Re Pref Offer Presentation To Press 22 Feb04

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Re Pref Offer Presentation To Press 22 Feb04

  1. 1. Reliance Energy Ltd. Creating Growth Momentum
  2. 2. Background Reliance Energy is India’s leading private sector utility company Serving over 25 million consumers in substantial areas of Mumbai, Delhi, Goa and Orissa
  3. 3. Background Reliance Energy is India’s leading private sector utility company Powering 2 out of 3 homes in Mumbai, and 1 out of 2 in Delhi
  4. 4. Background Reliance Energy is India’s leading private sector utility company <ul><li>7,500 Schools </li></ul><ul><li>3,000 Hospitals </li></ul><ul><li>250 Theatres </li></ul><ul><li>5 Airports </li></ul><ul><li>130 Railway Stations </li></ul>
  5. 5. Background Reliance Energy is India’s leading private sector utility company <ul><li>Industrial, commercial and residential urban consumers </li></ul>
  6. 6. Background <ul><li>Distributing over 5,000 MW of power – the largest in India </li></ul>Reliance Energy is India’s leading private sector utility company
  7. 7. Background Reliance Energy is India’s leading private sector utility company <ul><li>Power generation capacity of nearly 950 MW in Maharashtra, Goa, </li></ul><ul><li>Andhra Pradesh, Kerala </li></ul><ul><li>and Karnataka </li></ul>
  8. 8. Background <ul><li>India’s most valuable power company, with market capitalisation of over Rs. 10,000 crore </li></ul>Reliance Energy currently ranks among India’s top 25 listed private sector companies on all major financial parameters
  9. 9. Background <ul><li>Annual revenues over Rs 6,400 crore </li></ul>Reliance Energy currently ranks among India’s top 25 listed private sector companies on all major financial parameters
  10. 10. Background <ul><li>Annual cash profits over Rs 600 crore </li></ul>Reliance Energy currently ranks among India’s top 25 listed private sector companies on all major financial parameters
  11. 11. Background <ul><li>Annual net profits over Rs 350 crore </li></ul>Reliance Energy currently ranks among India’s top 25 listed private sector companies on all major financial parameters
  12. 12. Background <ul><li>Debt free at the net level </li></ul>Reliance Energy currently ranks among India’s top 25 listed private sector companies on all major financial parameters
  13. 13. Background <ul><li>Top end credit ratings - rated ‘AAA’ by CRISIL/ ICRA/ FITCH </li></ul>Reliance Energy currently ranks among India’s top 25 listed private sector companies on all major financial parameters
  14. 14. Report Card 2003-04
  15. 15. Report Card 2003-04 <ul><li>Tariff Revision petition filed after 7 years – </li></ul><ul><li>to achieve stipulated Return on Equity </li></ul>
  16. 16. Report Card 2003-04 <ul><li>Approval to import power into Mumbai, through open access on existing transmission lines – </li></ul><ul><li>lower tariffs expected </li></ul>
  17. 17. Report Card 2003-04 <ul><li>Resolution of 5 years old standby charges dispute in Mumbai expected shortly from MERC – </li></ul><ul><li>end to uncertainties </li></ul>
  18. 18. Report Card 2003-04 <ul><li>Encroachment of customer base in Mumbai stopped by MERC </li></ul>
  19. 19. Report Card 2003-04 <ul><li>Wage Agreements signed covering 4,500 employees and 1,200 officers – </li></ul><ul><li>pending since April 2002 </li></ul>
  20. 20. Report Card 2003-04 <ul><li>Cumulative financial provisions of over </li></ul><ul><li>Rs. 350 crores made to strengthen Balance Sheet </li></ul>
  21. 21. Report Card 2003-04 <ul><li>100% equity in Andhra and Goa projects acquired, and operations merged with RE </li></ul>
  22. 22. Report Card 2003-04 <ul><li>Andhra 220 MW power plant’s PLF raised to 85%, through increased gas allocation </li></ul>
  23. 23. Report Card 2003-04 <ul><li>Kerala power plant restarted after a 1 year shutdown - project’s financial viability restored </li></ul>
