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The Federation of Universities
Reliance Energy
On June 18, 2005, the Rs.1,000 billion Reliance Group began a new era, as Kokilaben Ambani,
wife of Late Dhirubhai Ambani (Dhirubhai) – the founder of Reliance Group – announced that the
dispute relating to the division of Rs. Reliance Group had been amicably settled. As per the
settlement, the elder son Mukesh Ambani would have the ‘responsibility’ for Reliance Industries
Limited (RIL) and Indian Petro Chemicals Corporation Limited (IPCL), while the younger son
Anil Ambani would lake charge of Reliance Energy, Reliance Infocomm, and Reliance Capital.
With this announcement, the long lasted dispute between the brothers Mukesh and Anil came to a
close. Anil Ambani in a press conference on June 18th also announced the name of his group as
‘Anil Dhirubhai Ambani Enterprises’ that would control the three companies and unveiled
Rs.800,000 million plan in power generation.
The Reliance Energy and its group has a consolidated revenue of Rs.95,000 million
(US 2.2 billion) and ranks among the top 20 private sector listed companies in terms of all major
financial parameters, such as assets, sales, profits and market capitalization. In December 2005,
the company started its new power projects of 560 mw capacity at Dhirubhai Ambani Energy City
(DAEC) at Dadri in Gaziabad district of Uttar Pradesh which would eventually boast as the
world’s largest combined cycle power project. During the year 2004-05, Reliance Energy received
several prestigious awards and recognition for its quality of operations, safety and environment
standards. The company has vision to become the most admired and most trusted integrated utility
companies in the world by providing quality products and services at competitive costs thereby
maximizing the value for all stakeholders.
Energy Sector in India
Government of India has shown consistent effort in trying to minimize the demand-supply gap in
energy by its efforts to expand electric power generation capacity. Although more than 80 percent of
the population in India has access to electricity, the electricity shortage as percent of requirement
continues to be in the range of 7 to 8 percent since 2001 (Refer Annexure I). As of December 2005,
the total installed Indian power generating capacity was 114,164 MW (Refer Annexure II).
Government’s vision of “Power for All by 2012” has targeted an increase in the generation
capacity to 212,000 MW by 2012. Apart from these, Government has also planned to increase the
inter-regional transmission capacity from 9,000 MW to 30,000 MW and reduce Aggregate Technical
and Commercial (AT&C) losses to 13% (43-53% currently). The government expects that by 2012,
peak energy shortage will be reduced to zero from current level of 11% and average energy shortage
to zero from current level of 7%.
Government initiative along with general economic growth since liberalization in 1990 had
attracted both private and foreign players in the market. The share of private players in energy
sector increased to 11% in 2005 which is targeted to 16.5% by 2012 under “Power for All by
2012” Plan. Foreign Direct Investment (FDI) in power sector is also allowed upto 100% under
automatic route. From January 2002 to May 2005, the FDI inflow in this sector amounted to
Rs.35,590.6 million.1
1 The Hindu Business Line Saturday, Aug 06, 2005.
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 1Major Facts
During 1990 to 2001, policy liberalization in the sector encouraged national and multi-national
companies to set-up their own project, formally called as Independent Power Producer (IPP)
projects. Although a large number of private and foreign players entered post liberalization,
various big projects got delayed or even failed either due to regulatory problems or due to
inadequate funding. The financial condition of State Electricity Boards (SEBs) which were
involved in power transmission and distribution was very poor. The reason behind poor financial
were several. In India, electricity is provided at subsidised rate in most of the states and mainly to
agricultural sector. Further the transmission loss in India is very high due to poor infrastructure of
distribution facilities. Further theft of electricity cannot be ignored, which is one of the crucial
problems. All the above reasons led to increase in the electricity cost mainly of the independent
power producer or power distribution agency mainly SEBs.
After 2002, the power generation capacity in India increased mainly due to investment by
domestic players or International financial Institution like Asian Development Bank (ADB).
Exhibit 1: Reforms: Major Milestones
Year Milestone
1991 IPP Process
1996 Orissa Reform Act
1998 Central Electricity Regulatory Commissions Act
1999 RCs in Many States, Distribution Privatization in Orissa
2003 Electricity Act
2005 National Electricity Policy 2005.
Source: ICFAI Research Center.
In 2003, the central government passed ‘The Electricity Bill 2003’ with the objective of reducing
the transmission and distribution costs and to encourage private players in transmission and
distribution and also allow setting up of captive power plants without any restriction. Under the
new policy there was no compulsion on Independent Power Producers (IPPs) to enter into power
purchase agreements, which was earlier mandatory. This improved the participation of private
players in the market.
In February 2005, the government announced a new National Electricity Policy, 2005, aiming to
meet peak energy shortages in particular and energy shortages in general, completely by 2012,
besides improving the quality and reliability of power.
Further, in July 2005, India and USA signed an agreement in which USA would cooperate in the
field of nuclear power generation in India. If the proposed agreement is ratified in the US senate, it
could encourage nuclear power generation in India in the near future.
Apart from policy reforms, economic development had also boosted the power sector. However,
the major problem that still continues for most of the power players is the shortage in fuel
availability. Shortage of fuel availability had affected various projects implementation period and
various projects got delayed in recent past.
Project Financing
High liquidity in the economy and willingness of banks and financial institutions to finance
feasible projects are some of the positive developments in the power sector. After the power sector
reforms were initiated in 2003, financing process for a power project had been liberalized to
certain extent. Lenders such as banks and financial institutions liberalized the various norms in
project financing. The escrow account facility2 also helped the power producer to reduce defaults.
However on escrow account, the central and state government has stopped giving guarantee. This
facility continued to be a sense of safety for loan providers.
2 Under escrow facility SEB has to open an escrow account which can be used by IPP in case of default.
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 2Normally power project is financed by 70% of equity and 30% of debt. After clearing bank loans,
power producers, could start the project by contributing some portion of equity. The boost in
capital market and increased number of private equity financiers is a positive sign in this area.
