Leaders Of The Pack

The country's largest refiner, Reliance Industries (RIL), continues to be at the top for the second year in a row on the back of its assets portfolio, even though it trails No. 2 Indian Oil Corporation in total income. Fiscal 2010-11 was full of ups and downs for RIL. On the one hand, it received a favourable judgement from the Supreme Court in its suit against Anil Ambani's ADAG group (now also called Reliance Group). On the other hand, it was rocked by the Directorate General of Hydrocarbons' allegations that it escalated costs of developing the Krishna-Godavari basin's D6 fields without government approvals. And that it is deliberately under-producing gas and oil from the fields.

On the positive side, to tide over falling production, it sold 30 per cent equity in 23 oil and gas production sharing contracts to BP. On the negative side, it bore the burden of the group's loss-making subsidiaries. As a standalone entity, RIL's net profit grew 25 per cent in the fiscal. But its consolidated net profit fell 21 per cent — a setback of Rs 5,152 crore since last fiscal.

But sheer size keeps RIL ahead of peers. Total income shot up 25 per cent to Rs 2,68,773 crore due to an 11 per cent rise in volumes and 18 per cent rise in prices. Revenue from natural gas sale also helped RIL fare better, says S.P. Tulsian, an independent analyst. During the year, exports including deemed exports, were higher by 33 per cent at Rs 1,46,667 crore (RIL accounts for 13.4 per cent of India's total exports).

As of 31 March 2011, RIL remains the biggest debtor in corporate India with a consolidated debt of Rs 84,106 crore, while cash and cash equivalent stood at Rs 42,393 crore, thanks to Rs 9,004 crore received from BP as part of the total consideration of $7.2 billion. RIL chairman Mukesh Ambani told shareholders at the annual general meeting: "We are gearing up for the next phase of growth through a combination of our own initiatives and forging new partnerships with leading companies."

Rating agencies Moody's, Fitch and S&P upgraded their outlook on RIL from ‘stable' to ‘positive' after the financials were announced.  
Nevin John

2 INDIAN OIL CORP R.S. Butola, chairman Total assets: Rs 1,17,406 crore Total income: Rs 3,13,628 crore Net profit: Rs 8,086 crore

INDIAN Oil Corporation (IOC) continues to be India's leading company in terms of total income, Rs 3,13,628 crore. That is not surprising since it alone accounts for a third of the total petroleum products sold in  India. (RIL is the biggest refiner and, therefore has more assets.) IOC is also the first Indian company to make it to the Top 100 global companies in the Fortune 500 listing at rank 98 this year. But IOC's profit after tax has fallen 26.49 per cent to Rs 8,085.62 crore because of under-recoveries.

In the first quarter of this fiscal, IOC has already incurred losses of Rs 3,700 crore. Says IOC chairman R.S. Butola: "We do not have the capacity to bear under-recoveries. The government has to reimburse." But over the past six months, oil marketing companies in India have hiked prices twice. As a result, under-recovery on petrol has fallen to 32 paise per litre.

Commenting on oil companies being at the top of listings, an analyst says, "It is because they deal in a costly commodity whose volumes have been rising in India."

While under-recoveries continue to be an issue, IOC has been working towards upgrading refining capacity to process high-sulphur crude. Says Butola: "The next phase of upgrade will enable refineries to process heavy oil." The advantage of this move is that many of the new finds in Latin America contain heavy oil. Heavy oil is much cheaper than the benchmark Brent crude. A part of Butola's plan is to reduce the cost of sourcing crude oil.
To increase refining capacity, IOC is looking to set up a refinery on India's west coast. But it is yet to finalise the location.The other plank for the future is building a team that has expertise in exploration and production. This is one area where IOC has only a marginal presence.

Another focus area relates to petrochemicals. Says an analyst: "All oil companies need to be sensitive to developments in the gas market.  After all, the future of the energy market lies in gas." He argues that IOC should look to enter the city gas business in cities such as Pune, Hyderabad, Bangalore and Chennai.
Anup Jayaram

3 ONGC Sudhir Vasudeva, CMD Total income: Rs 1,50,568.58 cr Operating profit: Rs 55,380.10 cr Net profit: Rs 22,824.97 cr

ONGC has been India's most profitable company for years. During the last fiscal, it recorded a net profit of Rs 22,825 crore, an almost 16 per cent increase over the previous year. That is the advantage it has in being the single-largest petroleum exploration company in the country. It has also paid the maximum amount in dividends — Rs 7,486.05 crore. That was achieved on the basis of the highest-ever production of 27.28 million tonnes of crude oil. 

