First To Set 5-Year Targets

Reliance Industries yesterday created corporate history of sorts by becoming the first major company to announce precise targets for key financial parameters such as EPS growth, return on shareholder value and dividend pay-out ratio.

The company also announced that there will be no further equity dilution till March 2000 and reiterated its commitment to buy back shares.The targets and future direction of Indias second largest private sector company were announced by chairman Dhirubhai Ambani at Reliances 23rd annual general meeting in Mumbai yesterday.

Over the next five years, Reliance will strive to achieve a compounded EPS growth of 20 per cent, ensure a 20 per cent return on shareholder funds and regularly increase dividend rates. The dividend pay-out ratio over the next five years would be 25 per cent, Ambani said. We recognise the need to continuously improve capital efficiency as measured by return on equity and sustainable growth of earnings per share, on a par with global chemical companies, Ambani said. The move has sent ripples across corporate India and is bound to trigger a debate over transparency and governance. It is the first time that an Indian company has announced such targets publicly, setting a trend for others to follow. The practice is prevalent abroad, where major companies frequently announce targets.

 

Says Piramal Enterprises chairman Ajay Piramal: It is a step in the right direction. I am not sure if all companies can follow suit. They are doing it because they are confident of achieving their targets. Reliance also said apart from normal conversions and bonuses, there would be no further equity dilution. We have added around Rs 6,500 crore to our net worth over the past five years. Based on current plans, we do not foresee any further equity dilution over the next two to three years excluding the outstanding conversions, he said.

Reliance was one of the first companies to get shareholder approval for share buyback. Ambani said a buy-back programme would go a long way in unlocking value for shareholders.

The (proposed) Companies Act would enable us to examine this option to enhance shareholder value, he added.