RIL's annual results show very low growth in both the top as well as the bottomline. And why not? With commodity prices down to their 30 year lows and not much cushion from the depreciation of the rupee, the results can hardly be otherwise.

Sales increased by 9 per cent to Rs 14,553 crore and the bottomline rose by a mere 3 per cent to Rs 1708 crore, far below the market expectations. Other income as a proportion of PBT rose from 19 per cent to 35 per cent, showing a poorer quality of income.

A Reuters poll conducted on the eve of the results showed that analysts' profit projections varied from 8 per cent to 17 per cent. Yet the RIL scrip fell by a mere Rs 4 to close at Rs 125 on the BSE. One of the reasons for the minimal fall in the scrip is that the damage to the storage systems and the plant shutdown during the quarter was an extraordinarily loss, which will soon be recouped by the insurance money. Yet another reason could be Anil Ambani's statement that the capex inJamnagar is more or less complete. Even investments in RPL are complete. The future capex will be in the form of mordernisation programmes at Patalganga - where some plants are 20 years old. But these investments would be miniscule compared to the earlier capex at Hazira.

The positive impact of this would be higher cash flow for share-holders, basically as the capital work in progress will stop increasing and projects that get commissioned would generate returns. Put simply, within one year all of the total assets at Rs 28,000 crore would start yielding returns.

Coming back to the annual results-- the 9 per cent growth in sales is due to the combined effect of a 16 per cent drop in average prices and higher volume sales of 26 per cent.

A simple calculation would show that on an average margins per tonne for the company have fallen by 16 per cent over the year. However the total volume produced increased by 26 per cent to 7.06 million tonnes - resulting in additional volume production of 1.45 milliontonnes- completely offsetting the drop in realisations.

Out of the 1.45 million tonne volume growth seen, the bulk of it was in fibre intermediates, where new capacities were commissioned. Assuming full capacity utilisation, the total additional production of PTA and MEG would had been 0.4 million tonnes. The additional polymers sold represent only 50,000 tonnes. The remaining additional volumes have come from higher sales of polyesters, PET fibres and also through higher volumes of crude oil and gas.

The problem for the company has been that over the last two years the volume increases have come in products which have shown the maximum price drop. MEG and PTA prices dropped by 21 per cent and 42 per cent over the two-year period. The same is true for polyester products which have an extremely good growth in demand of 16 per cent- but the same cannot be said of prices.

Inter-divsional sales were at Rs 1929 crore compared to last year's figure of Rs 1893 crore. The start of most of projects in Jamnagarhas increased depreciation charges and reduced the interest capitalised. The interest capitalised is at Rs 363 crore- resulting in higher interest outgo by Rs 225 crore. Higher interest and depreciation have negated the higher other income. In the future, while the amounts of interest and depreciation would not increase, earnings would go up on account of cash flows accruing from new projects.

The poor fourth quarter results--( the worst quarter of 1998-99- sales of Rs 3600 crore and net profit Rs 381 crore) should also be viewed against the damage in SMR systems resulting in partial shut down of the plant. Also the realisations were the lowest in the entire year. Tax too was paid in the fourth quarter--Rs 30 crore.

Skeptics can still doubt the sustainibility of the recent increases in product prices. But it is quite possible for the company to achieve 16 per cent growth in polyester and 10-12 per cent growth in polymers in year 2000 and achieve volumes of 9 million tonne in 2001. With a furthur lee-wayof 10- 15 per cent of margins at the existing prices the company should definitely post much higher earnings growth next fiscal.

EMCEE (with contributions from Manish Saxena)