After being headless for quite some time, ONGC recently got a new chairman and managing director in Sudhir Vasudeva. "The biggest challenge for the new chief is to ensure that the company converts more exploration wells into producing wells. That could well be the deciding factor," says an analyst. Currently, ONGC operates 340 crude oil and natural gas reserve in India. It also has oil and gas assets in 14 countries through its subsidiary ONGC Videsh.

The government is looking to reduce its stake in ONGC from 74.14 per cent to 69.14 per cent through a public offer. However, the $3-billion follow-on public offer has been delayed because of approvals.
Anup Jayaram

4 TATA STEEL B. Muthuraman, vice-chairman Total income: Rs 1,20,189.60 cr Operating profit: Rs 17,413.60 cr Net profit: Rs 8,856.05 cr

After losses, Tata Steel bounced back to a net profit of Rs 8,856 crore in the last fiscal on an income of Rs 1,20,190 crore. With rising sales, the company plans to prepay debts and complete greenfield projects in India.

The Indian operations' turnover jumped 17 per cent to Rs 29,396 crore, and the highest-ever Ebidta (earning before interest, depreciation, tax and amortisation), at Rs 12,224 crore, was up 25 per cent. The Rs 6,866-crore profit was due to higher volumes, improved product mix and higher realisations. The European division's turnover rose 15 per cent to $17 billion, posting an Ebidta of $943 million. The cost-cutting initiated after the global financial crisis, helped the European division become Ebidta positive. But the long products business continues to face challenges and the company has accordingly announced restructuring. This is expected to result in recurring annual value creation of £250 million, including cost savings of £130 million, says Motilal Oswal Securities.

H.M. Nerurkar, managing director of Tata Steel, says the company is focusing on increasing value-added products and enhancing capacity this fiscal.
Nevin John

5 BHARAT PETROLEUM R.K. Singh, CMD Total income: Rs 1,55,520 cr Operating profit: Rs 5,986.47 cr Net profit: Rs 1,742.06 cr

TIGHT financial flows and volatile crude prices, which slowed the progress of Bharat Petroleum Corporation (BPCL) in 2010-11, will continue to be the biggest challenge this year too. In addition, its operations in Brazil, Mozambique and Indonesia will require dynamic strategies if BPCL is to survive the tough competitive climate.

Chairman and managing director R.K. Singh says, "We have worked out a five-year plan." The focus will be on expanding the marketing and distribution infrastructure, value addition through diversification in petrochemicals, and development of oil and gas fields.

Last year, government interventions helped oil companies, including BPCL. This will help BPCL perform better next year too. D.K. Aggarwal, chairman and managing director, SMC Investments and Advisors, says, "The recent petrol price hike can help oil marketing companies in covering up under-recoveries." Analysts, too, expect BPCL to outperform.

However, international crude oil prices are fluctuating. Also, the government may not be able to hike fuel prices with elections in two states — Uttar Pradesh and Punjab.
M. Rajendran

6 HINDUSTAN PETROLEUM S. Roy Choudhury, CMD Total income: Rs 1,40,238.65 cr Operating profit: Rs 5,028.89 cr Net profit: Rs 1,702.04 cr

HINDUSTAN Petrochemicals Corporation (HPCL) is expanding into new areas and bigger ventures, but faces hurdles. It would need huge financial support and subsidy, primarily to tide over the liquidity crunch and fluctuating international crude oil prices. "Asset creation has to yield results. That has not happened (with HPCL)," says Deepak Mahurkar, associate director at PricewaterhouseCoopers.

HPCL is acquiring companies in Australia that have exposure in coal bed methane. It is targeting a refining capacity of 42 million tonnes (MT) by 2016-17 — a three-fold jump from the present 14.8 MT from Mumbai and Vizag refineries. But this will still be lower than capacities of Indian Oil Corporation (64.7 MT) and Reliance Industries (60 MT). Says Mahurkar: "This will be critical for HPCL's growth and joint venture opportunities." HPCL's plans to explore new areas has not got much support from the government as the economy slows down. Moreover, an upward movement in the currency exchange (as the dollar strengthens) will impact performance, says S. Roy Choudhury, HPCL's chairman and managing director.
M. Rajendran

7 NTPC Arup Roy Choudhury, CMD Total income: Rs 60,072.73 cr Operating profit: Rs 17,604.89 cr Net profit: Rs 9,348.23 cr

INDIA'S largest power utility, National Thermal Power Corporation (NTPC), faces yet another challenging year, after it set benchmarks in production, operation and management last year. Flooded coal mines have hit coal supply to power plants this year. Says Arup Roy Choudhury, chairman and managing director of NTPC, "We need to utilise more of domestic coal. This will keep generation costs low." Recently, NTPC also faced a payment crisis from distributing companies in Delhi, which was resolved at the last moment. Some challenges, for example, coal shortage, will persist.

