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The Elite Company

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For the third year in a row, India’s largest petroleum refiner Reliance Industries (RIL) has topped the BW Real 500, piggybacking on the value of its assets — refineries in Jamnagar, petrochemical plants and natural gas blocks on the Andhra Pradesh coast. Though its revenues are behind Indian Oil Corporation’s (IOC), its assets are valued Rs 1 lakh crore higher.

FY 2011-12 was tough for RIL. Its capex for the Krishna Godavari (KG) D6 block failed to get the government’s nod. Its profits dropped 1 per cent and revenue from oil and gas dipped 25 per cent. But overall revenues climbed 35.74 per cent, thanks to a resilient fuel demand from developed economies. RIL’s exports went up 41.8 per cent, to Rs 2,08,042 crore. With a record crude throughput at 67.6 million tonnes, the company achieved an average gross refining margin of $8.6 a barrel, due to its modern refineries which can process all types of crude.
Mukesh Ambani, chairman
Total income: Rs 3,64,695 cr
Operating profit: Rs 40,702 cr
Net profit: Rs 19,717 cr
RIL’s bugbear is, however, volumes. Gas production from KG-D6 went down to 34 million metric standard cubic metres a day (mmscmd) — the target was 80 mmscmd — due to reservoir complexities and water ingress in the producing fields, explained Mukesh Ambani, RIL chairman. Analysts with RBS add that RIL’s core business is also under pressure due to weakening margins in refining and petrochemicals.

RIL now plans to develop more fields in KG-D6, which could add about 25 mmscmd. According to Ambani, geopolitical changes leading to supply shortages and price dislocations added to the challenges. But RIL has grown stronger by expanding its asset base and significantly improving its financial position.

The bright spots for RIL, as Ambani announced at the last shareholder meet, will be expansion plans in retail and telecom.

Nevin John

Some things remain the same. Indian Oil Corporation (IOC) continues to hog the top spot in terms of total income, clocking Rs 4,13,063 crore. However, during the last fiscal IOC has seen profits fall 47 per cent to Rs 4,265 crore, because of entry tax imposed by Uttar Pradesh on crude oil received at the Mathura refinery and a rising interest burden.

Borrowing costs have risen primarily because of delay in receiving funds from the government for under-recoveries. IOC chairman R.S. Butola says: “Given that crude oil prices are prevailing at over $110 a barrel, our working capital needs have gone up. This, coupled with the delays in receipt of funds from the government for under-recoveries, poses a challenge to tap funds from the market at optimised costs.”

R.S. Butola, CMD
Total income: Rs 4,13,063.63 cr
Operating profit: Rs 22,960.73 cr
Net profit: Rs 4,265.27 cr

(BW pic by Tribhuwan Sharma)
Since global refining margins are expected to be under pressure, barring short periods, these added costs cause an avoidable burden on IOC’s profitability. During the previous fiscal year, IOC got Rs 45,484 crore as subsidy from the government to make up for losses incurred on sale of diesel, domestic cooking gas and kerosene below cost during FY12. However, a large chunk of this money came in the last quarter. The recent diesel hike has provided some relief. Yet, the under-recovery on diesel is still at Rs 11.65 per litre.

But, the uncertainties in the revenue streams and mounting under-recoveries did not hit IOC’s expansion plans. During the year, IOC invested Rs 11,000 crore as capex, a 12.6 per cent increase over 2010-11. Another focus area has been the processing of heavier and cheaper crude oil, besides processing high sulphur crude oils (49.2 per cent in 2011-12 compared to 45.1 per cent in 2010-11) to reduce input costs. Says Butola: “This is a key focus and will call for significant investments in the future as we increase our capability to process heavier and cheaper crudes.”

Anup Jayaram

Oil & Natural Gas Corporation (ONGC) continues to be India’s most profitable company and retains its rank at No. 3 on the BW Real 500 list. And with good reason. The company’s profits rose 24.6 per cent to Rs 28,429 crore in 2011-12 despite production falling 3 per cent to 23.7 million tonnes, primarily due to higher prices.

The company currently operates 110 oil and natural gas fields, which account for as mush as 72 per cent of India’s total oil production and 54 per cent of the gas output. Almost 73 per cent of its production comes from 15 oilfields.

Sudhir Vasudeva, CMD
Total income: Rs 1,76,950.73 cr
Operating profit: Rs 53,030.89 cr
Net profit: Rs 28,428.91 cr

(BW pic by Tribhuwan Sharma)
However, the challenge is that ONGC needs to maintain steady production from these 15 fields, which are over 35 years old. With this in mind, ONGC has initiated enhanced oil recovery and improved oil recovery (EOR and IOR) schemes, and committed an investment of Rs 12,000 crore.