  24. 24. Report Card 2003-04 <ul><li>Completed first phase of VRS in Delhi distribution companies – reducing workforce by nearly </li></ul><ul><li>4,500 persons in 7 days </li></ul>
  25. 25. Report Card 2003-04 <ul><li>Exited from non-core activities of Coal Washery, coal-based Maithon power generation project, broadband telecom </li></ul>
  26. 26. Report Card 2003-04 <ul><li>Transformed into India’s most valuable power company </li></ul><ul><li>Market capitalisation increased more than 200% in a year to over Rs. 10,000 crore </li></ul><ul><li>Best performing utility stock in the year 2004, outperforming Sensex by 29% </li></ul><ul><li>Among the top 10 performers in Sensex stocks in 2003, outperforming Sensex by 57% </li></ul>
  27. 27. Creating Growth Momentum
  28. 28. Power Environment <ul><li>Dominated by state owned undertakings </li></ul><ul><li>Poor existing infrastructure </li></ul><ul><li>Unreliable quality of power </li></ul><ul><li>Unsustainable levels of technical and </li></ul><ul><li> commercial losses </li></ul><ul><li>High tariffs </li></ul><ul><li>Low standards of customer care </li></ul><ul><li>Huge opportunity for </li></ul><ul><li>private sector to create </li></ul><ul><li>world class power </li></ul><ul><li>infrastructure in India </li></ul>
  29. 29. Synergies for Reliance <ul><li>Leveraging Reliance group’s core competencies: </li></ul><ul><li>- World scale and world class plants </li></ul><ul><li>- Infrastructure development </li></ul><ul><li>- Project management and execution </li></ul><ul><li>- Financial engineering </li></ul><ul><li>Feedstock integration with Reliance’s upstream gas business </li></ul><ul><li>Leveraging of customer base for Reliance’s other businesses </li></ul>A natural fit in Reliance’s overall business portfolio
  30. 30. Vision statement <ul><li>To be among the most admired and most trusted integrated utility companies in the world </li></ul><ul><li>To establish leadership in the power sector in the country, across generation, transmission, trading and distribution </li></ul><ul><li>To deliver reliable and quality power to millions of customers at competitive costs </li></ul><ul><li>To set international standards of customer care – creating superior value for all stakeholders </li></ul><ul><li>To set new benchmarks in standards of corporate performance and governance, through the pursuit of operational and financial excellence, responsible citizenship and profitable growth </li></ul>
  31. 31. Generation Strategy <ul><li>“ From Well Head to Wall Socket” </li></ul><ul><li>Environment friendly fuels – gas the preferred feedstock </li></ul><ul><li>Adequate capacity to meet captive requirements of 5,000 MW, covering: </li></ul><ul><li>- Base Load </li></ul><ul><li>- Trading </li></ul><ul><li>Offtake primarily by own customer base </li></ul><ul><li>Location in proximity to customers </li></ul><ul><li>Economies of scale, capital productivity, </li></ul><ul><li>lowest operating costs </li></ul>Generation of power at the most competitive unit costs globally
  32. 32. World’s Largest Gas based Power Project <ul><li>Setting up the world’s largest gas based mega power project with initial capacity of over 3,500 MW capacity – scale benefits </li></ul><ul><li>Initial investment outlay of over Rs 10,000 crore (US$ 2.2 billion) – single largest investment across any sector in Uttar Pradesh </li></ul>To benefit millions of consumers in the power deficit regions of Delhi, UP and other parts of Northern India
  33. 33. World’s Largest Gas based Power Project <ul><li>End-to-end integration in the energy value chain - gas sourced from Reliance’s Dhirubhai gas fields in KG basin – integration benefits </li></ul><ul><li>Commissioning in phases from mid – 2006 through mid 2007 </li></ul><ul><li>Project will be a strategic national asset and will help realise Hon’ble Prime Minister’s vision of “Power for all by 2012” </li></ul>Project to supply clean-green power based on environment friendly natural gas at competitive costs