Last fiscal, NTPC added 2,500 MW to its 31,700 MW generation capacity — the highest in its history. It has worked backwards to improve performance. Awarding projects, which used to take six months, now takes less than three months. One project was awarded in 35 days. To do that, NTPC even laid roads for faster movement of equipment to the site. "Such efforts were never made earlier," says Choudhury.

NTPC claims it has no outstanding dues as on date — a big achievement as it expands into solar and wind energy. In the absence of strong private players, NTPC will play a critical role ahead.
M. Rajendran

8 TATA MOTORS Ravi Kant, vice-chairman Total income: Rs 1,23,865.74 cr Operating profit: Rs 17,246.94 cr Net profit: Rs 9,220.79 cr

THE magical performance of Jaguar Land Rover (JLR) makes Tata Motors the largest company in the Tata fold in terms of revenue and profit. JLR contributed 61 per cent to consolidated revenue of Rs 1,23,865 crore last fiscal. Revenues grew 33 per cent, while consolidated profit rose 260 per cent to Rs 9,220 crore (85 per cent from JLR). In volume, Land Rover grew 30 per cent in the last fiscal, while Jaguar grew 12 per cent, thanks to China and Russia. According to group chairman Ratan Tata, JLR's market appeal has been growing.

Last fiscal, the net interest cost decreased 8.7 per cent to Rs 2,045 crore, thanks to high interest loans being swapped with low-cost borrowings, and conversion of borrowings to equity. Also, loan swaps and routine payments reduced the gross debt to Rs 32,791 crore (as of 31 March), from Rs 35,108.36 crore a year ago.

Domestic car sales, however, have fallen. In August, Tata Motors sold 16,829 passenger vehicles, down 33 per cent from August 2010. Production at its Sanand plant was suspended for about a fortnight for maintenance and to rationalise inventory. Also, auto analysts say the Nano, Sumo and Safari are struggling.
Nevin John

9 BHARTI AIRTEL Sunil Bharti Mittal, CMD Total income: Rs 59,955.40 cr Operating profit: Rs 20,419.70 cr Net profit: Rs 5,899.20 cr

LAST fiscal, India's largest telecom company, Bharti Airtel, spent $10.7 billion in cash to acquire Zain's African assets, and another Rs 15,600 crore in India on 3G and broadband wireless licences. Its debt jumped 450 per cent to Rs 56,650 crore. Its interest payout went up, and net profit fell 37 per cent. But Bharti Airtel has jumped three ranks to enter the Top 10 list, largely due to 75 per cent growth in its total assets and income when it integrated Zain's African assets. The next growth phase will depend on how it leverages mobile banking in Africa, and the rural voice market and 3G rollout in India. "We adopted a business model that mobile services were not just for the rich, but for the masses," says Akhil Gupta, deputy CEO and managing director of Bharti Enterprises.

Last year, Bharti Airtel decided to focus on youth since they form over 70 per cent of the population in Africa and South Asia, says Gupta. In the past 18 months, Bharti has faced stiff competition from new entrants in India. "Irrational allocation of licences was a challenge and we were forced to take measures to stay afloat in revenue terms," he adds. The recent hike in domestic tariffs could provide some relief.
M. Rajendran

10 HINDALCO INDUSTRIES Debu Bhattacharya, MD Total income: Rs 72,693.59 cr Operating profit: Rs 8,407.08 cr Net profit: Rs 2,879.35 cr

KUMAR Mangalam Birla's bet on Canadian aluminium company Novelis via Hindalco Industries, the non-ferrous metal maker in the Aditya Birla group, seems to have paid off. Last fiscal, Hindalco's consolidated revenue was Rs 72,693 crore, up 24 per cent — $10.6 billion was from Novelis. Its competitive edge was Novelis, says Prasad Baji, senior vice-president, Edelweiss Capital.

Debu Bhattacharya, Hindalco's managing director, says, last year, there was a strong pricing environment for commodities driven by global economic recovery. "But the flip side was a sharp rally in crude and energy prices giving rise to incessant cost pressures," he adds.

In aluminium production, Hindalco may not be near the world's top names. But Novelis is world's largest producer of rolled aluminum, and Hindalco looks to increase the production to 1.7 million tonnes (MT) with 6 MT alumina refining facility in the next 4-5 years. HSBC Global Research analysts say timely completion of projects will be key to earnings growth. Hindalco raised Rs 7,875 crore to complete Mahan aluminium plant's financial closure, and tied up debt of Rs 4,906 crore for the Utkal project.
Nevin John

(This story was published in Businessworld Issue Dated 24-10-2011)