Global Energy Sector
The global demand for electricity in the year 2002 was 21,400 billion kilowatt-hours, whereas
consumption of electricity for the same year was 14,275 billion kilowatt-hours. According to the
International Energy Outlook 2005 (IEO 2005) the demand is projected to grow at 2.6 percent in
the next two decades and during the projected period (2002 to 2015), it is expected that
consumption will nearly double to the consumption in 2002 (Refer Annexure III). The report
reveals that more than 50 percent (59%) of the projected demand is expected to arise from
emerging economy.
To meet the growing demand for electricity extensive expansion of installed generating
capacity is required. As per the Energy Information Administration (EIA) it is expected that
the world capacity of electricity will grow annually at the rate of 2.2 percent over the period
2002-2025 (Refer Annexure IV).
Reliance Energy
COMPANY BACKGROUND
The company was incorporated in 1929 as ‘Bombay Suburban Electric Supply Limited’ with an
objective to fulfill the demand for electricity in the suburbs of Mumbai. In 1992, the company
diversified its business and changed its name to “BSES Limited”. In 1993, the Company installed
a 220 KV transmission line between the power station at Dahanu and receiving station at Versova.
In the same year, it issued 288,51,760 – 15% fully convertible debentures of Rs.60 each on Rights
basis and 252,69,900 – 15% fully convertible debentures of Rs.70 each.
In order to avail enormous opportunities in the power sector in construction, erection and other
project management activities, it entered into an MOU with National Thermal Power Corporation
Ltd. (NTPC) in 1994. It also diversified its business into telecommunication and incorporated
BSES Telecom Ltd. as a subsidiary company.
During 1995, the company incorporated another subsidiary company ‘BSES Infrastructure
Finance Ltd.,’ to meet its financial needs. Later, it successfully co-promoted Jeedimetla Power
Co. Ltd., jointly with local power consuming companies to set-up a 40 MW power plant at
Hyderabad and also initiated awarded two naphtha based short gestation projects of 40 MW
each to Kerala.
In 1996, it incorporated BSES Kerala Power Pvt. Ltd., as a subsidiary company to establish a
naphtha/gas based combined cycle power station with an installed capacity of footnote of GDR 495
MW at Palghat. In the same year, it issued Global Depository Receipts (GDR) aggregating to US
$125 million. By the year 1997, it became the largest private sector power generator with a turnover
of Rs.15,720 million.
In its 1999, the company entered into a joint venture with National Grid, a UK-based power
transmission for Orissa distribution venture and other distribution ventures. It also formed a joint
venture with the AP state government for setting up a 200 MW power plant at Samalkot.
In the year 2000, Reliance Industries acquired 26.6% stake in the company and in 2003, the
company became a part of the Reliance Group, with Mr. Anil D Ambani, Vice Chairman and
Managing Director of Reliance Industries Ltd., unanimously being appointed by the Board as
Chairman of BSES. Soon after, the company changed its name to “Reliance Energy”. Reliance
Industries Ltd., has 45 percent stake in REL, other persons acting in concert have nearly 6 percent,
Banks, FIs and Insurance companies have around 16 percent stake and FIIs have 6 percent. Mr.
Anil Ambani is the chairman and managing director of the organization.
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 3In the Year 2005, the company had 16 associates (refer Annexure V) and emerged as the country’s
leading integrated power company with total installed capacity, of 892.59 MW and has a wide
network of distribution and generation of power in Maharastra, Andhra Pardesh, Goa, Karnataka
and Kerala. The power generation plant of the company is located at Dahanu near Mumbai, Kochi,
Kerala, Samalkot in Andhra Pradesh and Jogimatti in the district of Chitradurga in Karnataka with
consumption base of more than 250 million consumers nationwide.
Demerger of Reliance Group
After the demise of Dhirubhai Amabani, the founder of Reliance group, Reliance Industries Ltd.,
was in the center of a controversy due to ownership tussle between the two brothers, Anil and
Mukesh Ambani. The difference in the views of the two brothers stemmed mainly out of two
accounts, first, indirect control of Mukesh Ambani on Reliance Industries Ltd., through a
consortium of investment companies, which control, 34% of the equity in RIL, and second, larger
share of equity capital of Reliance Infocomm were in the name of Mukesh Ambani though its
investment was funded mostly by Reliance Industries Limited (RIL). RIL Investment in Reliance
Infocomm was through three routes – convertible preference shares, direct investment in equity
and indirect investment through Reliance Communication Infrastructure Ltd. (RCIL). Total equity
stake of RIL in Infocomm was 37%, whereas Mukesh Ambani and its associates had invested only
Rs.24,000 million but their stake in Infocomm was 67 directly (27% directly and 36% indirectly
through RCIL). Anil Ambani was not happy with such investment; he also complained that RIL’s
board was not properly informed about the magnitude of investment and return. In short the
companies involved in the entire deal was Reliance Industries, Reliance Infocomm and Reliance
Communications Infrastructure Ltd.
In the mean time, Mukesh also announced that the supply date of gas to Reliance Energy, is being
postponed to 2008, as against the committed period of 2006; this statement worsened the situation
and eventually on November 19, 2004 Mukesh Ambani came out with a statement in public
confirming differences with his brother, Anil Ambani.
Corporate Governance
Although the whole dispute was between two brothers, it affected other stakeholders too, which
raised the corporate governance issue in Reliance industries. The pattern of shareholdings and
crossholdings among members of the Ambani family, various investment companies and
subsidiaries of the group were at the center of attention for 53% shareholders comprising public,
financial institutions, foreign investors, etc. Various analysts felt at that time that Reliance
industries should clarify the entire issue (specially the reason for huge investment in Reliance
Infocomm) to its shareholders.
