While the shares of Reliance Industries (RIL) have consistently underperformed the benchmark indices for more than six years, the oil & gas giant itself has been a savvy investor as it boasts of record current investments of R50,515 crore, as per its latest annual report for FY15.
Short-term investments of India’s largest company by sales have seen an exponential growth in the last six years. Since FY09, RIL’s current investments have grown at a compounded annual growth rate of 61%, even as other income reported an impressive CAGR of 27%.
During the same period, the RIL stock ceded momentum, losing 6% of its value in a similar measure. Earnings per share (EPS), on the other hand, expanded at about 6.8% CAGR to R80.1 in FY15. The benchmark Sensex has grown 10% CAGR in these six years.
Current investments are those which are readily realisable and not intended to be held for more than a year.
Generally, financial securities, such as stocks, bonds or mutual fund units, are reported under this account under the current asset section. These instruments are highly liquid in nature.
In FY15, mutual fund investments, government securities and certificate of deposits accounted for a bulk of RIL’s current investments. While the company parked close to R38,800 crore in mutual fund investments, the other two instruments received allocation of R4,370 crore and R5,434 crore, respectively, a three-fold jump from the previous year under both categories.
Mutual fund investments saw a strong 31% y-o-y growth even as RIL cut its allocation towards fixed-maturity plans or closed-ended debt funds from R18,941 crore to R6,004 crore.
In the FY15 interim Budget, the finance ministry had announced that FMPs with tenure less than 36 months and redeemed after April 1, 2014, will no longer be eligible for indexation benefits, or lower long-term capital gains tax.
While RIL continues to face issues with its core oil & gas operations with a decline in output from its flagship KG-D6 block, its other income has continued to support the earnings performance.
In the year ended March 31, 2015, RIL earned other income of R8,613 crore, which largely consists of interest and dividend income and gain from sale of its current and long-term investments. In the last four financial years, RIL’s other income has, on an average, accounted for 36.4% of its reported earnings compared to 27% for a similar duration ended FY11.
Besides a muted EPS growth trajectory, higher capital allocation to non-core businesses, which brings down the return on capital employed (RoCE), has also impacted RIL’s stock performance in the last couple of years. However, analysts also consider these investments to yield earnings momentum going ahead. In FY15, RIL invested as much as R1 lakh crore, most of which was allocated to retail and telecom businesses and its shale operations in the US.
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