Another focus area has been to develop marginal fields. For this, it has invested Rs 26,000 crore on developing 37 such fields across 13 projects. ONGC is targeting 110 million tonnes of additional production from this investment.

ONGC has a lot to cope with in its international investments as well. ONGC Videsh or OVL (ONGC’s fully-owned subsidiary) has invested $14 billion in 13 properties across 15 countries. This accounts for 8.75 million tonnes of oil equivalent every year. However, it has been facing problems in Sudan and Syria.
Sudhir Vasudeva, CMD, ONGC, says: “We have no idea how long it will take to resolve issues in Syria. We have, in fact, already invoked force majeure there. We are not even accounting for these investments because we don’t have any revenue from there.”

Problems notwithstanding, ONGC hopes to double its growth and produce 130 million tonnes by 2030. Of that 70 million tonnes will be produced domestically while the rest will come through OVL’s investments.   

Chhavi Tyagi

Tata Motors’ bets are finally paying off. Many called its $2.3-billion acquisition of Jaguar-Land Rover (JLR) from Ford in 2008 “playing with fire”. Tata’s answer? A profit after tax of $2.3 billion in FY12. “The cumulative PAT in the past three financial years has been over $3.9 billion,” says a Tata Motors executive.

While JLR posted a turnover of Rs 1,03,635 crore, up 47.4 per cent from the previous year, Tata Motors’ Indian division’s turnover was Rs 59,220.94 crore. JLR’s sales went up 29.1 per cent to 314,433, mostly due to retail volumes growing in markets such as China, say experts. The launch of the Range Rover Evoque in September 2011, with a worldwide rollout in December, created ripples with 60,000 units sold in just the first six months. The company also plans to launch Jaguar F-Type in all markets.
Ravi Kant, vice-chairman
Total income: Rs 1,66,316.26 cr
Operating profit: Rs 22,973.01 cr
Net profit: Rs 13,573.91 cr

(BW Archive)
Sales of existing models also grew. Profitability went up thanks to a favourable exchange rate. Further, improved efficiency in material and manufacturing costs supported operational performance. As a result, earnings before interest, taxes, depreciation and amortisation, and profit before tax grew by 33 per cent and 35 per cent, respectively. The consolidated profit rose by 47 per cent to Rs 13,573.91 crore, even though standalone profit dropped.

Tata Motors’ unit sales stood at 1,269,483, 17.7 per cent higher than the previous year. The LCV segment continued to drive performance, growing 23.5 per cent in a year, owing to a ramp-up in micro-trucks — Ace Zip and Magic Iris. Karl Slym, Tata Motors’ new managing director, says the aim is to improve resource utilisation to increase output. “We are trying to harness our capabilities.”

According to Ratan Tata, chairman of Tata group, Tata Motors’ dominance will be challenged by international brands and so the company is developing a new line of very competitive, fuel-efficient vehicles.

Nevin John

Bharat Petroleum Corporation (BPCL) did everything right during the last financial year to post a record performance, but could not translate that into big profits.

Customer-centric initiatives such as ‘In & Out’ stores, loyalty programmes and automated  retail outlets; and operational efficiencies in refining and marketing helped BPCL post a record consolidated sales turnover of Rs 2.13 lakh crore in 2011–12. Its refinery throughput was a record 26.72 million metric tonnes. Sales volumes of petroleum products increased by 6.4 per cent over the previous year.

“This was made possible by the highest capacity utilisation of 111 per cent at the Mumbai refinery and over 100 per cent at the Kochi refinery,” says chairman and managing director R.K. Singh.

R.K. Singh, CMD
Total income: Rs 2,13,596.23 cr
Operating profit: Rs 6,269.32 cr
Net profit: Rs 851.28 cr

(BW pic by Subhabrata Das)
BPCL’s retail business grew by 10 per cent to corner a market share of 26.7 per cent, thanks to the 1,000 new outlets started during the financial year. Another highlight for the company during the last fiscal was the commissioning of its subsidiary, Bharat-Oman oil refinery, and oil and gas finds in the Cauvery basin and in Mozambique.

But despite those efforts, its consolidated net profit halved from Rs 1,742 crore in the previous year. BPCL’s profitability and cash flow were affected by the oil subsidy-sharing scheme, note analysts.