Finally on 6th June 2005, Kokilaben announced the division of Reliance group. The new group
was named as Reliance-Anil Dhirubhai Ambani Group (Reliance-ADAG) of companies. The
four new companies which came under the group were Reliance Communication Ventures,
Reliance Energy Ventures, Reliance Capital Ventures and Reliance Natural Resources (earlier
known as Global Fuel Management). Reliance Capital Ventures holds around 29 percent in
Reliance Capital and Reliance Energy Ventures would hold around 45 percent of Reliance
Energy. The existing shareholders of four companies received shares in four new companies as
given in exhibit 2.
Exhibit 2: Swap Ratio
Name of Company No. of Shares for Every 100 shares of RIL Held
Reliance Communication Ventures 100
Reliance Energy Ventures 7.5
Reliance Capital Ventures 5.0
Reliance Natural Resources 100
Source: www.rel.com
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 4Mukesh Ambani, on 8th February 2006, informed the stock exchanges also that it has handed over
the control of the four demerged companies Reliance Energy Ventures Ltd, Reliance Capital
Ventures, Reliance Natural Resources and Reliance Communication Ventures Ltd., to Anil
Dhirubhai Ambani Group. The four companies were listed on the stock exchange on different
dates in February and March (Reliance Capital Ventures – February 13; Reliance Energy Ventures
– February 20; Reliance Natural Resources Ltd., – February 27; and Reliance Communication
Ventures – March 6).
Amalgamation
In a press release dated January 3rd 2006, the company announced the amalgamation of the
Reliance Energy Ventures Limited (REVL) with the Company. Reliance Energy Ventures Limited
was originally incorporated on July 3, 2000, as Reliance Terra Networks Private Limited under the
Companies Act, 1956. On July 25, 2005 the company changed its status from private limited to
public limited after the Ambani family settlement in June ’05. After the settlement, RIL transferred
its 44% holding in Reliance Energy to Reliance Energy Ventures. As it did not make business sense
for REVL as an operating company, the Anil Ambani group merged to consolidate their operations.
According to proposed amalgamation scheme, shareholders of Reliance Energy Ventures Limited
(after the allotment of shares pursuant to the demerger of RIL) will receive (seven and half) equity
shares of the face value of Rs.10 each of the Company, for every 100 (one hundred) equity shares
of the face value of Rs.10 each. After the amalgamation, shares of Reliance Industry Limited held
by REVL will be canceled. Excluding the impact on conversion of Foreign Currency Convertible
Bonds issued by the Company, the fully diluted equity capital of REL will remain at
approximately Rs.2,280 million.
Product and Services
The company has four business segments – Generation, Transmission, Distribution and EPC
Division (Engineering, Procurement and Construction Division).
In the FY 2004-05, the generation division of the company had a capacity of about 940 MW which
came from five projects namely Dahanu TPS, 7.59 MW Wind Farm Project, BSES Kerala Ltd,
BSES Andhra Power Ltd., and Goa Power Station. The company has 779 transmission towers.
The transformation department of the company is responsible for the transmission of power from
Dahanu to Mumbai. The department was operating through a 2×220 KV transmission system,
which is highly modernized. It has also planned, constructed and commissioned two modern 200
KV receiving stations having a capacity of 300 MVA each at Ghodbunder, and Versova. It has
also commissioned a 400 MVA station at Aarey for receiving power from the Dahanu plant.
Distribution
Distribution factor is the key to efficient and reliable power supply. Generation division of the
company has seven years of experience in designing, engineering, erection, installation and
commissioning of power projects based on coal, lignite, combined cycle liquid, gas, wind as well
as in co-generation projects. The company has achieved higher level of efficiency in power
distribution which had reduced distribution losses to 13.4%, lowest in the country. Some of its
prestigious works includes 210 MW Gas Based Combined Cycle Power Plant for BSES Andhra
Power Limited at Samalkot, 24 MW Bagasse fired Power Plant of Godavari Sugar Mills in North
Karnataka and the 20MW project of Suryachakra Power Corporation Limited at Andaman. The
company has also been working with Nuclear Power Corporation of India for development of
electrical system.
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 5EPC Division
The Engineering, Procurement and Construction division (EPC) of the company undertakes
mainly turnkey projects for setting up power related projects. Some of the turnkey projects are the
contract of Rs.2,020 million from Nuclear Power Corporation of India for electrical system
package on turnkey basis for units 3 and 4 at Kaiga (Karnataka) and units 5 and 6 at RAPP in
Rajasthan. It has also booked an order worth Rs.3,230 million for Design, Supply, Erection
Testing and Commissioning of the balance of plant for the 2 × 210 MW expansion of units 3 and 4
at Parichha for Uttar Pradesh.
Expansion Plans
The company has signed an MOU with the government of Maharashtra to set-up a 4,000 MW gas
based cycle power plant in Maharashtra. The project will be exempted from stamp duty and
registration charge. The government has also offered a waiver on octroi on the machinery required
for the project.
The company has proposed to develop 5600MW combined cycle power plant near the Dhirubhai
Ambani Energy City (DAEC) at Dadri in Gaziabad district of Uttar Pradesh. The company has
already acquired the required land and statutory clearances including environmental clearance
from the Ministry of Environment and Forests. The objective of the proposed project is to
address the demand supply gap in the northern region state like Uttar Pradesh, Delhi, Haryana,
Punjab and Rajasthan. The major source of finance for the Dadri project is proposed Special
Purpose Vehicle (SPV). For the Dadri project also government has offered concession benefits
like zero import duty on project imports, a 10-year tax holiday moreover concessional sales tax
and entry tax, and land concessions. This project would drastically improve Company’s earrings
in the coming years.
The company is also planning a Group Captive Power Plant (GCPP) at the Butibori and another at
Patalganga (New Mumbai) industrial areas. The gas-based 175 mw plant at Patalganga will cost
Rs.5,500 million while coal-based 130 mw GCPP that will be set-up at Butibori will have an
investment of Rs.5,850 million. The company has already signed an MOU with Maryland/Israel
Development Center (MIDC) and the latter has also reserved 150 acres of land at Butibori for the
plant while 61 acres have been kept aside at Patalganga for the proposed projects.
