Dear Fellow Shareowners,
I am delighted to write you to report yet another year of outstanding
achievements for our energy and materials businesses. Despite
persisting global economic uncertainty, we have delivered the best
operating and financial performance in our history.
Our new projects in the hydrocarbons and digital services businesses
have made significant progress. We have invested over Rs,1,12,000 crore
(US billion) in FY 2015-16, the highest-ever by any corporate in
Indian history. This large investment spread across all our businesses
will create sustained and significant value for our stakeholders. As we
near the end of our largest capital expenditure cycle, we are focused
on ensuring a smooth start-up and stabilisation of the new growth
platforms across our hydrocarbon and consumer businesses.
Global economic activity remained muted during the year as oil prices
remained soft. The oversupply situation continued as oil producing
countries vied for market share. Emerging markets dependent on Chinese
growth were impacted as China moves from an infrastructure and export
economy to a consumption based economy. Despite these macro headwinds,
India was resilient and overtook China''s growth rate to become the
world''s fastest growing major economy. However, the Indian economy too
faced challenges from slow agricultural growth with two consecutive
poor monsoons and sharp contraction in exports due to weak global
demand and lower commodity prices.
Against this backdrop, Reliance recorded its highest-ever consolidated
net profit of Rs,27,630 crore (US.2 billion) during the year, a
growth of 17.2% y-o-y. Strong operating performance from the refining
and petrochemicals business led to higher operating profits (PBDIT),
which increased by 14.2% on a y-o-y basis to Rs,52,503 crore (US.9
billion). The benefits of low crude oil and energy prices for our
downstream businesses clearly outweigh the impact of these factors on
our upstream segment, reflecting in the record earnings for the year.
This underscores the robustness of our integrated model and quality of
assets which deliver strong operating cash flows in a challenging
The global oil demand is expected to grow by 1.4 million b/d in CY 2016
and probably by 1.3 million b/d in CY 2017. This is on the back of 1.8
million b/d of demand growth recorded during CY 2015. This cumulative
growth of over 4 million b/d of global oil demand over three successive
years bodes well for the refining industry. The demand growth for all
our key products in the refining and petrochemicals business remained
robust in India. Oil demand in India grew by 10.9%, the highest growth
rate seen in the past 15 years. This was led by strong growth of 14.1%
in gasoline, 7.5% in diesel, 8.8% in jet kerosene and 20.7% in naphtha.
The petrochemical product demand too remained above long-term averages.
Indian polymer market experienced growth rate of 15%, surpassing China
to become the fastest growing polymer market. Polyester demand growth
sustained at 5% for the year.
Refining and Marketing
Reliance''s world-class refining infrastructure at Jamnagar enabled us
to deliver a very strong performance despite the turbulence in the
energy sector. EBIT from refining business increased by 49.1% y-o-y to
Rs,23,598 crore. EBIT margins expanded from 4.7% in FY 2014-15 to 10%
in FY 2015-16. Our gross refining margins stood at US.8/bbl in FY
2015-16, the highest in the last seven years and significantly
outperformed the Singapore benchmark.
Our refineries benefited from robust growth in global oil product
demand and over supplied oil markets. Transportation fuels benefited
the most, with gasoline the key growth driver. Gasoline cracks were
seen at historic high levels during the year. The refining business was
effectively supported by a robust risk management framework which is an
integral part of the operations.
Leveraging the flexibility provided by our refining assets at Jamnagar,
we were able to optimise our crude and product slate to capture higher
margins from light distillates. Our refineries processed new grades of
crude to make use of advantaged feedstock available at significant
This allowed us to capture the benefits of a widening differential
between light and heavy crude oil.
Staying true to our commitment to growth, we aim to achieve significant
long-term energy cost reduction with the completion of the petcoke
gasification project, where low value petroleum coke will be used to
produce high value syngas to increase Jamnagar''s energy
self-sufficiency. Furthermore, we continue to re-commission our
petroleum retail network which has now expanded to over 1,000 outlets.
Reliance''s petrochemical division continued to deliver sustained
growth. Demand for downstream products increased as lower oil prices
softened end product prices. Reliance''s petrochemicals business has a
wide product portfolio, superior feedstock linkages and serves
high-growth end- markets including automobiles, packaging, consumer
durables, agriculture and infrastructure sector in India. Favourable
demand-supply dynamics were reflected in margin expansion across key
product categories. Overall EBIT margin for the segment expanded by 380
bps to 12.4% for the year.
We made rapid progress in the completion of the new ROGC and aromatics
project. These projects upon completion will add significant volumes
to our polymer business and enhance integration for the polyester
chain. The new cracker will be among the lowest cost producers of
ethylene in the world. We have also made substantial progress in the US
ethane import project, which will lower costs and ensure long- term
feedstock security, flexibility and competitiveness.
In the polyester chain, we added substantial volumes in efforts to
further integrate our business. We now produce 650 KTA of PET at Dahej,
making it the largest bottle-grade PET resin capacity at a single
location globally. To cater to the large PET capacity, we also
successfully commissioned PTA facilities of a total capacity of 2.3
MMTPA in Dahej during the year. Our fully integrated polyester business
model allows us to also benefit from inherent logistics and cost
Reliance is confident of placing all our incremental output from the
new projects in the domestic markets to meet India''s growing demand.
Exploration and Production
Low energy prices have created a challenging environment for upstream
business of Reliance. Conserving cash while retaining optionality and
preparedness for ramp-up was accorded a high priority during the year.
Measures were taken in the shale gas business to optimise capital
expenditure and opex through effective production management. The
capital expenditure for US Shale business was cut by 25% on y-o-y
basis. Reliance strategically unlocked significant shareholder value by
monetising its EFS midstream investment for US.07 billion.
