Reliance Industries aggressive on treasury operations

Current investment jumped 50% in FY15; cash & bank balance was down 67%

Reliance Industries saw a near-50 per cent jump in its current investment to Rs 51,014 crore in 2014-15 to boost its treasury income. The period also saw its cash and bank balance depleting by 67 per cent to Rs 12,545 crore, shows its annual report.

This shows a more aggressive approach to treasury operations, for better returns. Earlier, it followed a conservative approach, keeping more than half of its surplus in cash and bank balances, for less return but with an advantage in managing liquidity. Now, the current investment is more than four times its cash and bank balance. 

"When economic conditions are bad and the realisation from core businesses are stressed, the company is trying to maximise return on its capital through aggressive treasury operations," says G Chokkalingam, founder and managing director, Equinomics Research and Advisory.

In the past three to four years, Reliance has seen a decline in its domestic gas production. The drop in oil prices has affected its realisation from US shale gas production. Its margins in the petrochemical and refining businesses have been inconsistent.

The growing importance of treasury operations for Reliance is obvious, as its contribution to earnings is now higher than core areas such as petrochemicals, oil and gas, and retail. The company earned Rs 8,335 crore from treasury operations in FY15, while Ebit (earnings before interest and tax) from refining, oil and gas, and retail, were less at Rs 8,291 crore, Rs 3,181 crore, and Rs 417 crore, respectively. The company had the highest Ebit of Rs 13,392 crore from its refining business in the year.

This keeps V Srikanth, joint chief financial officer (CFO) at Reliance, on his toes. In mid-2010, Srikanth moved to Reliance as deputy CFO from Citi India, where he was country treasurer. In 2012, he was promoted to joint CFO. His responsibilities included managing the fund-raising plan and generating yields from treasury operations.

"When the company has not been able to create significant wealth for its shareholders, it is at least trying to maximise return from what is in its control," says Chokkalingam.

According to data from Capitaline, it gave a 11.5 per cent return in 2013-14. In the year, the yield from the company's treasury was 9.4 per cent. In 2014-15, the company had a treasury yield of 9.4 per cent. This was calculated on interest income, profit on sale of investments, and dividend income, at an average investment and cash and bank balance for the two preceding financial years. Which means the result from greater deployment of cash in current investments will reflect in the treasury yield of 2015-16. The numbers are for the consolidated accounts of these companies.