Capital Structure
Reliance Energy has a unique blend of capital issue. The company raised capital through various
instruments like Equity, Debenture, Preference Share and Private Placement. The company has
also raised capital in foreign market through issuing Global Depository Receipts (GDRs) and
Foreign Currency Convertible Bonds (FCCBs).
The Company has also accepted fixed deposits from public, but it was discontinued since
December 1998. The ratio of internal and external source of finance has decreased significantly
after 2000, due to huge expansion of the business. The percentage of internal source of finance
(retained earning and depreciation) in 2005 was only 12.63 as against 25.49 in 2003 and 18.47% in
2004. The debt equity ratio of the company was 0.67 as against 0.47 in 2004 and 0.25 in 2003.
In 2002, the company had issued US $120 million 0.5 percent Foreign Currency Convertible Bonds
(FCCBs) due on September 25, 2007. The FCCBs are listed on the Luxembourg Stock Exchange. As
per the issue offering each Bondholder has a right to convert the Bonds at any time after December
25, 2002 into GDRs. Each GDR represented 3 equity shares of a nominal value of Rs.10 each in the
Company.
The company has successfully converted all FCCB by 2005. The group’s holding earlier had come
to 49.5 percent from a peak of 58.2 percent after the full conversion of $120 million (Rs.580 crore)
FCCBs. Reliance Energy shares are traded at Rs.626 as on 19th December 2005.
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 6Exhibit 3: Summary of Outstanding FCCBs
Underlying
FCCBs
GDRs Number of
(US $)
Shares
Total Issued 120,000,000 78,93,877 2,36,81,633
Less: Converted into GDRs on July 28, 2003 250,000 16,445 49,336
Less: Converted into GDRs on October 07, 2003 250,000 16,445 49,336
Less: Converted into GDRs on November 07, 2003 7,60,10,000 5,000,113 1,50,00,339
Less: Converted into GDRs on February 02, 2004 2,58,42,995 1,700,012 51,00,036
Less: Converted into GDRs on April 26, 2004 50,62,200 333,003 9,99,009
Less: Converted into GDRs on July 07, 2004 10,00,000 65,782 1,97,346
Less: Converted into GDR on August 19, 2005 1,15,84,805 762,077 22,86,230
Source: www.Rel.co.in
After 2002, the major amount of resources were raised in 2004. The company issued and allotted
in March, 2004, 1,72,30,000 equity shares of Rs.10 each at a premium of Rs.630 each, aggregating
Rs.11,027.2 million to institutional investors and a promoter group company, viz. Reliance Power
Ventures Limited (RPVL) on a preferential basis. The Company further issued and allotted
91,95,622 equity shares of Rs.10 each at a premium of Rs.630 each, aggregating Rs.5,885.2
million on 2nd April, 2004, to RPVL. The company also allotted 98,61,228 warrants of Rs.640
each to RPVL on 2nd April, 2004, on a preferential basis. The holder of warrants will be entitled
to apply for and be allotted one equity share of Rs.10 each at a price of Rs.640 (including premium
of Rs.630) against each warrant anytime after the date of allotment but on or before the expiry of
18 months from the date of allotment.
In addition, to the above, the company also issued Zero percent convertible Bonds aggregating
US$178,058,000 and 4 series of secured Non-Convertible Debentures (NCDs) aggregating
Rs.6,250 million during the year. The Zero coupon bond Bonds will mature on 24th March, 2009.
Bondholders have a right to convert their Bonds at anytime after 23rd April, 2004 into Equity
Shares or Global Depositary Receipts (GDRs), each representing 3 equity shares of Rs.10 each in
the Company at a price of Rs.1,006.92 per Equity Share. In the event of conversion of the entire
Bonds, it will result in the issue and allotment of 79,99,984 Equity Shares.
In the financial year 2004-05, the company was enjoying ‘AAA’ credit rating from CRISIL for
long-term debt. FITCH Ratings India has also awarded ‘Ind AAA’ debt rating for the Company,
indicating the highest credit quality. The average interest cost of the company was 3.4 percent
maturity whereas the average maturity of the Company’s long-term debt was about 5 years.
Financing
Buy-Back of Equity Share
Reliance Energy made an offer for buy-back of equity shares as on 9th June 2004, at an offer price
of Rs.350 aggregating Rs.3,500 million. Initially, the Buy-back offer was valid for a period of 90
days upto 17th September, 2004. But the Company has not bought any shares under the offer and
offer date extended till 8th June 2005. Again after June, the company had extended the buy-back
program of its equity shares upto March 17, 2005, but till February 2006 the company has not
bought any shares.
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 7Project Finance
The company had used various alternatives to finance new projects. The company in 2004-05 was
enjoying opportunities to set-up gas, coal, wind and hydro based power generation projects. For
development of 3,740 MW Project at Dhirubhai Ambani Energy City, the company had created a
Special Purpose Vehicle (SPV) Reliance Energy Generation Limited to develop, construct and
operate a 3,740 MW gas based power generation plant.
Financials
The company posted a 30.12 percent rise in net profit of Rs.1,646.4 million for the quarter ended
December 30, 2005 as compared to Rs.1,345.2 million for the corresponding quarter in the
previous fiscal. However the total Income has increased marginally, the income from sales of
electricity has shown a growth of 10%. The income from EPC and Contracts came down to
1,730.07 million from 1907.4 million in 2004 (Refer annexure).
Though the company required huge resources for various projects, it has distributed regular
income to its shareholders in terms of dividends. Reliance Energy has practised to pay dividends
on quarterly basis. During the financial year 2004-2005, the company has paid Quarterly
Dividends of Rs.1.10 (11%) each on Equity Shares for the quarters ended 30th June, 30th
September and 31st December, 2004. In addition to three quarterly dividends aggregating Rs.3.30
per Equity Share paid during the year 2004-05, the Directors recommend a final dividend of
Rs.1.40 (14%) per Equity Share making a total dividend of Rs.4.70 (4.7%) per Equity Share.
Dividend for last five years is summarized below.
