 Namaste. In last few sessions, we are discussing financial statement analysis. Particularly in the last session, we have discussed a case of TCS where we have little bit gone beyond financial analysis. We have also taken other information and have calculated the ratios for TCS. In the current session and in the next session, we are going to take up reliance industries limited. We know it is a premier listed company. It is a biggest listed company in India in terms of its market capitalization. So, we will try to analyze the company on different basis. The type of analysis which we are doing in portfolio management parlance, this is known as fundamental analysis. There are two types of analysis, one is fundamental other is technical. In technical analysis, the price data of the company, the volume, the movements of prices, the charts all these things are studied. Whereas, in fundamental analysis, the fundamentals of the company are studied which will mainly involve the financial statements and other data about the company. This part of fundamental analysis is known as company analysis. Then there is a study of industry or the sector in which the company is operating that is known as industry analysis. And the third part is known as economy analysis, where the whole of the country or whole of the economy is studied. Now all these three factors impact the performance of the company. Of course, we will not be able to go into details of industry or economy analysis, but we will try to look at how to do company analysis, mainly based on the ratios. So, let us now look at the reliance. You know that the MD CEO and the chairman is Mukesh Ambani and the company secretary is K Sethuram. The auditors are Chaturvedi and Shah. This is some details, face value of the company is rupees 10. The price is rupees 1255. This is in May 2019. The percentage change during the week etc. is given. The market cap is 3161428 in terms of rupees millions. The volume you can see is fairly high which shows that the company shares are very liquid. The number of shares are 6503 millions. Now, let us go to the shareholding pattern. Again it is an Indian company. The percentage of shareholding of promoters is 45 percent. It belongs to Mukesh Ambani group. Indian institutions have about 12 percent. Foreign institutional investors 18 percent. They have issued securities abroad. That is why ADR or GDR is 3.2 percent. Free float is 20 percent. What is a free float? That means these are the shares which are freely traded in the market which is about 20 percent. The number of shareholders are given. I think this is the largest number for any company in India 27,90,000. The percentage of shares placed by promoters is 0 percent. Now, let us look at the stock market data. This is the high and low prices for last 5 years. Average price is also given for last 5 years. The shares outstanding at the end of year in terms of millions is given. Do you see any movement in the number of shares? Yes, if you look at the last 2 years, there is a major rise from 2958 to 5921. And that is because of the fresh issue of bonus shares. So, they have given bonus esophage, conversion, etc. So, every year some slight amount of esophage are given. And this year it looks like major rise in the share because of the bonus. Average market capitalization over the period is also given. The number of employees are pretty high in terms of 1000. So, it is 23,000 employees and now it is 187,000 employees. Now, the total salary over a period of time is given. I think this needs a bit of correction, the number of employees. So, we will do the correction in the number of employees. Now, the net sales, the net sales data over the period you can see that right from March 14, in fact, the net sales have slightly gone down and in the last year again the net sales have increased. The other income is pretty stable. The total revenue went down in first 3 years and then again it has gone up. Understand that they are in oil business. So, oil prices fluctuate, their sales are also fluctuating. The gross profits surprisingly show a pretty stable sign. The gross profits have more or less increased in all the years except in last year they decreased a bit and again they have jumped up to 544. Depreciation is a substantial amount. Why it is high compared to that in TCS? Mainly because it is a manufacturing company, they have got vast amount of fixed assets. So, depreciation is 112, now it has increased to 167. Interest cost is also high and it has gone up substantially. Profit before tax is increasing steadily. Minority interest is also pretty high and this minority interest is because of the shareholding of other people in their subsidiaries. There is an extraordinary income in March 14, there is no extraordinary income in any other year. Taxes, you can see last 2 years the taxes have increased and the profit after tax has also increased more or less consistently. The dividend figures are given over last some years. So, profit after tax and we have taken estimated figures of dividend for all the years just for our calculation sake. So, this is their income data. Now, using this we can calculate certain important ratios. The first one is gross margin ratio. So, what is the formula do you remember? It is gross profit divided by sales. So, it is 8% for March 14. Please calculate it with me for all the years. So, it becomes 8, then 9, then 17, 15 and 13. So, you can see that in March 16, they were sorry in March yeah, March 16 they were able to significantly increase their gross profit margin. Overall, they have a good margin although it is changing over a period of time. They are into several businesses, but mainly in oil refining. So, maybe the changes in the oil prices could be responsible for changes in the gross margin. The next is EBITDA. Now, what is the full form of EBITDA? Earning before depreciation, interest, tax and amortization. This is a cash operating profit. Now, we have been given gross profit which is almost like a operating profit and we have also been given profit before tax. So, in profit before tax, let us add interest and depreciation to get EBITDA. PBT add interest, add depreciation. This is the EBITDA. We will divide it by net sales. So, it is about 10% in March 14. Over a period of time, it has increased slowly from 9 to 20 and then it is more or less stagnant. Slightly it has gone down. Now, this is a very important figure to know the cash generated from their operating profits. Now, the next one is net profit margin. You all know the formula net profit upon sales. But here instead of sales, we would take the total revenues. So, net profit was 5%, went up to 10%, is now 8.71%. As we know mainly because of gross margins, but it also takes into account other income and other figures. Now, let us go to balance sheet data. Now, last time we had studied TCS, but this is important and more interesting because this is a manufacturing company which has more figures because it invests in variety of types of assets. Now, you can see that their current assets which actually went down and again have gone up. Current liabilities are pretty high. If you look at the ratio, you will realize that their current liabilities are much higher than current assets in March 18. Inventory as a days because being a manufacturing company has to maintain lot of