Harshad Borawake and Deepak Dult, analysts with financial services company Motilal Oswal, in their 28 May report, have this to say about the subsidy-sharing scheme: “Though petrol is theoretically de-regulated, oil marketing companies make losses on petrol sales as they are not able to price it freely due to indirect pressure from the government. While the companies demanded compensation for losses on petrol, the government did not provide any.”

P.B. Jayakumar

When the going gets tough, the tough get going. This is exactly what Tata Steel has done in the past few years. The Corus acquisition was not as sweet as the company would have liked it to be.

This is one of the reasons why despite an 11 per cent growth in assets and total income, the company slipped two notches in the BW 500 ranking to No. 6 from last year’s No. 4. While it is small consolation that another Tata group company, Tata Motors, has moved up, Tata Steel’s financial health is under tremendous pressure. For FY12, Tata Steel reported a 44 per cent decline in net profit to Rs 4,948 crore, compared to Rs 8,856 crore in FY11.

H.M. Nerurkar, MD
Total income Rs 1,34,523.20 cr
Operating profit Rs 13,989.82 cr
Net profit Rs 4,948.52 cr

(BW pic by Ritesh Sharma)
So what has the company done in the past one year to tackle the uncertain economic environment? For one, it focused its sights on India for growth and began reducing its dependency on Europe.

Says Koushik Chatterjee, chief financial officer, Tata Steel: “If you look from last year’s perspective, one of the biggest strategy levers is developing a strong base of business and footprint in India. In the past few years, we have looked for organic growth in India. By the end of FY13, our Jamshedpur plant will have a 10 million tonne capacity and the focus will be to add capacity in Orissa.”

Why India? Chatterjee explains: “In the first five months of the financial year, India imported 40 per cent more steel than the previous year. This has come at a time when growth levels are moderate. This means the steel consumption story is robust.”

Tata Steel’s long-term plan is that as India becomes bigger and more profitable, the company will have the ability to take on debt and invest in capex. Says Chatterjee, “Results don’t come in quarters but in years and that is what is happening. So we are balancing growth (in India) on one side and restructuring (Europe) on the other.”

Mahesh Nayak


Hindustan Petroleum Corporation (HPCL) did well to ride  the 4.9 per cent growth in consumption of petroleum products in India during the last fiscal. The oil refining firm’s gross sales increased by 32 per cent in 2011–12. Retail sales of petrol and diesel increased by 7.5 per cent and 14.7 per cent, respectively, during the year. Total sales of petroleum products were at 29.48 million metric tonnes (mmt), 2.45 mmt higher than the previous year, ensuring HPCL accounted for one-fourth of the country’s retail demand for petrol, diesel and LPG.

S. Roy Choudhury, CMD
Total income Rs 1,86,333.94 cr
Operating profit Rs 5,185.33 cr
Net profit Rs 175.96 cr
S. Roy Choudhury, chairman and managing director, says the growth was because of optimum capacity utilisation of its refineries at Visakhapatnam and Mumbai. The two posted a combined refining throughput of 16.19 mmt, with a capacity utilisation of 109 per cent. As close to 68 per cent of HPCL’s revenue is from its retail business, customer-centric initiatives, such as outlet-specific schemes, helped the firm grow in the past year. Standard operating practices to improve services were introduced at 2,750 outlets. Product upgradation programmes and operational cost savings were implemented during the year.

However, consolidated net profit for the year was down to Rs 175.96 crore, against Rs 1,701 crore in 2011. Choudhary attributes this to higher interest costs which increased to Rs 2,139 crore from Rs 892 crore in 2011, largely due to delayed compensation for increased under-recoveries on sale of sensitive petroleum products. HPCL eventually got Rs 18,342.77 crore as government subsidy to make up for 60 per cent of the revenue it lost on selling diesel, domestic LPG and kerosene, and another Rs 12,079.75 crore from upstream oil firms such as ONGC.

P.B. Jayakumar

Bottlenecks in the power sector notwithstanding, NTPC has managed to stay in the BW Real 500 top 10. The country’s largest utility saw an increase in its capacity addition from 2,500 MW in FY11 to 2,820 MW in FY12 (34,810 MW is the total capacity). This translated into an increase in net profit from Rs 9,348.23 crore in 2010-11 to Rs 9,814.66 crore in the last fiscal. NTPC’s internal accruals are sufficient to finance its equity needs and its ‘most favoured borrower’ status enables it to raise debt at competitive rates. The company has already tied up domestic loans to the tune of Rs 57,229 crore.