Exhibit 4: Dividend History
Valuation
At the market price of the company is valued X multiple. Reliance had found gas in
KG-D6 block in Krishna Godavari basin which constitutes 60% of India’s present total gas
production. For Reliance Energy, it will provide great prospect to scale up power generation
capacities in India. Company had also diversified its power business into wind and hydro-based
power generation projects. Amalgamation of the company with Reliance Energy Ventures
Limited will increase the shareholder base of the company.
Source:
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 8ANNEXURE I
Electricity Demand Supply
Indicator Units Annual Annual Annual Annual Annual
Dec-01 Dec-02 Dec-03 Dec-04 Dec-05
Electricity requirement Million kwh 507216 522537 545674 559264 591373
Electricity availability Million kwh 467400 483350 497589 519398 548115
Electricity shortages Million kwh 39816 39187 48085 39866 43258
Electricity shortages as per cent of requirement Percent 7.85 7.5 8.81 7.13 7.31
Source:
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 9ANNEXURE II
Electricity Generation and Utility
Indicator Units Annual Annual Annual Annual Annual
Dec-01 Dec-02 Dec-03 Dec-04 Dec-05
Elec. generating capacity of utilities Mw 101626.00 105046.00 107877.00 112683.00 114164.00
Thermal elec. generating capacity of utilities Mw 73613.00 75936.00 78391.00 80457.00 80626.00
Hydro elec. generating capacity of utilities Mw 25153.00 26261.00 26767.00 29507.00 30818.00
Nuclear elec. generating capacity of utilities Mw 2860.00 2720.00 2720.00 2720.00 2720.00
Elec. generation by utilities Million kwh 501204.07 517439.24 532692.96 565101.69 587416.07
Thermal elec. generation by utilities Million kwh 409939.66 421032.00 449289.28 472079.21 486075.48
Hydro elec. generation by utilities Million kwh 74361.92 73125.00 64013.71 75242.48 84495.3
Nuclear elec. generation by utilities Million kwh 16902.49 18909.00 19390.00 17780.00 16845.29
Source:
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 10ANNEXURE III
World Electricity Consumption (2002-05)
Sources: 2002: Energy Information Administration (EIA), International Energy Annual 2002,
DOE/EIA-0219 (2002) (Washington, DC, March 2004), website: www.ela.dce.gov/iea/.
Projections: EIA, System for the Analysis of Global Energy Markets (2005).
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 11ANNEXURE IV
World Electricity Generation Capacity by Region (2002-05)
Sources: 2002: Energy Information Administration (EIA), International Energy Annual 2002,
DOE/EIA-0219 (2002) (Washington, DC, March 2004), website: www.ela.dce.gov/iea/.
Projections: EIA, System for the Analysis of Global Energy Markets (2005).
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 12ANNEXURE V
There are 16 associates of REL, some of them being BSES Kerala Power Ltd., BSES Rajdhani
Power Ltd., BSES Yamuna Power Ltd., Reliance Energy Trading Ltd., Reliance Energy
Transmission Ltd., Reliance Energy Global Pvt. Ltd., Reliance Energy Investment Private Ltd.,
Reliance Energy Generation Ltd., Tamil Nadu Energy Generation Ltd., Tamil Nadu Industries
Captive Power Company Ltd., etc.
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 13ANNEXURE VI
Sources and Uses of Funds
Reliance Energy Ltd. Mar 2000 Mar 2001 Mar 2002 Mar 2003 Mar 2004 Mar 2005
Rs. Million (Non-Annualized) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths
Sources of funds
Internal sources 3929.7 4709.8 3740.4 1576 7032.7 4975.9
Retained profits 2399.4 2315.8 1638.6 –971.4 2068.2 465.4
Depreciation 1530.3 2394 2101.8 2547.4 4964.5 4510.5
External sources 1211.1 –6625.2 –3348.5 3038.4 30582.4 34378.9
Fresh capital
(excl. bonus issue) –90.9 –231.8 –621.9 –213.9 15883.7 11863
Share premium reserves 8.1 8.2 8.1 –213.9 15509.4 6079.4
Borrowings –1347.9 –927.5 –338.7 –141.9 14021.9 17122.1
Bank borrowings 887.2 –787.2 1125 –1203.8 –7.1 1235.9
Short-term bank
borrowings 887.2 –787.2 1125 –1203.8 –7.1 1235.9
Financial institutional
borrowings 6453.3 –6264.4 3761.8 –4380.7 0 0
Debentures/bonds 0 0 1000 5298.2 9402.5 –291.6
Fixed deposits –86.6 –101.4 0 0 0 0
Borrowings from corporate
bodies 0 0 0 0 0 0
Group/associate cos. 0 0 0 0 0 0
Other borrowings –8601.8 6225.5 –6225.5 144.4 4626.5 16177.8
Current liabilities & provisions 2649.9 –5465.9 –2387.9 3394.2 676.8 5393.8
Sundry creditors –527.5 2322.6 –2578.7 –360.5 1725.9 2265.5
Deferred tax liabilities 0 0 830.9 1569.6 454.7 31.7
Uses of funds
Gross fixed assets 1870.5 2119.1 811.5 1192.3 10218.7 2701.5
Capital WIP 142.4 28.3 –258.4 –287.4 288.6 1084
Investments 2016.5 100.2 738.8 4190.2 18447 –21085.1
In group/associate cos. 1674.6 340.2 844.1 5101.1 1560.6 –3999.2
Currrent assets 1253.8 –4134.7 –424 318.2 9537.4 57939.2
Inventories 467.1 –7479.6 15.6 98.7 –664.3 2403.8
Debtors 1345 1911.4 –223.4 –2767.6 –1081 4648.6
