RIL's net profit margin plunges to 10-year low

Reliance Industries Ltd (RIL)’s net profit margin, or net profit as a percentage of revenue, fell to a 10-year low of 5.9 per cent in 2011-12, shows the company’s annual report. Its market capitalisation also declined by Rs 100,000 cr, say analysts.

The last time its net profit margin reached below this level was in 2001-02, at 7.1 per cent. In 2000-01, the margin was at 12.8 per cent.

Mukesh Ambani, RIL’s chairman and managing director, called 2011-12 a challenging year due to an unprecedented economic uncertainty in Europe, geopolitical upheaval in West Asia and slowing down of economic growth across Asia. “For the first time in the past 20 years, RIL posted a net profit lower than that of 2010-11. It has always reported a higher net profit over a previous year,” said an analyst. “Operating profit margin (operating profit as a percentage of revenue) was at 11.7 per cent, the lowest level in 20 years, showing the company has to work hard to generate income from operations,” he said.

AMBANI’S PAY

* The annual report mentions that Mukesh Ambani continues to draw Rs 15 crore as annual remuneration against Rs 38 crore approved by shareholders

* In October 2009, amid debates on right-sizing CEO salaries, Mukesh Ambani had taken a pay cut. This led to a drop in his salary to Rs 15 crore for 2008-09, from over Rs 44 crore in 2007-08 when he was India’s top-paid executive

The profitability of the refining business, which accounts for two-thirds of RIL’s net sales and 40 per cent of profit before interest and tax, is under pressure.

The report says: “The company is taking steps to strengthen its competitive position by cutting costs. These include petcoke gasification to achieve a sharp reduction in the energy cost. These measures are being supplemented by many others that seek to improve the refinery yield pattern.”

RIL, as of March 2012, was a debt-free company, as the cash it had was more than its debt. Its total debt was at Rs 68,259 cr ($13.4 bn). Its cash and cash equivalents amounted to Rs 70,252 cr ($13.8 bn). The increase in cash was primarily driven by a receipt of the balance consideration from BP, RIL said in the report. Loans and advances to related parties stood at Rs 10,243 cr, against Rs 7,108 cr in 2010-11. RIL paid Rs 1,508 cr as hire charges and electric power, fuel and water charges to 138 related entities that are its subsidiaries or associate companies.