Reliance Industries Ltd (RIL IN) - Growth

In Millions of INR except Per Share FY 2014 FY 2015 FY 2016 FY 2017

12 Months Ending 03/31/2014 03/31/2015 03/31/2016 03/31/2017
1 Year Growth
Revenue 9.42 -13.59 -27.02 11.45
EBITDA 6.19 7.34 10.91 10.77
Operating Income 9.53 9.34 15.68 14.63
Net Income to Common 7.73 4.77 26.22 0.52
EPS Diluted 8.07 4.65 25.76 0.39
EPS Diluted before XO 8.07 4.65 25.76 0.39
EPS Diluted before Abnormal 6.17 1.68 30.43 -6.26
Dividend per Share 5.56 5.26 5.00 4.76

Accounts Receivable -3.48 -43.52 -15.99 83.14

Inventory 3.88 -6.12 -12.70 5.30
Fixed Assets 25.83 40.87 59.75 28.22
Total Assets 18.35 17.64 18.73 18.92
Modified Working Capital -64.02 — -1,007.23 -108.31
Working Capital -39.78 — -2,803.29 -54.27
Employees 1.42 4.52 -3.25 —
Accounts Payable 22.45 -2.39 1.50 27.03
Short-Term Debt 4.09 6.21 -2.66 13.92
Total Debt 29.42 15.93 12.31 8.82
Total Equity 9.09 10.96 6.04 13.50
Capital 16.60 13.00 8.68 11.47
Book Value per Share 9.02 9.83 5.81 13.47

Cash From Operations 15.06 -21.51 -6.44 16.88

Capital Expenditures 95.56 5.45 -25.99 66.55
Net Change In Cash — -37.18 94.27 -541.79
Free Cash Flow — -81.57 49.84 -179.61
Cash Flow to Firm 14.09 -20.76 -5.78 16.89
Free Cash Flow to Firm — -93.79 53.83 -206.22

5 Year Growth
Revenue 23.50 13.00 0.61 -3.16
EBITDA 7.78 4.50 1.99 5.85
Operating Income 5.27 6.27 4.95 9.09
Net Income to Common 8.49 -0.78 9.04 8.68
EPS Diluted 7.19 -0.54 9.24 8.86
EPS Diluted before XO 7.19 -0.54 9.24 8.86
EPS Diluted before Abnormal 5.60 6.28 7.12 7.01
Dividend per Share 7.89 7.39 5.59 5.29
Accounts Receivable 14.20 -12.02 -22.23 -13.55
Inventory 23.05 9.14 3.83 0.95
Fixed Assets -3.74 3.55 23.88 30.86
Total Assets 11.75 14.22 14.26 16.84
Modified Working Capital — — — —
Working Capital 20.21 — — —
Employees -0.68 1.31 1.26 —
Accounts Payable 12.02 9.28 10.80 13.67
Short-Term Debt 34.93 37.84 16.84 10.41
Total Debt 12.72 20.02 16.51 16.29
Total Equity 10.46 9.37 8.68 9.39
Total Capital 5 Year Growth 11.35 13.15 11.69 12.01
Book Value per Share 8.92 9.41 8.73 9.40

Cash From Operations 27.99 12.83 0.47 11.62

Net Change In Cash — — — —
Cash Flow to Firm 27.52 12.55 0.86 11.30

Sequential Growth
Revenue 9.42 -13.59 -27.02 11.45
EBITDA 6.19 7.34 10.91 10.77
Operating Income 9.53 9.34 15.68 14.63
Net Income to Common 7.73 4.77 26.22 0.52
EPS Diluted 8.07 4.65 25.76 0.39
EPS Diluted before XO 8.07 4.65 25.76 0.39
EPS Diluted before Abnormal 6.17 1.68 30.43 -6.26
Dividend per Share 5.56 5.26 5.00 4.76

Accounts Receivable -3.48 -43.52 -15.99 83.14

Inventory 3.88 -6.12 -12.70 5.30
Fixed Assets 25.83 40.87 59.75 28.22
Total Assets 18.35 17.64 18.73 18.92
Modified Working Capital -64.02 -116.01 — —
Working Capital -39.78 -105.50 — —
Employees 1.42 4.52 -3.25 —
Accounts Payable 22.45 -2.39 1.50 27.03
Short-Term Debt 4.09 6.21 -2.66 13.92
Total Debt 29.42 15.93 12.31 8.82
Total Equity 9.09 10.96 6.04 13.50
Capital 16.60 13.00 8.68 11.47
Book Value per Share 9.02 9.83 5.81 13.47

Cash From Operations 15.06 -21.51 -6.44 16.88

Capital Expenditures 95.56 5.45 -25.99 66.55
Net Change In Cash -266.35 — — —
Free Cash Flow -300.51 — — —
Cash Flow to Firm 14.09 -20.76 -5.78 16.89
Free Cash Flow to Firm -239.06 — — —
Source: Bloomberg
 FY 2018
03/31/2018

28.26 Relationship Between Total Debt and EPS

38.93
25.00
37.40
20.65 20.00
20.41 15.00
20.41
10.00
23.67
9.09 5.00

0.00
114.69 1 2 3 4 5
24.28 -5.00
14.59 EPS Di l uted before XO Total Debt
14.60
-46.24
-46.96
—
Relationship Between Total Equity and EPS
39.51 14.00

67.80 12.00
11.27 10.00
11.41 8.00
11.35 6.00
11.22 4.00
2.00
47.36 0.00
1 2 3 4 5
-5.32 -2.00
— EPS Di l uted before XO Tota l Equi ty
55.45
51.86
66.71