Cash & bank balance –940.4 84.8 –1476.6 –782.6 8087.8 51851.9
Advances/loans to
corporate bodies –449.7 –224.8 –148 1801.1 1110 1447.3
Group/associate cos. 52.2 82.5 –148 0 2038.7 –1803.2
Other receivables 831.8 1573.5 1408.4 1968.6 2084.9 –2412.4
Deferred tax assets 0 0 96.5 483.3 –133.3 –169.1
Total sources/uses of funds 5140.8 –1915.4 1222.8 6184 38069.8 39386.5
Source:
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 14ANNEXURE VII
Profit and Loss Account: Summary
Reliance Energy Ltd. Mar 2000 Mar 2001 Mar 2002 Mar 2003 Mar 2004 Mar 2005
Rs. Million (Non-Annualized) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths
Income
Sales 22309.3 22973.5 26750.5 37448.8 35165.7 41607.2
Other income 712.5 660 1003.1 731 1200.9 3802.2
Change in stocks 1148.1 4065.5 –1.2 –10732.5 –938.9 –85.5
Non-recurring income 166.9 108.1 459.6 485.3 863.7 712.5
Expenditure
Raw materials, stores, etc. 14643.7 18509.1 14139.3 15648.5 17139 17587.2
Wages & salaries 773.2 952.4 868 763 1656.8 2016.8
Energy (power & fuel) 0 0 0 0 0 0
Indirect taxes (excise, etc.) 84.1 249.1 567.1 542 598.2 1127.8
Advertising & marketing expenses 23.9 24.4 25.5 33.2 91.6 98.4
Distribution expenses 0 0 0 0 0 0
Others 2026 1909.7 5367.9 5397.4 7727.9 13933.6
Less: expenses capitalized 0 0 0 0 0 0
Non-recurring expenses 82 398.4 965.4 795.1 945.9 760.2
Profits/losses
PBDIT 6703.9 5764 6278.8 4753.4 8132 10512.4
Financial charges (incl. lease rent) 942.3 553.5 657.4 763.5 699.3 1348.2
PBDT 5761.6 5210.5 5621.4 3989.9 7432.7 9164.2
Depreciation 1833 1965 2249.7 2598.4 4546.1 4794.5
PBT 3928.6 3245.5 3371.7 1391.5 2886.6 4369.7
Tax provision 900.3 290.4 320.5 172.8 502.8 495
PAT 3028.3 2955.1 3051.2 1218.7 2383.8 3874.7
Appropriation of profits
Dividends 681 685.7 610.6 683.6 795.2 991
Retained earnings 2347.3 2269.4 2440.6 535.1 1588.6 2883.7
Source:
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 15ANNEXURE VIII
Cash Flow: Manufacturing Companies
Reliance Energy Ltd. Mar 2000 Mar 2001 Mar 2002 Mar 2003 Mar 2004 Mar 2005
Rs. Million (Non-Annualized) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths
Net profit before tax & extra ord. items 3968.5 3504.1 3018.3 1526.4 4173.6 5696.4
Add: depreciation 1834.7 1968.1 2250.5 2598.1 3187.2 3464.4
Interest payable 942.4 553.5 657.4 763.5 699.3 1348.2
Gain or loss on forex transactions 0 0 –315.7 –73.8 –18 –278.8
Write offs/amortization 8.1 246.4 8.1 8.1 6.7 0
Profit on sale of investments –27.2 –21.7 –84.4 –51.5 –164.4 –624
Profit on sale of assets 9.8 0 7.9 9.9 44.8 49.4
Interest income 0 0 -88.2 -73.6 -646.6 -2775
Dividend income –581.6 –472.1 –440 –453.9 0 0
Other income/provision adjustments 378.4 0.7 984.6 729.6 1004.3 1286.8
Cash flow before working cap. Changes 6533.1 5779 5998.5 4982.8 8286.9 8167.4
Trade receivables –871 –3012.3 –1599.2 –294.5 –118.3 –5231.3
Inventories 1314.6 9 –22.3 997.4 –210.9 –2489.2
Trade payables –351.5 1292.5 –1592.6 1222.6 –869.2 4336.8
Others 0 0 0 0 0 0
Cash flow from operations 6625.2 4068.2 2784.4 6908.3 7088.5 4783.7
Direct taxes paid –1043.7 –288.8 0 –122 –100.2 –85.8
Dividend tax paid 0 0 0 0 0 0
Cash flow before extra ord. items 5581.5 3779.4 2784.4 6786.3 6988.3 4697.9
Extraordinary items –40 –258.7 356.7 0 –76.2 –489
Cash flow from operating activities 5541.5 3520.7 3141.1 6786.3 6912.1 4208.9
Net cash used in investing activities –3608.9 –1135.2 –2315.2 –5538.7 –24374.1 19856.8
Purchase of fixed assets –2326.8 –1503.4 –1426.3 –934.5 –1617.5 –3051.3
Sale of fixed assets 3.1 6.9 14.7 4.3 46.4 16.5
Acquisition/merger of cos. 0 0 0 0 –2541.7 0
Purchase of investments –2773.1 –890.9 –1264.9 –9586.2 –21510.1 –1272.5
Sale of investments 733.8 808.5 570.7 5269.4 2212.6 23430
Project expenses 0 0 0 0 0 0
Loan to group/subsidiary cos. 0 0 0 0 0 0
Loan to other cos. 101.2 –74.6 –690.3 –735.8 –1575.5 –1896.6
Interest received 0 0 0 0 611.7 2630.7
Dividend received 652.9 518.3 480.9 444.1 0 0
Other investing activities 0 0 0 0 0 0
Net cash used in financing activities –2873 –2300.7 –2302.5 –2030.2 25519.7 27786.4
Proceeds from share issues –100 –240 –630 0 11027.2 11566.1
Proceeds from long-term borrowings 789 0 1042.6 5792.2 18937.2 17663.2
Proceeds from short-term borrowings 13.7 644.9 5592.9 21.3 74.9 129.4
Repayment of long-term borrowings –1659.5 –505.5 –2018.8 –6299.2 –2770.7 –14.2
Repayment of short-term borrowings –340.4 –1005.8 –4968 0 0 0
Share issue expenses 0 0 0 0 0 0
Interest paid –941 –576.4 –685.7 –950.8 –622.5 –1034.7
Dividend paid –634.8 –628.5 –635.5 –589.1 –1162.7 –1001.3
Other financing activities 0 10.6 0 –4.6 36.3 477.9
Net cash flow –940.4 84.8 –1476.6 –782.6 8057.7 51852.1
Opening cash balance 3628.6 2688.2 2773 1296.4 543.9 8601.6
Closing cash balance 2688.2 2773 1296.4 513.8 8601.6 60453.7
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 16ANNEXURE IX
Ratio Analysis
Executive summary: mfg. cos.
