circular economy and target to become Net Carbon Zero by 2035

Oil and Gas Exploration: To be a major contributor to India's Gas based economy supplying - 20% of India's production

About Reliance Industries Limited

Reliance Industries Limited is a privately owned Indian multinational conglomerate, headquartered in Mumbai, Maharashtra. Founded in 1960 by Dhirubhai Ambani under the name Reliance Commercial Corporation. The company offered its initial public offering in 1977. In 1985, the company changed its name to Reliance Industries Limited. In 1991, the company entered into the petrochemical and natural gas business. In 1995 Reliance stepped into the telecom industry through Reliance Telecom Private Limited. The company started the retail business through the establishment of Reliance Fresh. The company started offering 4G services through Reliance Jio in 2016. In 2020, the company became the first Indian company to have a market capitalization of more than Rs 10 lakh crore. In 2023 the company achieved 88th rank in the list of Fortune Global 500 list of companies.

 

History of Reliance Industries (Timeline)

Reliance Industries across the globe

Area of operations - Reliance Industries operates in over 100 countries across the world and has one of the world's largest oil refinery in the world.

Revenues by RIL in FY 2023-24

Earning Rs.62075 crores in Oil to Chemical business

Earnings of Rs.13589 crores in Oil and Gas Exploration business

Significance: Reliance's Petrochemical and Natural Gas sector contributes 42.38% of the company's EBITDA, making it the most critical segment.

RIL’s  Petrochemicals is one of the major player in the petrochemical industry of the country, with its Jamnagar refinery having the largest refining capacity in the country.

Strategic Ventures: 51% ownership in Reliance BP Mobility Ltd (Jio-BP) in 2019 and 74.9% stake in Reliance Sibur Elastomers Pvt Ltd,  India’s first world-scale butyl rubber facility.

Financial Analysis

Liquidity Ratio

Current Ratio: Investors can breathe easy knowing the company's current ratio comfortably surpasses 1, indicating ample cushion for short-term obligations.

Quick Ratio: Beyond slow-moving stock, the quick ratio surges past 0.50, showcasing amped-up short-term agility.

Cash Ratio: A sub 0.20 cash ratio may raise eyebrows, but the measuring strength of the other two ratios provides ample comfort.

Efficiency Ratio

Asset Turnover Ratio: More sales out of each asset. The asset turnover ratio for the FY 2019-2023 is 0.35 to 0.77.

Inventory Turnover Ratio: Turning over inventory faster. The inventory turnover ratio for the FY 2019-2023 is 5.26 to 7.77.

Days Sales in Inventory: Holding onto stock for fewer days. The days sales in inventory for the FY 2019-2023 is 69 to 43.

Leverage Financial Raito

Debt-to-equity Ratio: The debt-equity ratio exhibits variability (0.406 to 0.776), but none breach the critical 1 level, assuring investors of a managed debt burden relative to shareholder ownership.

Debt Ratio: The debt-to-equity ratio remains comfortably below 1, indicating sustainable debt levels relative to shareholder investment.

Equity Shareholding Pattern

The above graph represents the RIL shareholding patter as of FY 2023. The graph shows the different shareholders of the company - Promoters, Foreign Institutional Investors (FII), Domestic Institutional Investors( DII), Mutual Funds and others. The maximum is held by promoters and the percentage of shares held is also high.

Profitability Ratio

These ratios are interlinked and each provides a specific view of the company's profitability. Ideally, we want to see all four ratios trending upwards, indicating strong profitability and efficiency.

Trend

Year	Gross Margin Ratio	Operating Margin Ratio	ROA	ROE	Trend
2019	0.3	0.15	0.1	0.12	mixed
2020	0.32	0.17	0.12	0.15	mixed
2021	0.35	0.19	0.14	0.17	mixed
2022	0.34	0.18	0.13	0.16	mixed
2023	0.36	0.2	0.15	0.18	mixed

Despite a bumpy financial terrain, the company navigated to higher ground, fuelled by a relentless gross margin climb. ROA and ROE, while facing some dips, ultimately reached new peaks, solidifying a narrative of gradual, hard-won progress.

Debt-to-equity ratio

The more the ratio, the greater the leverage. The least leverage, it relies least on debt financing.

Net Working Capital

This chart indicates that it has a positive NWC where the company has more current assets than current liabilities, suggesting it has enough resources to cover its short-term obligations and fund its ongoing operations. This is generally considered a healthy financial position.

Change in Sales 

Sales have enjoyed a steady positive growth climbing from around 4% in 2020 to nearly 20% in 2023, though the pace has fluctuated year-over-year. The year-over-year sales growth story isn’t entirely linear. While consistently positive, it seen ups and downs,reaching a high of 20% in 2023 and a low of 4% in 2020.

Profit After Tax

Profitability, as measured by PAT, paints a clear picture of recovery. After falling from its 2020 peak to a 2022 slump, PAT has bounced back spectacularly in 2023, surpassing both 2021 and 2022 levels. This suggests the company is regaining its financial muscle.

Earning Per Share

Earnings per share were on an upward climb, it consistently increased from 49.56 to 65.33, which it revealed that the company was steadily boosting its shareholder value. Strong earnings per share (49.56 to 65.33) speaks about the company’s ability to generate significant shareholder value.

Conclusion

From the analysis, the following conclusions can be drawn. Positive takeaways include Strong liquidity, Improved Efficiency, Improved capital structure, and improved profitability, all resulting in improved company value represented through improved earnings per share. Some areas to be taken care of are the fluctuating profits and the base effect on sales growth.

About the blog: It is a project for our Management Information System (MIS) Course in Term 2 of our MBA Program.

Authors (MIS Team 5): Vimal Kumar, Divakar, Shripathy, Balakrishnan Unni, Sritesh and Avinash

Disclaimer: We shed light on basic financial concepts, but we wouldn't dare claim to predict the future. The markets are a dynamic dance, and while we provide the steps, the music always changes. Use our knowledge to navigate the rhythm, but remember, adaptability is key. Also, As enthusiasts, not oracles, we acknowledge the ever-evolving nature of financial knowledge.