Arup Roy Choudhury, CMD
Total income Rs 69,390.79 cr
Operating profit Rs 18,417.76 cr
Net profit Rs 9,814.66 cr

(BW pic by Bivash Banerjee)
The company’s decision to import coal directly led to 20 per cent cost savings. “Earlier, we were importing coal through MMTC and STC, which raised our cost by 8-10 per cent, due to which the state electricity boards were having trouble in paying us back. However, by importing directly we were able to source coal cheaper,” says Arup Roy Choudhury, CMD.

But coal shortages and land acquisition issues in states such as Orissa and Bihar have impacted NTPC in terms of lowering its capacity-addition targets. The company has been experiencing problems in getting coal for its future projects and has had to carry over plans to add 11,000 MW to the 13th Plan. Besides, land issues have stalled projects to the tune of 4,520 MW.

The recent restructuring scheme announced to bail out distribution utilities comes as a breather for NTPC, which faced defaults from distribution companies in Delhi.

Another positive is its entry into the distribution arena through its wholly owned subsidiary, NTPC Electric Supply Company Limited

Chavvi Tyagi

India’s largest telecom company bharti airtel has managed to retain its top 10 spot in the BW Real 500. In 2011–12, Bharti had an accrued debt of Rs 73,640 crore, a 12 per cent increase over the Rs 65,600 crore in 2010–11. This was the fallout of the $10.7-billion spent on acquiring the assets of Zain Africa during 2010–11. It had also shelled out another Rs 15,600 crore for 3G and broadband wireless access licences in mid-2010.

According to Akhil Gupta, deputy group CEO and managing director of Bharti Enterprises: “The net debt to EBITDA (earnings before interest, taxes, depreciation, and amortisation) ratio has fallen from 3.05 to 2.55 post-Africa acquisition. Both revenues and EBITDA in Africa have been rising every quarter.”

Sunil Bharti Mittal, CMD
Total income Rs 71,770.10 cr
Operating profit Rs 23,976.60 cr
Net profit Rs 4,265.50 cr

(BW pic by Tribhuwan Sharma)
Being in a competitive market, where telecom tariffs have all but bottomed out, Bharti has seen its profits fall quarter on quarter for over two years despite rising revenues.

During the financial year, its profits fell almost 28 per cent. Gupta attributes this to amortisation and interest payments on the investments made in 3G and 4G services.

The other problem area has been the initial slow uptake of 3G services in India, largely due to telcos’ inability to expand 3G coverage fast enough. Recently, the company reduced 3G tariffs, which has led to an uptick in the 3G subscriber base. Says Gupta, “We are on the threshold of a data revolution. During the last quarter of the last fiscal and the first quarter of the present fiscal, our data revenues have risen 26 per cent.”
But the big positive for Bharti and the telecommunications industry is the move towards auction of spectrum in the 1,800 MHz band and clarity on telecom policy.

Anup Jayaram

In the last edition of the BW Real 500, Coal India (CIL) was the surprise entry at No. 14. It was the highest ever entry into the list. A year since its public listing, CIL has done even better. It has jumped to 10th place — primarily on the back of a 26 per cent increase in its total income and assets. Production grew by 8.5 per cent, that is, 191.57 million tonnes of coal over the past six months. In terms of financials, the monopoly’s profit after tax grew by 36 per cent to Rs 14,788.21 crore compared to FY11.

S. Narsing Rao, chairman
Total income Rs 82,477.47 cr
Operating profit Rs 23,280.26 cr
Net profit Rs 14,788.21 cr

With S. Narsing Rao taking charge in April 2012, after about a year of CIL being virtually rudderless, things are looking better. Even the company’s independent directors seem to have woken up. They have been actively blocking proposals like the new fuel supply agreements (FSA) and pooling of prices for imported coal, which could adversely affect CIL’s balance sheet.

In April 2012, the company was slapped with a presidential directive to sign FSAs assuring 80 per cent committed coal supply to power plants. The board has fought to keep penalties as low as possible but consumer resistance could make the company opt for the old penalty structure of 5-40 per cent. Rao admits that providing 80 per cent coal would be an uphill task, given current production. On price pooling, he says: “It will be strictly revenue neutral if, at all, it happens.”

The company is targeting 464 million tonnes in production this year. But the lack of railway infrastructure is one of the biggest bottlenecks CIL faces. So, it is a key focus area now. Rao says that they will invest all of the Rs 7,500 crore required for this. With a monopoly over 52,546 million tonnes of proven geological reserves, maintaining profitability should not be a tough task.

Yashodhara Dasgupta

(This story was published in Businessworld Issue Dated 29-10-2012)