As Reliance Industries (RIL), India's most profitable company, concludes most of the deals that it finalised in the recent months, its balance sheet is likely to see a new sizable revenue stream in the ongoing financial year -- income from treasury operations. The company has earned Rs 13,956 crore as other income, which is primarily the interest income from its cash on books in FY20 vis-a-vis Rs 8,386 crore in FY19.
The company had a cash and cash equivalent of Rs 1,75,259 crore at the end of March 2020. It stood at Rs 1,33,027 crore in March 2019. The reserves have been parked in banks, mutual funds, corporate deposits and government bonds and other marketable securities.
The cash portion is expected to surge with the deal proceeds flowing in. Jio Platforms Ltd (JPL), subsidiary of RIL, has signed 12 deals -- with Facebook and the global private equity giants like Silver Lake, Vista, KKR, Mubadala, General Atlantic, PIF and ADIA -- for raising Rs 1,17,588 crore by selling 25.09 per cent stake. The company, on July 7, informed that it received the subscription amount of Rs 43,574 crore from Jaadhu Holdings, LLC (a wholly owned subsidiary of Facebook Inc).
Besides, RIL has recently concluded the Rs 53,124-crore rights issue. Of this, the company has received 25 per cent of the amount during the time of subscription in June. The remaining amount will come next year. RIL is also in discussion BP Plc to sell 49 per cent stake in fuel retailing joint venture for Rs 7,000 crore. Another big deal in the making is with Saudi Aramco, which wants to pick up 20 per cent stake in Reliance's petroleum and chemicals business for Rs 1.1 lakh crore.
According to sources, RIL will use a major portion of the proceeds to reduce the gross debt of Rs 3,36,294 crore and keep the rest as cash on books. It will make the balance sheet net debt free (net debt is calculated by reducing the cash and cash equivalent from the gross debt).
The company has spent Rs 22,027 crore as finance costs in 2019-20, as against Rs 16,495 crore in the
previous year. "The increase was primarily on account of higher loan balances, currency depreciation and lower interest capitalisation on account of commissioning of digital projects," the company said in the annual report.
The finance cost comes to 6.55 per cent of RIL's gross debt, which is far lower than the prevailing interest rates in India. However, the return from its cash operations comes to around 8 per cent. It means the company may prefer to keep more cash on books rather than clearing off the debts.