inventory, it has increased from 48 to 64 and again it went down to 56. Dators are very low 8, 5, 6, 10 and 16. This is in number of days. So, you will realize that their credit policies are very strict. They are selling almost on cash basis or with a very minimum credit, but slightly it has gone up to 16 days now. Net fixed assets, they are having vast quantum of fixed assets and there is a consistent increase in the fixed assets which is 5909 now. Share capital has been constant more or less, but in the last year it has gone up. Free reserves are pretty high amount. Free reserves are high because consistently they are making good amount of profits. Net worth is also reasonably high. Long term debt, being a manufacturing company, it is not a zero debt company like PCS. They have a high long term debt although the debt equity ratio is not very high. We will just calculate the ratio now. Total assets, they are nearly doubled over a period of 5 years. Now, let us calculate two important ratios that is debt equity and current ratio. So, you know the formula in debt equity it is debt upon equity. So, long term debt divided by net worth 0.50 either it can be expressed as a percent or just as a fraction. This time let us just keep it as a fraction. So, it is 0.51, signifying that for 1 rupee of equity 50 pence is a amount of long term debt. If you compare all the 5 years then debt equity ratio increased a bit to 0.61. It has again gone down now till March 18. Now, current ratio you know it is current assets divided by current liabilities. It was pretty high 1.31 and now has in decreased substantially to 0.59. Particularly, you see that because of rise in the current liabilities the current ratio is falling. Now, if you remember we had discussed of standard ratio of 2 is to 1. Reliance industry has much lesser current ratio than the standard ratio. This could be a bit of problematic as far as the liquidity is concerned although it is a very big company with a high credit rating. So, they are able to manage even with lesser current assets. Particularly, in the last years there is last 2 years there is a remarkable increase in current liabilities maybe that needs to be further studied. Now, in the third part cash flow is given you can see in the last year there is a significant increase in the cash from operations. Cash from investments is more or less maintained although in the March 14 it was significantly negative which is a positive sign, but in most of the years RIL has been able to make some or other investment. Financial activity related cash flow also has been more or less constant though there are few fluctuations but compared to the total size it is not very high and the net cash flow was minus 160 then it became minus 220 and in the last year it is 1 to 660. Now, let us calculate some of the combined ratios. The first one is interest coverage ratio. Now, what is the formula? Do you remember? We see how better the interest is covered. So, how many times they have earning to pay interest? Interest in the denominator and profits in the numerator. So, you will take which profit in the numerator? Will you take PAT? No, because we have to take profit before interest and taxes from that amount we can pay interest. So, let us calculate PBIT we have been given PBT add interest to that we will get PBIT. This is the profit available for paying interest divided by interest. So, you get 8.28. So, there is a fair coverage although they have got lot of interest payments since their profitability is very high it is covered 8 times. The coverage increase now it has slightly gone down. The next one are the efficiency related ratios. We have just considered one ratio here that is sales to fixed assets ratio. So, it shows how efficiently you are utilizing your fixed assets to generate sales. So, sales divided by fixed assets. Since this is operating related we are mainly considering only net sales and not taking total revenue. So, what do you see here? There is a serious fall in the ratio. It was 1.81 the ratio has fallen particularly from March 16 and then it has become stagnant it is 0.66. If you look carefully their fixed assets have increased substantially without much increase in the sales. In fact, sales went down and now the sales are steadily rising. But it is a very complex company. So, we cannot directly know anything they might be constructing new fixed assets. But the current data as of available right now shows that the efficiency of utilization has somewhat gone down. Now return on assets popularly known as ROTA or ROTA where we will try to calculate how the total assets are used to generate profits. So, we will take PAT upon total assets, PAT divided by total assets. So, you get 0.52. So, you can see 0.05 and if you convert it in percentage then it is more meaningful. So, 5 percent was the return it has gone down to 4.42 it is not a much of a fall but slight fall in the return on total assets. The next one is return on equity. So, equity means owner's funds and what profits they are able to generate. So, PAT upon net worth. So, 11.32 percent was the return and now it has more or less stagnant it has become 12.29. So, if you remember TCS this return on equity is somewhat lower for reliance. Now, the next one is return on capital popularly known as ROCE or sometimes called as ROI where we will take the total return and in the denominator take the total funds debt plus equity. So, do you remember formula? In the numerator we will take PBT add back interest divided by long term debt plus equity. So, 10.61 percent. In case of TCS it was almost a zero debt company very low debt but reliance being a manufacturing company has a reasonable quantum of debt. So, you can see the return on capital is slightly lower and now over a period of time the return has gone up to 13 percent. Keep in mind that it is interesting to study manufacturing because you get debt plus equity and we have discussed about capital structure. If you in your capital structure there is a higher quantum of debt the return tends to increase which is known as trading on equity. Now, you can see here that company has somewhat been able to improve their return on capital by going for some level of debt. But in case of TCS if you remember the return on capital was much higher because of the effect of tax. Now, the next is net working capital to total sales. So, working capital is CA minus CL divided by sales 0.08 you can also take it as a percentage that means about 8 percent of the capital of the sales is the net working capital. You can see this is very interesting it has moved from 8 percent to minus 32 percent. Now, what could be the reason because their current liabilities have increased substantially. So, look at the current assets and liabilities now the current liabilities are much more than current assets. So, they are into a negative working capital scenario that is a reason why the ratio has turned negative in last 3 years. So, really interesting ratio it was 8 percent then became less than 1 percent and it is negative in last 3 years. If you look at current ratio you will see it was from 1.31 to 0.59 the same impact was in terms of sales if you look at you can get it from this ratio getting it. So, we will stop here in the next session we will continue with the calculation of the remaining ratios. Namaste.