Despite facing operational challenges that includes shrinking refining margins and a massive decline in gas output from the company's offshore fields, the financial managers at Mukesh Ambani-led Reliance Industries Ltd (RIL) are more than making up to meet these challenges.
A deeper look at the balance sheet of India's largest private sector company shows that money made from non-core operations is driving its profits.
The company's "other income" more than doubled during 2011-12 at Rs. 6,192 crore as against Rs. 3,052 crore a year back.In the fourth quarter, "other income" contributed two-fifth of the company's Rs. 5,431 crore profit before tax (PBT). In other words, the "other income" stood at Rs. 2,295 crore, which contributed 42% of the PBT of Rs. 5,431 crore. Its core businesses - oil refining, petrochemicals, oil and gas exploration and production - contributed just 58% to the PBT.
The source of this income: an enviable cash pile of over R70,000 crore ($13.8 billion) that's been growing with every passing quarter, putting the R339,792-crore company (by turnover) in a comfortable position for future investments in existing and new businesses such as retail and 4G telecom foray. However, the company is neither buying any new assets nor is meeting its day to day capital expenditure requirements out of this cash kitty.
Instead, it is meeting its capital expenditure needs by raising cheap loans - the most recent being the $2 billion (Rs. 10,800 crore) loan that it took on Wednesday from nine banks covered by Euler Hermes Deutschland AG for its petrochemicals business.
"We continue to look for appropriate opportunities to deploy our cash," an RIL spokesperson said. Sources close to the company said part of this cash pile will go to its $12 billion investment plans in the petrochemicals and refining. Also, the company will utilise some cash for its buyback plans.
"Holding such a large amount of cash is usually not considered good for business," said Jagannadham Thunuguntla, strategist & head of research, SMC Global Securities Ltd. "While such cash buffers are good in the times of a slowdown, RIL should look at opportunities in that part of the world which is currently facing a slowdown."
"It is discomforting to see a manufacturing company like RIL indulging into financial rejuggling," independent analyst SP Tulsian said.
RIL's cash balances have grown over the past two years largely due to the stake sale proceeds from global energy giant BP, to which Reliance sold a 30% stake in its 23 oil and gas exploration fields for over $7 billion (R37,800 crore).
These, according to the company, have been invested in fixed deposits, certificate of deposits with banks, mutual funds and government securities and bonds.
The company's share price has fallen by 26.9% over the past 12 months.