Reliance: Company Snapshot: Reliance Industries Ltd is a Fortune Global 500 company and is the largest private sector

company in India with businesses in energy and materials value chain. With the vertical integration of its chain of products, Reliance is the only corporate entity in the world to be integrated in the entire value chain from oil production to the retailing of textiles. The company ranks amongst the Worlds top 200 companies in terms of profits with annual profits of around Rs 153 Bn. It is the largest company in India in terms of market capitalization and has recorded sales turnover of Rs 1392 Bn. The company has been a dominant player in the petrochemical industry and is amongst the top 10 producers in all its major products. It is the largest producer of polyester yarn and fiber and among the top ten producers of petrochemical products in the world. Possession of Panna - Mukta and Tapti fields, five Coal Bed Methane blocks and 33 oil exploration blocks in India make Reliance the largest exploration acreage holder in the private sector. In the recent years the company has expanded its international footprint in exploration business and has major presence in Africa, Australia and Americas. Under its international business it owns 11 blocks with acreage of about 80,000 square kilometres. The Reliance refinery at Jamnagar is one of the worlds largest with the annual capacity of 33 Mn tonnes. This along with the RPL refinery would make the largest refinery complex in the world with the annual capacity of around 62 Mn tonnes. The company as of today has more than 25000 employees on its rolls across 10 countries. It has a relatively young workforce with the average age of employees being 37. It is mainly into the business of exploration and production, petroleum refining and marketing, petrochemicals, and textiles and retail. The organization is structured on these lines and each of these divisions operates as strategic business unit (SBU). The use of sophisticated technology throughout the process units of manufacturing division has translated into superior gross refining margins for the company. Reliance refineries are amongst one of the most modernized ones with the capability of processing cheap grades of crude oil into highest quality of petroleum products.

Winning Strategies 1. State-of-the-art refinery resulting in superior margins. Reliance has built one of the most sophisticated refineries in Jamnagar with the capacity of refining 62 Mn tonnes of crude oil every year. It has one of the most efficient processing centres to transform crude oil into petroleum products of supreme quality. Table: Comparison of Reliance refinery margins with Benchmark Index Reliance Singapore Benchmark Index FY08 15 7.6 FY07 11.7 6.1

With the refinery margins double that of the benchmark; Reliance has recorded a 46% in the refining revenues. With the start of production from Krishna Godavari basin and high gross refinery margin will help the company post profits. 2. Exploration and Production, a key driver in tight global oil supply situation Tight Oil supply concerns have pushed oil prices to dizzy heights. A marginal OPEC supply growth and a disappointing non-OPEC supply forecast are the reasons for these prices. With a relatively sustainable oil demand, prices are expected to remain high. India with a deficit of 100 Mn tonnes of crude oil presents Reliance with a good opportunity which has aggressive expansion plans. Despite lower production, the exploration business has shown an increase of 52% in sales. The companys oil production from KG D6 block is expected to start production which would help to sustain the growth in this segment. Table: Individual Segment Growth Rate Petrochemicals Refining Oil and Gas YOY (% increase) 12.5 45.9 51.9

With the possession of other high potential assets, the segment along with refining segment holds immense potential in future. The company has expanded its footprint in international oil and exploration business. It has also been successful in exploration business with a success rate of 63% which is better than the global average.

Cautions: 1. Administered price regime impacts the petroleum retailing business The selling price of petroleum products by is fixed by the government. Hence government owned OMCs are entitled for subsidies in the form of issuance of oil bonds or subsidy sharing mechanism by upstream companies. When the crude oil was trading at $147/barrel, the companies were making a loss of 13.97/litre on petrol and 20.97/litre on diesel. Table: Mechanism for compensating under recoveries by government OMCs Oil Bonds Losses Absorbed by Upstream Companies Losses Absorbed by Oil Companies Figures in Cr 20333 15873 11413

Reliance could not match the artificially reduced prices and hence had to close down its 1432 outlets. The company owned 3% of the petrol pumps in the country and had captured almost 6% of the market share before the crude oil prices started inching upwards. 2. Petrochemical Margins under pressure Increase in feedstock prices has adversely affected Naphtha based producers and impacted the margins. Even though there is increasing demand for petrochemical products, the production growth will be under pressure due to increasing global capacities. Table: Petrochemical Products Price Scenario Crude Dubai Naphtha Propylene Butadiene PVC YOY (% increase) 50 40 31 77 20

The increase in feedstock prices has an adverse impact on revenues from this segment. The segment witnessed a decrease in revenues to the tune of 15%. Conclusion: With India emerging as a global refinery hub, Reliance Industries tends to benefit the highest. The company has one of the highest gross refining margins in the refinery sector. This is due to sophisticated refinery complex which is capable of refining 62 Mn tonnes per annum. The other key driver for the company is its successful track record in the oil exploration business. Both these businesses for the company would be the future growth drivers.