  34. 34. <ul><li>40 kms from Delhi </li></ul><ul><li>HBJ gas pipeline is </li></ul><ul><li>15 kms away </li></ul><ul><li>Main Ganga Canal </li></ul><ul><li>is just 2-3 kms away </li></ul><ul><li>Power Grid’s Dadri </li></ul><ul><li>substation to help in </li></ul><ul><li>evacuation of power </li></ul>Location Map Dadri
  35. 35. Distribution Strategy <ul><li>Expansion of the customer base, with a national footprint </li></ul><ul><li>Acquisition of existing networks in major cities and towns, through the privatisation process </li></ul><ul><li>Open access on distribution systems, as individual States deregulate </li></ul>Providing a world class experience to millions of customers
  36. 36. Distribution Strategy <ul><li>Setting up new networks where economically feasible </li></ul><ul><li>World class systems, automation, quality and reliability of power, competitive pricing, highest standards of customer care </li></ul>Providing a world class experience to millions of customers
  37. 37. Existing Areas <ul><li>Increased automation and strengthening of distribution systems in Mumbai to bring down losses to around 10% </li></ul>Significant potential for enhancing returns in Mumbai, Delhi and Orissa
  38. 38. Existing Areas <ul><li>Comprehensive revamp of Delhi infrastructure, to reduce losses from the existing levels of 55% </li></ul>Significant potential for enhancing returns in Mumbai, Delhi and Orissa
  39. 39. Existing Areas <ul><li>Recapitalise the Orissa distribution companies, and turn around their operations, subject to suitable restructuring by Govt. of Orissa </li></ul>Significant potential for enhancing returns in Mumbai, Delhi and Orissa
  40. 40. New Areas <ul><ul><li>Applications filed for building new networks in various cities: </li></ul></ul><ul><ul><li>- Bhandup, Vashi, Pune, Nasik, Nagpur, Aurangabad </li></ul></ul><ul><ul><li>- BEST area in Mumbai </li></ul></ul><ul><ul><li>NDMC area in New Delhi </li></ul></ul><ul><ul><li>- 12 areas under franchise in </li></ul></ul><ul><ul><li>Gujarat </li></ul></ul><ul><ul><li>- Other cities and states in the </li></ul></ul><ul><ul><li>future </li></ul></ul><ul><ul><li>Participation in privatisation </li></ul></ul><ul><ul><li>of distribution </li></ul></ul><ul><ul><li>assets of SEBs </li></ul></ul><ul><ul><li>as opportunities arise </li></ul></ul>
  41. 41. Growth Opportunities - Trading <ul><li>Trading in Power </li></ul><ul><ul><li>Trading in power – Physical (merchant/ own generated) </li></ul></ul><ul><ul><li>Creating exchanges for trading in power – financial and derivative products </li></ul></ul>Enhancement of returns from generation and transmission
  42. 42. Mega Investment Plans <ul><li> </li></ul><ul><li>Capital Investments </li></ul><ul><li>Amount (Rs Crore) </li></ul><ul><li>Generation 10,000 </li></ul><ul><li>Transmission 4,000 </li></ul><ul><li>Distribution 6,000 </li></ul><ul><li>Total : 20,000 </li></ul><ul><li>UP power project implemented by a new company , Reliance EGen P. Ltd. </li></ul>Investment of upto Rs. 20,000 crores in the next 5 years
  43. 43. Financial Engineering
  44. 44. Shareholding Pattern Present Reliance Group 49.5% FIs / Banks / MFs 21.0% FIIs / GDRs 21.3% Others 8.2% Total: 100.0% Reliance’s stake reduced from 58.2% to 49.5%
  45. 45. Preferential Offer <ul><li>Equity shares and/or equity related securities </li></ul><ul><li>Offer price of Rs. 640 per share, determined in accordance with SEBI Preferential Allotment guidelines </li></ul>Priced nearly 3 times Reliance’s open offer price
  46. 46. Preferential Offer <ul><li>Offer price at 38% premium to </li></ul><ul><li> 26 week average price </li></ul><ul><li>2% discount to last traded market price </li></ul>Postal ballot for all shareholders on preferential offer and various other resolutions though not required in law
