Analysis of Reliance Capital Annual Report

(2013-2014)

Submitted By:
PhD Scholars
Anjum Ara
Debashree Das
Disha Bindra
Inderpal Singh
Jyoti Dhamija
Monika Gaur
Shilpi Chhabra
Naina Grover

Reliance Capital
Annual Report: 2013-14
Part of reliance group, reliance capital is one of the leading business houses of India. It was
founded in the year 1986 and in terms of net worth it ranks among the top 4 private sector
financial services and banking companies. Anil Ambani is the promoter of Reliance Group is
the Chairman of Reliance Capital, while Amitabh Jhunjhunwala is the Vice-Chairman
andSam Ghosh is the Chief Executive Officer. Reliance Capital has interests in asset
management and mutual funds; life insurance and general insurance; commercial finance;
stock broking; wealth management services; distribution of financial products; private equity;
asset reconstruction; proprietary investments and other activities in financial services. The
company operates across India and has over 20 million customers and workforce of
approximately 18,500 as of March 31, 2014.
Each year reliance capital issues an annual report summarising the 12 months period ending
31 March. Like most other companies, Reliance capital uses its annual report as a promotion
piece. Investors want to know the future and not the past of the companies but the history
recorded in the financial statement gives a baseline for investors to evaluate past performance
and make judgements about future performance. In this document we will studying the
shareholding pattern, the statement of cash flows, share capital and other components.

I.

SHARECAPITAL:

Share capital denotes the amount of capital raised by the issue of shares, by a company. It
remains with the company till its liquidation. Share capital is owned capital of the company,
since it is the money of the shareholders and represent shareholders ownership in the
company to the extent of shares held by them of the company. The total share capital is
divided into small parts and each part is called a share.

AUTHORIZED CAPITAL:
Authorised capital or nominal capital is the maximum equity capital a company can raise,
which is mentioned in the Memorandum of Association and Articles of Association of the
Company. Depending on the jurisdiction, authorized share capital is sometimes also called
"authorized stock," "authorized shares" or "authorized capital stock." However, share
premium is excluded from the definition of authorized capital.
SUBSCRIBED SHARE CAPITAL: The amount of capital (out of authorized capital) for
which company has received applications from the general public who are interested in
buying companys shares. Subscribed share capital refers to the monetary value of all the
shares for which investors have expressed an interest.
Subscribed share capital =
Number of shares applied for by the public * face value of share
ISSUED CAPITAL:
Issued capital means such capital as the company issues from time to time. Share capital can
be different from authorized share capital. Authorized share capital is the maximum amount
of equity capital that a company can raise. The issued capital can be less than the authorized
share capital but it cannot be more than it. Issued share capital is simply the monetary value
of the shares of stock a company actually offers for sale to investors.
Issued share capital= Number of shares issued* face value of share

Promoter and Promoter Group

Category of shareholder
A1) Indian
Individuals/Hindu undivided
Family
Anil
D. Ambani
Jaianmol A. Ambani
Kokila D Ambani(*)
Tina A Ambani
Any Other (specify)
Reliance Inceptum Pvt Ltd
Reliance Infrastructure Consulting &
EngineersInfrastructure
Pvt Ltd
Reliance
Management
Pvt
Ltd
Reliance Innoventures Pvt Ltd
Crest Logistics and Engineers Pvt Ltd
TOTAL
Public Shareholder
Category & Name of the
Shareholders
B1) Institutions
Mutual Funds/
Reliance Capital Trustee Co. Ltd A/c
Foreign
Portfolio Investors
Morgan Stanley Asia (Singapore) Pte.
Swiss Finance Corporation
(Mauritius)
Limited Banks
Financial
Institutions/
Sumitomo Mitsui Trust Bank
Insurance Companies
Life Insurance Corporation of India
Sub Total
Non-Institutions
Individual share capital upto Rs. 2
Lacs
Individual
share capital in excess of
Rs. 2Other
Lacs (specify)
Any
NRI
Bodies Corporate
Sub Total
TOTAL

PATTERN

PROMOTERs FAMILY
MEMBERS

II.