Modigliani and Miller approach to capital theory, devised in the 1950s advocates capital
-0.27 structure irrelevancy theory. This suggests that the valuation of a firm is irrelevant to the capital
of a company. Whether a firm is highly leveraged or has lower debt component, it has no bearin
14.24 market value. Rather, the market value of a firm is dependent on the operating profits of the com
16.89 The capital structure of a company is the way a company finances its assets. A company can fina
11.56 operations by either equity or different combinations of debt and equity. The capital structure o
company can have a majority of the debt component or a majority of equity or a mix of both de
11.45 equity. Each approach has its own set of advantages and disadvantages. There are various capita
11.45 structure theories, trying to establish a relationship between the financial leverage of a compan
10.30 proportion of debt in the company’s capital structure) with its market value. One such approach
Modigliani and Miller Approach.
5.92
MODIGLIANI AND MILLER APPROACH
This approach was devised by Modigliani and Miller during 1950s. The fundamentals of Modiglia
Miller Approach resemble that of Net Operating Income Approach. Modigliani and Miller advoca
capital structure irrelevancy theory. This suggests that the valuation of a firm is irrelevant to the
structure of a company. Whether a firm is highly leveraged or has lower debt component in the
mix, it has no bearing on the value of a firm.
Modigliani and Miller Approach further states that the market value of a firm is affected by its o
 structure theories, trying to establish a relationship between the financial leverage of a compan
proportion of debt in the company’s capital structure) with its market value. One such approach
Modigliani and Miller Approach.

MODIGLIANI AND MILLER APPROACH

12.48 This approach was devised by Modigliani and Miller during 1950s. The fundamentals of Modiglia
Miller Approach resemble that of Net Operating Income Approach. Modigliani and Miller advoca
2.19 capital structure irrelevancy theory. This suggests that the valuation of a firm is irrelevant to the
32.99 structure of a company. Whether a firm is highly leveraged or has lower debt component in the
17.64 mix, it has no bearing on the value of a firm.
Modigliani and Miller Approach further states that the market value of a firm is affected by its o
— income apart from the risk involved in the investment. The theory stated that the value of the fi
— dependent on the choice of capital structure or financing decision of the firm.
—
ASSUMPTIONS OF MODIGLIANI AND MILLER APPROACH
16.54 There are no taxes.
15.52 Transaction cost for buying and selling securities as well as bankruptcy cost is nil.
15.33 There is a symmetry of information. This means that an investor will have access to the same inf
10.17
that a corporation would and investors would behave rationally.
The cost of borrowing is the same for investors as well as companies.
12.19 There is no floatation cost like underwriting commission, payment to merchant bankers, adverti
9.84 expenses, etc.
There is no corporate dividend tax.
Modigliani and Miller Approach indicates that value of a leveraged firm ( a firm which has a mix
7.79 and equity) is the same as the value of an unleveraged firm ( a firm which is wholly financed by e
— the operating profits and future prospects are same. That is, if an investor purchases shares of a
8.62 leveraged firm, it would cost him the same as buying the shares of an unleveraged firm.

28.26
38.93
37.40
20.65
20.41
20.41
The traditional approach to capital structure suggests that there exist an optimal debt to equity
23.67 ratio where the overall cost of capital is the minimum and market value of the firm is the maxim
9.09 either side of this point, changes in the financing mix can bring positive change to the value of t
Before this point, the marginal cost of debt is less than a cost of equity and after this point vice-
114.69 Capital Structure Theories and its different approaches put forth the relation between the prop
24.28 of debt in the financing of a company’s assets, the weighted average cost of capital (WACC) and
14.59 market value of the company. While Net Income Approach and Net Operating Income Approach
the two extremes Approach are the two extremes, traditional approach, advocated by Ezta Solo
14.60 and Fred Weston is a midway approach also known as “intermediate approach”.
—
— ASSUMPTIONS UNDER TRADITIONAL APPROACH:
The rate of interest on debt remains constant for a certain period and thereafter with an increas
—
leverage, it increases.
39.51 The expected rate by equity shareholders remains constant or increase gradually. After that, the
67.80 shareholders starts perceiving a financial risk and then from the optimal point and the expected
11.27 increases speedily.
As a result of the activity of rate of interest and expected rate of return, the WACC first decrease
11.41 then increases. The lowest point on the curve is optimal capital structure.
11.35
11.22

47.36
-5.32
—
—
51.86
—
t and EPS

4 5

al Debt

y and EPS

4 5

l Equi ty

50s advocates capital

m is irrelevant to the capital structure
component, it has no bearing on its
e operating profits of the company.
s assets. A company can finance its
quity. The capital structure of a
of equity or a mix of both debt and
ges. There are various capital
ancial leverage of a company (the
et value. One such approach is the

he fundamentals of Modigliani and

Modigliani and Miller advocate
of a firm is irrelevant to the capital
wer debt component in the financing

of a firm is affected by its operating

ancial leverage of a company (the
et value. One such approach is the

he fundamentals of Modigliani and

Modigliani and Miller advocate
of a firm is irrelevant to the capital
wer debt component in the financing

of a firm is affected by its operating

tated that the value of the firm is not
f the firm.

tcy cost is nil.

have access to the same information

s.
o merchant bankers, advertisement

firm ( a firm which has a mix of debt

which is wholly financed by equity) if
vestor purchases shares of a
n unleveraged firm.

ist an optimal debt to equity

alue of the firm is the maximum. On
tive change to the value of the firm.
uity and after this point vice-versa.

e relation between the proportion

e cost of capital (WACC) and the
Operating Income Approach are
oach, advocated by Ezta Solomon
e approach”.

nd thereafter with an increase in

ase gradually. After that, the equity

timal point and the expected rate

urn, the WACC first decreases and

cture.