News: RIL demerger creates $10 bn of shareholder wealth

(PTI 27/06/2006) Mumbai - The division of the Reliance empire has helped fuel the upward rally in RIL's market value as shareholders' wealth surged 100 per cent within a year of the demerger, while net profits doubled in two years.

The largest demerger in India's corporate history has generated an incremental value of Rs 46,000 crore or 10 billion dollars. This strategic move doubled the total wealth of Reliance shareholders in just one year, RIL chairman Mukesh Ambani told shareholders during the company's AGM.

Ambani said the market price of RIL, inclusive of the four entities that were demerged, was hovering at around Rs 650 a year ago. But, the combined current share prices of RIL and the four companies are about Rs 1,300 per share, he said.

This return of 100 per cent to RIL shareholders in just one year significantly outperforms the 40 per cent growth in the benchmark BSE Sensex as well as other peer group indices in India and globally, he said.

As part of the settlement of ownership issues between Mukesh and younger brother Anil Ambani, RIL had demerged its power, financial services and telecom businesses into four separate companies last year. Although the four companies were transferred to Anil Ambani, RIL shareholders were also given shares of these firms as part of the demerger process.

RIL share price has jumped nearly 66 per cent to above Rs 1,000 per share from about Rs 600 a year ago.

Reliance Communications was trading at around Rs 231 per share, Reliance Energy Ventures at Rs 31.55, Reliance Capital Ventures at Rs 24.20 and Reliance Natural Resources Ltd at around Rs 19 per share on the bourses, taking the combined market price of the five firms to above Rs 1,300 per share.

Talking about RIL's business performance, Ambani said the company's net profit has doubled to 2.03 billion dollars in just two years, while turnover has risen 58 per cent to 19.97 billion dollars or about Rs 89,124 crore.

Exports stand at more than 7.3 billion dollars or about Rs 32,691 crore and contribute 37 per cent of the company's turnover, he said, adding this represents 8.2 per cent of India's total exports. Moreover, the share of exports in total revenues has risen substantially from just 13 per cent five years ago, he said.

The company's robust performance and strong capital structure also enabled the company get credit ratings higher than the country's sovereign rating by leading agencies Moody's and Standard & Poor's, he said.