Shareholding as a %
of total no. of shares
0.46
0.11
0.03
0.22
0.1
51.67
38.77
11.1
0.28
0.23
1.29
52.13
Shareholding as a %
of total no. of shares
4.47
1.4
17.26
2.61
1.37
2.96
2.78
4.28
4.17
28.98
13.68
1.7
2.85
0.48
2.37
18.22
47.23

SHARE
HOLDI
NG

INTERGROUP
SHAREHOLDING
PATTERN

INSTITUTIONAL
INVESTORS (DII/FII)

Shareholding pattern is divided among two groups

1.

Promoters and Promoter Group- Promoters are those who incorporated the
company. They can be either domestic or foreign. Relatives of promoters owning shares
also come under promoter group. (In case of Reliance Capital its mostly held by family
members and its subsidiary companies).

Promoters are the founders (or initial investors) of the company. Promoter holding is the total
number of shares held by the promoters and the promoters group out of the total outstanding
shares of the company. SEBI recently introduced a regulation that maximum percentage

of promoters holding will be 75% of the total shareholding. This means that public
holding will comprise minimum 25%.
Generally, promoters movements are followed to predict the future outcome of the
company. If a promoter raises his stake, it is comprehended that he has high confidence in the
business and may get positive results. But this act of raising stake or buying more shares
cannot be generalized, many at times promoter simply buy more share to boost the stock
price. Therefore, it does not at all mean that buying always is associated with good prospect
and expected profit. Whereas promoter holding is low or promoters are selling their share,
means low confidence in the company i.e. the promoters are not optimistic about the future
prospect.
2.

Public Group- Shareholders other than promoters constitute public shareholding

pattern. FIIs, DIIs, banks, money managers, mutual funds, insurance companies,
individuals, etc. come under this group.

Companies or individuals other than the promoter group holding more than 1% of the total
share capital needs to disclose their details according to SEBI guidelines.
Public shareholding pattern consists of institutional and non-institutional investors.
Institutional investors
Institutional investors include the pension funds, money managers, mutual funds, insurance
companies, investment banks and commercial trusts. They buy large quantities of shares
leaving high impact on the stock markets movements.
Non-institutional investors
Non institutional investors are those who carry their investments through a broker, bank, real
estate agent and so on. They are generally common people or organizations managing money
on their own.

III.

Reserves and Surplus

Given below is the snapshot of the reserve and surplus of the company

There is no change in security premium amount and capital redemption reserve

as there was no issue of share capital and debenture redemption but there has
been an increase in capital reserve and decrease in General reserve.
a. The explanation of the types is given below:
1. Capital Reserves- A capital reserve is a type of account on a company's
balance sheet that is reserved for long-term capital investment projects or any
other large and anticipated expense(s) that will be incurred in the future. It
does not however include the amount that is free for distribution to the
shareholders.
2. Capital Redemption Reserves- A fund which exists both on the financial
statements of a company and also as part of the company's internal accounts.
A business with a capital redemption reserve fund is legally mandated by the
U.S. Securities and Exchange Commission to make capital redemptions for
certain transactions acting as a hedge against capital reductions.

3. Securities Premium/ Share Premium- Share premium is the amount

received by a company over and above the face value of its shares. It is
important to note that share premium arises only when the company sells the
shares. It arises only when a company issues new equity shares. It does not
arise when the investor sells shares at a price greater than face value. If a
company sells a share whose face value is $1 at a price of $2, the company
earns a share premium of $1. But subsequently if the investor sells the same
share to someone else at a price of $4, no share premium will be gained by the
company. The investor will benefit from this gain. It is also a nondistributable reserve.
4. General Reserves- The general reserves are the retained earnings of a
company which are kept aside out of companys profits to meet future (known
or unknown) obligations. General reserves are the part of Profit and Loss
Appropriation Account.
5. Statutory Reserve Funds- Statutory reserves state are regulated reserve
requirements. Insurance companies must hold a portion of their assets as either
cash or marketable investments. Statutory reserves are the amount of liquid
assets that firms must hold in order to remain solvent and attain partial
protection against a substantial investment loss, and holding reserves reduces
the risk of insurance.
6. Surplus in Statement of Profit and Loss- It is the balance of profit for the
period after appropriations and dividends. In other words, it is the retained
earnings.

IV.