Reliance Energy Ltd. Mar 2000 Mar 2001 Mar 2002 Mar 2003 Mar 2004 Mar 2005
12 mths 12 mths 12 mths 12 mths 12 mths 12 mths
Margins ratios (%)
PBDIT (NNRT) / sales 29.67 26.35 25.36 13.52 23.36 25.38
PBDT (NNRT) / sales 25.45 23.94 22.9 11.48 21.37 22.14
PAT (NNRT) / sales 13.19 14.13 13.3 4.08 7.01 9.43
PBDIT (NNRT) / net sales 29.78 26.64 25.91 13.72 23.76 26.09
PBDT (NNRT) / net sales 25.54 24.21 23.4 11.65 21.74 22.76
PAT (NNRT) / net sales 13.24 14.28 13.58 4.14 7.13 9.69
Returns ratios (%)
PAT (NNRT) / net worth 13.07 13.13 13.54 5.84 7.13 8.37
PAT (NNRT) / total assets 6.41 7.23 8.32 3.43 3.9 4.03
PBIT (NNRT) / capital employed 15.63 13.03 14.11 7.68 7.64 8
PAT (NNRT) / capital employed 9.61 10.34 11.07 4.76 5.13 5.45
Liquidity ratios (times)
Long-term debt / equity 0.295 0.246 0.201 0.252 0.47 0.595
Total debt / equity 0.332 0.27 0.247 0.253 0.47 0.749
Current ratio 1.282 1.526 1.743 1.335 1.866 2.827
Interest cover 5.08 7.39 6.9 3.23 5.25 4.28
Gross working capital cycle (days) 346 269 213 151 100 166
Net working capital cycle (days) 256 166 129 112 50 105
Avg. days of debtors 100 123 117 69 53 61
Avg. days of creditors 90 103 83 38 49 61
Asset utilization ratios (times)
VOP/ total assets 0.51 0.6 0.61 0.59 0.53 0.41
VOP/GFA 0.86 0.92 0.85 0.82 0.89 0.93
Source:
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 17ANNEXURE X
Foreign Exchange Transactions: Manufacturing Companies
Foreign exchange transactions: mfg. cos.
Reliance Energy Ltd. Mar 2000 Mar 2001 Mar 2002 Mar 2003 Mar 2004 Mar 2005
Rs. Million (Non-Annualized) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths
Foreign exchange earnings 1455.1 295.8 6.2 6 6.4 11.3
Export of goods (FOB) 0 0 0 0 6.4 11.3
Services rendered 0 294.5 0 0 0 0
Dividend received 0 0 0 0 0 0
Interest received 5 0.2 0.1 5.6 0 0
Other forex earnings 1450.1 1.1 6.1 0.4 0 0
Foreign exchange spendings 3059.7 2904.4 1150.5 750.1 917.9 1882.1
Raw materials (CIF) 1389 2370.4 380.5 431.4 444 893.6
Stores & spares (CIF) 415.9 0.1 7.5 6.9 35.3 13.5
Finished goods (CIF) 0 0 0 0 0 0
Capital goods (CIF) 0 0 0 0 22.5 298
Royalties and tech. know-how fees 0 0 0 0 0 0
Interest remittances 585.9 373.2 314.1 221.5 118 147.8
Dividends 73.7 80.8 0 59.3 20.2 57.1
Travel 0 0 0 0 0 0
Others 595.2 79.9 448.4 31 277.9 472.1
Net foreign exchange earned -1604.6 -2608.6 -1144.3 -744.1 -911.5 -1870.8
Sales (net of internal transfers) 22309.3 22973.5 26750.5 37448.8 35165.7 41607.2
Raw material purchases 7609.2 8455.5 4721.5 4195.1 7032.2 7698.9
Purchase of fixed assets 2326.8 1503.4 1426.3 934.5 1617.5 3051.3
Exports as % of sales 6.52 1.29 0.02 0.02 0.02 0.03
Raw material import as % of raw
material
Purchases 18.25 28.03 8.06 10.28 6.31 11.61
Imported capital goods as % of
purchase of
Fixed assets 0 0 0 0 1.39 9.77
Growth (%)
Sales 21.93 2.98 16.44 39.99 -6.1 18.32
Exports 4670.82 -79.67 -97.9 -3.23 6.67 76.56
Raw materials purchases 79.32 17.55 -48.47 -6.02 79.51 41.75
Imported raw materials and stores 16.62 31.34 -83.63 12.96 9.35 89.26
Source:
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 18ANNEXURE XI
Shareholding Information
Reliance Energy Ltd.
