Bonus bonanza from Reliance

Mukesh Ambani-led Reliance Industries Ltd (RIL), the country’s largest private sector company, on Wednesday announced a bonus share issue of one share for every share held—only the second time in the 32 years since it went public in 1977.

The oil refining, exploration and petrochemicals giant topped that with a Rs. 13 per share dividend for existing shareholders in the backdrop of a courtroom dispute with the Anil Dhirubhai Ambani Group led by Mukesh’s estranged brother Anil who controls the other part of the divided Reliance industrial empire.

The pleasant surprise to shareholders came as the company unveiled audited financial results for 2008-09 in consolidated figures that combined revenues from Reliance Petroleum Ltd (RPL), which has been merged into the group flagship with effect from April 1 this year. The combined entity reported a marginal 0.2 per cent decline in consolidated net profit.

“The bonus was completely unexpected and has come as a positive surprise,” said Amitabh Chakraborty, president, equity, at Religare Enterprises. “A bonus issue, while neutral on accounting terms, has a positive impact on the market because it reflects the company’s confidence of a bright future prospect and its ability to serve double the equity base.”

What this means is that RIL must henceforth strive to increase earnings on twice the current number of shares.

RIL’s dividend will involve a cash outflow of Rs. 2,219 crore.

RIL’s net profit in 2008-09 totalled Rs. 15,296 crore down from Rs 15,326 crore it registered in 2007-08 as expenses on crude oil shot up. Consoliated revenues rose 10.3 per cent at Rs. 151,224 crore.

“High crude oil prices in the first two quarters impacted the refining margin of the company leading to a dip in its profits,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services.

The refining business continues to be the flagship business for the company as it accounts for 63 per cent of total revenues, followed by petrochemicals that earns 32 per cent of the revenue for the company.

RIL’s oil and gas exploration business, much in the news for the dispute between the Ambani brothers over the supply and pricing of gas for ADAG’s energy units, contributes only 2.5 per cent of the company’s revenues. However, its 60 per cent net margin is several times that of the other business lines.