Schedule of Debt component

Before mentioning about the Schedule of Debt Component, let us first discuss about the
meaning of debt and schedule of debt.
DEBT: An amount owed to a person or organization for funds borrowed. Debt can be
represented by a loan note, bond, mortgage or other form stating repayment terms and, if
applicable, interest requirements. These different forms all imply intent to pay back an
amount owed by a specific date, which is set forth in the repayment terms.
DEBT SCHEDULE: A business debt schedule consists of a detailed list of the debt the
business has incurred, such as loans, contracts, leases and notes payable. The business debt
schedule typically only includes long-term debt versus daily expenses incurred by a company.
Schedule of debt component of Reliance Capital Limited includes the following:
a. Long-term Borrowings
b. Deferred Tax Liability
c. Other Long-term Liabilities
d. Long-term Provisions

1. Long-term Borrowings of the company includes :

Non-convertible debentures: Debentures that cannot be converted to company equity or
stock.
As at March 31,2014.
- Secured
Others
Related Party.
- Unsecured
Others.
Related Party.

As at March, 2013

6462cr.
95 Cr.

4917 Cr
96 Cr

1148 Cr.
25 Cr.

947 Cr
25 Cr

Term Loans from Banks/ Financial Institutions:

A term loan is a loan from a bank for a specific amount that has a specified repayment
schedule and a fixed or floating interest rate.

- Secured
- Unsecured.

As at March 31,2014.
4248cr
100cr.

As at March, 2013
5831 cr
-

Inter corporate deposits:

Inter Corporate Deposits indicate unsecured short term funding raised by one company from
another company. They are dependent on personal contacts.

As at March 31,2014.
- Unsecured
Others
Related Party.

As at March, 2013

50 Cr.

9Cr
550 Cr

2. Deferred Tax Liability:

Deferred Tax Liabilities in the balance sheet comprises the following
. Deferred Tax Liabilities
A deferred tax liability is an account on a company's balance sheet that is a result of
temporary differences between the company's accounting and tax carrying values, the
anticipated and enacted income tax rate, and estimated taxes payable for the current year.
This liability may be realized during any given year, which makes the deferred status
appropriate.
Deferred Tax Assets
Deferred tax asset is an accounting term that refers to a situation where a business has
overpaid taxes or taxes paid in advance on its balance sheet. These taxes are eventually
returned to the business in the form of tax relief, and the over-payment is, therefore, an asset
for the company.
* Net Deferred Tax Liability = Deferred tax liability - Deferred tax assets

As at March 31,2014.
a. Deferred Tax Liabilities
Depreciation on Fixed Assets.

19 Cr.

March 2013
12 Cr

Unamortized expenditures.
b. Deferred Tax assets.
Provision for NPA/ diminution.
in the value of assets and investments
Provision for leave encashment.
* Net Deferred Tax Liability.

60 Cr.

56 Cr

66 Cr.

61cr

1 Cr.
12 Cr.

1 Cr
6 Cr

3. Other Long-term Liabilities

A balance sheet item that includes obligations which are not going to be paid off within the
year or operating cycle, but are not included in the "long term liabilities" category. Other
long-term liabilities are commonly found directly beneath the long-term liabilities on the
balance sheet. They are part of total liabilities, and the entries are deemed to be not important
enough to warrant identifying each amount individually.
Other Long-term Liabilities included in the balance sheet of the company are
* Interest accrued but not due on Debentures: Means interest amount computed as per the
period of computation but the payment of amount of installment is still available.
* Security Deposits: A security deposit is a sum of money held in trust either as an initial
part-payment in a purchasing process (often used to prevent the seller selling an item to
someone else during an agreed period of time while the buyer verifies the suitability of the
item, or arranges finance) - also known as an earnest payment, or else, in the course of a
rental agreement to ensure the cost of repair in relation to any damage explicitly specified in
the lease and that did in fact occur.
As at March 31,2014.
Other long term liabilities
Interest accrued but not due
on debentures.
Security deposits.

March 2013

55cr.
27cr.

13cr
1 Cr

4. Long term provisions: A provision can be a liability of uncertain timing or amount.

The long term provisions in the balance sheet of the company are as follows:
Provision for employee benefit.
Others.