Jun 2005 Sep 2005 Dec 2005
Category No.of shares % of total No.of shares % of total No.of shares % of total
shares shares shares
Promoters holding 10,28,08,735 52.64 10,29,19,963 50.97 10,29,19,963 50.97
Indian promoters# 10,28,08,735 52.64 10,29,19,963 50.97 10,29,19,963 50.97
Private Holding 10,28,08,735 52.64 10,29,19,963 50.97 10,29,19,963 50.97
Govt. holding 0 0 0 0 0 0
Central govt. 0 0 0 0 0 0
State govt. 0 0 0 0 0 0
Govt. Other 0 0 0 0 0 0
Foreign promoters/collaborators 0 0 0 0 0 0
Non-promoters holding 9,25,14,064 47.36 9,89,84,288 49.03 9,89,84,288 49.03
Institutional investors 7,47,30,520 38.26 7,92,18,810 39.24 7,97,65,884 39.51
Mutual funds and UTI 17,56,776 0.9 21,65,873 1.07 30,11,506 1.49
Banks, FI’s, Insurance Cos. 3,99,72,098 20.46 3,97,40,253 19.68 3,99,63,046 19.79
FIIs 3,30,01,646 16.9 3,73,12,684 18.48 3,67,91,332 18.22
Others 1,77,83,544 9.1 1,97,65,478 9.79 1,92,18,404 9.52
Private corporate bodies 24,65,624 1.26 16,76,697 0.83 14,32,815 0.71
Indian public 1,18,65,998 6.08 1,22,33,277 6.06 1,20,23,856 5.96
NRIs/OCBs 4,23,080 0.22 4,42,729 0.22 4,36,392 0.22
Any other 30,28,842 1.55 54,12,775 2.68 53,25,341 2.64
Total equity holding 19,53,22,799 100 20,19,04,251 100 20,19,04,251 100
#This includes shareholding of
Persons acting in concert
Source:
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 19ANNEXURE XII
Growth Indicator
Reliance Energy Ltd., Mar 2000 Mar 2001 Mar 2002 Mar 2003 Mar 2004 Mar 2005
Percent (Non-Annualized) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths
Gross sales (excl. internal transfers) 21.93 2.98 16.44 39.99 –6.1 18.32
Net sales (excl. internal transfers) 21.99 2.25 15.22 40.95 –6.34 17.1
Raw materials, stores, etc. 42.74 26.4 –23.61 10.67 9.52 2.62
Wages & salaries 22.91 23.18 –8.86 –12.1 117.14 21.73
Advertising & marketing expenses 3.02 2.09 4.51 30.2 175.9 7.42
Distribution expenses Error Error Error Error Error Error
Energy (power & fuel) Error Error Error Error Error Error
Interest –17.8 –41.26 18.77 16.14 –8.41 92.79
Depreciation 6.95 7.2 14.49 15.5 74.96 5.46
Tax 12.5 –67.78 10.34 –46.09 65.86 –10.94
PBDIT (NNRT) 5.3 –8.53 12.06 –25.37 62.23 28.56
PBDT (NNRT) 10.45 –3.1 11.39 –29.83 74.78 22.58
PBIT (NNRT) 4.68 –14.56 10.9 –45.65 48.82 57.18
PBT (NNRT) 12.2 –8.01 9.66 –56.12 74.5 48.79
PAT (NNRT) 12.11 10.26 9.6 –57.03 61.33 59.06
Total exports 4670.82 –79.67 –97.9 –3.23 6.67 76.56
Total imports 25.74 –5.08 –60.39 –34.8 22.37 105.04
Imported raw material 16.62 31.34 –83.63 12.96 9.35 89.26
Gross fixed assets (excl. reval. & WIP) 6.57 7.46 3.55 4.75 30.4 3.8
Net fixed assets (excl. reval. & WIP) 1 –1.52 –5.24 –5.72 28.2 –12.82
Current assets 6.66 –17.28 –1.16 –8.62 46.69 191.68
Inventories 5.16 –78.59 0.77 4.81 –30.87 161.59
Sundry debtors 24.56 28.02 –2.56 –32.52 –18.83 99.73
Total assets 5.75 –9.74 0.78 7.7 73.18 43.32
Source:
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 20ANNEXURE XIII
Inventory/Working Capital Cycle
(Non-Annualized) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths
Inventory management (times)
Raw materials turnover NA NA 18.9 9.59 14 9.71
Debtors turnover 3.63 2.95 3.1 5.26 6.76 5.96
Creditors turnover 4.02 3.53 4.35 9.52 7.31 5.94
Inventories / gross working capital (%) 39.37 10.19 10.39 11.92 5.62 5.04
Inventories / net working capital (%) 179.08 29.57 24.38 47.52 12.1 7.79
Working capital cycle
Holding period (no. of days)
Raw materials & spares 86 56 88 81 46 105
Production 159 89 7 0 0 0
Finished goods 0 0 0 0 0 0
Debtors 100 123 117 69 53 61
Gross working capital cycle 346 269 213 151 100 166
Credit availed from creditors 90 103 83 38 49 61
Net working capital cycle 256 166 129 112 50 105
Gross working capital req. (Rs. Crore) 1633.97 1350.41 1282.99 1412.83 855.29 1699.52
Net working capital req. (Rs. Crore) 1205.98 832.67 778.06 1054.86 429.05 1073.7
Source:
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 21ANNEXURE XIV
Trend in Production
Reliance Energy Ltd. March March March March March
Product/s manufactured/traded 2001 2002 2003 2004 2005
Cable Head Terminations 158 Units 306 Units 290 Units 233 Units 252 Units
Energy 3621 3847 3965 6027 5953
Million Million Million Million Million
units units units units units
Hire of Meters 0 0 0 0 0
Income from Lease Rentals 0 0 0 0 0
Modules 17692 8291 9099 9399 7495
Units Units Units Units Units
Stress Cones 4302 1764 916 3474 584
Units Units Units Units Units
Terminations and Joints 1264 924 776 2056 165
Units Units Units Units Units
Value of Contracts Billed and
Service Charges 0 0 0 0 0
Wind Mill Energy 0 0 0
Source:
C:\Documents and Settings\ramarao\Desktop\New Cases\RELIANCE.DOC 22Reference:
1. http://news.bbc.co.uk/1/hi/business/4074078.stm
2. http://economictimes.indiatimes.com/articleshow/msid-1420528,curpg-2.cms
3. http://economictimes.indiatimes.com/articleshow/1405670.cms
4. http://www.thehindubusinessline.com/2005/01/04/stories/2005010402800100.htm
5. http://www.domain-.com/companies/companies_a/ada_enterprises/20060210_gain.htm
6. “The Ownership Saga at Reliance Industries Ltd., and the Corporate Governance Practices of
the Company”, ICFAI Journal of Corporate Governance, October 2005.
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