  47. 47. Strong Vote of Confidence <ul><li>Reliance to subscribe to over 2 crore equity shares, aggregating nearly Rs. 1,400 crores </li></ul><ul><li>Institutional shareholders, like LIC and GIC, agree in principle to subscribe to nearly 1 crore shares, aggregating over Rs. 600 crores </li></ul>Endorsement of growth prospects and positive signal to markets
  48. 48. Financial Flexibility <ul><li>Enabling approvals to offer additional amount of Rs. 1,000 crores through: </li></ul><ul><li>- equity shares; and/or </li></ul><ul><li>- equity shares with differential voting </li></ul><ul><li> rights; and/or </li></ul><ul><li>- international convertible bond </li></ul><ul><li> offering </li></ul>Reliance has confirmed its willingness to subscribe additional Rs. 1000 crores
  49. 49. Proposed Reliance Stake Present Proposed Reliance Group 49.5% 56.5% FIs / Banks / MFs 21.0% 21.0% FIIs / GDRs 21.3% 16.5% Others 8.2% 6.0% Reliance stake still 2% below peak levels of over 58%
  50. 50. Reduction in Free Float Present Proposed Reliance Group 49.5% 56.5% FIs / Banks / MFs 21.0% 21.0% FIIs / GDRs 21.3% 16.5% Others 8.2% 6.0% Reduction in free float from over 50% to 43%
  51. 51. Value creation for Reliance Energy shareholders
  52. 52. Impact on Net Worth <ul><li>Reliance Energy to rank among India’s top 3 private sector companies </li></ul><ul><li>Net Worth to rise by Rs. 3,000 crores, from Rs. 3,500 crores to Rs. 6,500 crores </li></ul>Third only to Reliance Industries and ICICI Bank
  53. 53. Impact on Book Value <ul><li>A 43% increase in Book Value per share from Rs. 217 to Rs. 312 </li></ul>Price to book ratio will decline to 2
  54. 54. Impact on Leveraging ability <ul><li>Increased ability to leverage Balance Sheet, while maintaining top end AAA ratings </li></ul>Increase in borrowing ability by Rs. 3,000 crores to Rs. 6,500 crores
  55. 55. Impact on Profitability <ul><li>Increase in capital base by Rs. 3000 crores - potential accretion to earnings </li></ul><ul><li>Increase in EPS leading to substantial enhancement of overall shareholder value </li></ul>To rank among India’s top 10 private sector companies
  56. 56. Value creation for Reliance Industries shareholders
  57. 57. Mark to Market gains <ul><li>Reliance’s investments in Reliance Energy now valued at over Rs 5,200 crores </li></ul><ul><li>Average cost of Reliance’s shareholding in RE will still be only Rs. 350 per share, against market price of Rs. 650 per share </li></ul>Capital gains of nearly Rs 3,500 crores
  58. 58. Participation in power sector growth <ul><li>Enhancement of leadership position in the power sector for Reliance Group </li></ul><ul><li>Benefits of sustained long term growth in the entire sector </li></ul>Positive impact on RIL’s financial ratios through consolidation
  59. 59. Gas Off-take <ul><li>Assured feedstock off-take for about 25% of production from RIL’s KG - D6 Dhirubhai gas field </li></ul><ul><li>Long term contracts at competitive prices </li></ul>Share of gas in power generation to increase from 10 % to global average of 30 %
  60. 60. Deployment of Cash flows <ul><li>Proposed investments only 8 % of Reliance group’s cash flows of over </li></ul><ul><li>Rs. 30,000 crores in the next 3 years…. </li></ul><ul><li>… .and less than 5 % of value of RIL’s future gas sales contracts of over Rs. 50,000 crores to the UP gas based power project </li></ul>Opportunity for Reliance to deploy its strong cash flows for attractive returns
  61. 61. Win Win Win…
  62. 62. Win for Customers Quality , Reliable power Competitive prices World class customer care
  63. 63. Win for the Power sector Mega investments Technology upgradation Accelerated loss reduction
  64. 64. Win for the Country World class power infrastructure Enhanced competitiveness Fiscal deficit reduction
  65. 65. Win for Reliance Group Leadership in power sector Exponential growth Enhanced profitability

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