As at March 31,2014.
3cr.
33cr.

Security Clause in respect to Secured Loans from Banks/ Debentures:

(i) Non convertible are redeemable at par, in one or more installments.

March 2013
3cr
27cr

(ii) Term loans from Banks are secured by pari passu first charge on all present and future
book debts, receivables, bills, claims, and loan assets of the company's financial division.
(iii) Maturity profile of long term loans from Banks are as set out below
Rate of interest
2016-17.
Total
'12%.
50cr
50 cr
Note: Term loans from Bank are secured by the hypothecation of assets.

V.

ASSETS

Tangible assets Leased Assets which are on operating lease are shown net of depreciation
and impairment loss.

Own Assets- are stated at cost of acquisition less accumulated depreciation and impairment
loss.
Intangible assets are recognised on the basis of future economic benefit and are stated
cost of acquisition less amortised value.
Expenses incurred on acquisition or development of intangible assets which are not put to use
at the reporting date is disclosed under intangible assets under development.
Depreciation or amortisation
Tangible assets
Leased assets- depreciation charged on straight line method over the useful life of the asset.
Estimated life of assets are:
1) Plant and equipment
a) Energy saving equipment- 15 years
b) Specialized machinery used in manufacturing 10 years
c) General plants & Machinery 8 years
2) Data processing machinery 5 years
3) Vehicle for personal use- 8 years
4) Vehicle for commercial use- taxi-8years other than taxi-6 years
Own assets
Depreciation charged on written down value method at the rates and manner described in the
schedule XIV of the companies act 1956.
Intangible assets are amortised on straight lie method over the useful life of the asset up to the
maximum of five years.

VI.

Lease

There are two types of lease Operating lease and Financial lease. Their treatment is given
below
Operating leases
Lease payments for assets taken on an operating lease are recognised as an expense in the
statement of profit and loss on a straight line basis over the lease term.
Hire purchase
Assets held under hire purchase arrangements are classified as finance leases and are
recognised as assets of Reliance Capital Asset Management Limited at their fair value at the
inception of the lease or, if lower, at the present value of the minimum lease payments. The
corresponding liability to the lessor is included in the balance sheet as a hire purchase
liability. Lease payments are apportioned between finance charges and reduction of the lease
obligation so as to achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly to profit or loss, unless they are directly attributable to
qualifying assets, in which case they are capitalised in accordance with Reliance Capital

Asset Management Limited general policy on borrowing costs. Contingent rentals are
recognised as expenses in the periods in which they are incurred.
Given below is the detailed description of the type of assets-:

Lease assets include plant and equipments, vehicles which constitutes 34.61% of the
total assets

VII.

INVESTMENT

A business enterprise may hold investment for earning an income benefiting from increase in
their value or for acquiring a say in the running of companies with which it intends to have
business relations. Investments may be financial claims on other enterprises, such as equity
share s or debt instruments or land and building held for the purpose of earning a rental
income and a possible rise in their market value. Accounting for investments should reflect
the investors intention and time horizon.

INVESTMENT ACTIVITIES BY COMPANY:

Investments are classified as long term or current based on intention of the management at
the time of purchase. Current investments are valued, scrip wise at cost or fair value, and
whichever is lower. Long term investments are carried at carrying cost less diminution in
value which is other then temporary determined separately for each individual investment.
Under investing activities of company dividend received on investment has been increased by
3% in the current year.

INVESTMENTS IN EQUITY AND PREFERENCE INSTRUMENTS:

There are the companies where reliance capital has invested in equity and preference shares.

Under subsidiary companies provision for diminution in value of investment has been reduce
to 2514 from 2579 and associate companies shows the increased value of investment from
8433 to 8491.

Aggregate value of provision for diminution in value of investments has been reduced from
448 to 411. Investments includes 9 crore (previous year 63 crore) of equity shares given as
collateral towards margin with brokers.

VIII.

AMALGAMATION

When two or more companies are combined into one by merger or by one taking over the
other is known as amalgamation. Some of the reasons why companies opt for amalgamation
are: to reap benefits of economies of large scale operations, to acquire cash resources, to
increase shareholders value, to eliminate competition and for tax savings purposes.