On the domestic front, KG D6 production fell due to natural decline in
the producing wells. During the year, Government of India issued new
gas pricing policy which includes marketing and pricing freedom for
production from discoveries in deep water, ultra-deep water and high
pressure- high temperature areas. Both Reliance and its partner B P,
are evaluating the new policy and investment plans to develop
Consumer Businesses – Reliance Retail and Digital Services
In our retail business, we have reached significant milestones over the
past couple of years and continue the high growth trajectory. Reliance
Retail now caters to over 3.5 million customers every week. With over
Rs,20,000 crore of revenue, it is India''s largest retailer and has
sustained a growth rate of 29% CAGR in the last five years. In FY
2015-16, we added 624 new stores taking our total stores to 3,245
stores, spread over 12.8 million square feet and it is currently
operating 3,383 stores. Reliance Fresh has consistently appeared in
the list of most trusted national brands.
The integration of advanced infrastructure built by Jio and physical
retail presence will help us create a differentiated omni-commerce
model for our retail business. We are augmenting reach to customers
through online-offline product assortment across trade channels. These
efforts in building a seamless interface will deliver superior value
proposition for our customers.
As India shifts to a digitally empowered society, we anticipate a
significant demand for devices to connect users to a digital ecosystem.
Keeping this in mind, we have started building the largest distribution
reach for devices in India. We have introduced LYF models of
smartphones and televisions to enable user''s access to the 4G LTE
The next wave of growth in India will be enabled through internet and
data capabilities. Our digital initiative continues to gather speed to
provide anytime, anywhere access to innovative and empowering digital
content, applications and services, thereby propelling India into
global leadership in the digital economy.
We envisage ushering in the era of visuality, where video will
replace voice as the new communication medium.
Our customer offerings are built on four key strategic dimensions, viz.
widest coverage, substantially superior network quality,
transformational data capacity and affordable services. We have made
considerable progress on all of these fronts during the year.
During the year, Reliance Jio moved towards completion of its network
infrastructure as well as business services and platforms. We
on-boarded over 1.5 million test users, who have been using the
services extensively. This has enabled testing of the network, user
applications and services and business platforms. The feedback from
test users is extremely encouraging. The test programme will be
progressively upgraded into commercial operations in the coming months.
In order to further deepen the network coverage, Reliance Jio acquired
spectrum in the 800 MHz band across 13 circles, to become the only
operator with pan India LTE spectrum in both the 800 MHz and 2300 MHz
bands. Reliance Jio also has spectrum in the 1800 MHz band across 18
circles. In addition, Reliance Jio has entered into an agreement for
sharing of spectrum in the 800 MHz band across 21 circles (4 circles
are still awaiting approval). Reliance Jio is the only telecom service
provider using sub-GHz spectrum band for LTE services in the country
today. The combined spectrum footprint across frequency bands provides
significant network capacity and deep in-building coverage for Reliance
At Reliance, we truly believe that empowering people with high quality
internet access will help India progress and move towards a more
knowledge based and connected society.
Robust Balance Sheet
RIL enjoys prime credit ratings as a result of its fiscal prudence and
strong cash flows. During the year, RIL and its subsidiaries tied-up
long-term foreign currency facilities of about US.3 billion. With its
unparalleled access to global debt markets, Reliance successfully
re-priced and re-financed debt instruments thereby reducing interest
cost. This year we concluded the largest financing transaction
globally in the telecom sector supported by K-sure. This was also the
longest tenure telecom financing supported by K-sure.
During the year, we became the first private sector energy company
globally to issue notes backed by the EXIM Bank of the USA. Also, we
are the first energy company globally to issue Formosa Bond. Our
innovative financings earned us various accolades during the year,
including ''Issuer of the Year'' award for 2015 from IFR Asia and ''Best
Corporate Issuer - 2015'' from The Asset.
Governance and Safety
Reliance has always accorded the highest importance to health and
safety in the existing plants and the projects. A fully equipped and
qualified HSE (Health Safety and Environment) organisation has been
provided for each location to govern, document and provide HSE
assurance. The process of first and second party audits continued at
all sites with feedback being provided to the Board of Directors.
To have a better assessment of the business and functional risks and to
monitor risk mitigation effectiveness based on risk evaluation, the
concept of BRAC (Business Risk and Assurance Committee) was introduced
with senior management personnel on the committee.
On the governance front we have put in place a comprehensive Reliance
Management System, a holistic set of management systems, organisational
structures, processes and requirements to enable more evolved
governance and risk assurance framework for Reliance through its three
key core elements: Operating Management System (OMS), Financial
Management System (FMS) and People Management System (PMS).
An integral part of Reliance''s philosophy is its commitment to empower
and enhance the quality of lives of millions of people. During the
year, Reliance Foundation continued to provide accelerated high impact
solutions to India''s multifarious development challenges. Various
efforts of the Foundation have positively impacted several hundreds of
thousands marginal households in areas of health, livelihoods,
education and relief during natural calamities. Our sports initiatives,
aimed at development of youth and reviving the sporting landscape in
the country, reached out to over 2 million school-going children.
During the year, Reliance contributed Rs.652 crore towards CSR
activities, accounting for 2.38% of our profit after tax.
At the close, I would like to thank the entire team at Reliance for an
outstanding year which is reflective of their efforts, dedication and
commitment to success.
I would like to place on record my sincere appreciation to the Board of
Directors for their guidance. I would like to express my gratitude to
all our stakeholders for their continuing faith in Reliance.
With best wishes,
Mukesh D. Ambani
Chairman and Managing Director
July 15, 2016