Mumbai: Mukesh Ambani, chairman of Reliance Industries Ltd (RIL), used his address at the company’s 37th annual general meeting (AGM) on Friday to touch on key issues such as declining gas output and plans for the broadband wireless business, but investors were left wanting more.
Conspicuous by their absence were a timeline by which the issue of declining gas output could be resolved, further plans for the recently announced financial services venture, and updates on RIL’s planned entry into the power sector.
RIL, India’s biggest company by market value, dropped 1.65% to Rs 936.15 on the Bombay Stock Exchange. The bourse’s benchmark index, the Sensex, lost 0.64% to close at 18,376.48 points.
Since June 2010, RIL has underperformed the Sensex, losing 9.21% while the benchmark index has risen 7.96%.
The inability to raise natural gas production at India’s largest gas find being developed by RIL is arguably the greatest challenge the oil-to-yarn and retail conglomerate is facing.
The last reported figure for gas production from the D6 well in the Krishna-Godavari basin (KG D6) in March was 51-52 million standard cubic metres per day (mscmd), much below the 60 mscmd that it should have been producing now, according to earlier guidance by the management.
In March, RIL had told the Directorate General of Hydrocarbons that the quantity of gas output could fall further in 2012-13, unless corrective measures were taken.
Ambani said RIL and its partner BP Plc, the London-based oil and gas company, will “jointly address the technical issues in ramping up production”.
In February, BP picked up a 30% stake in 23 oil and gas blocks operated by RIL for $7.2 billion (Rs 32,330 crore today).
Replying to shareholders’ queries, Ambani said he expected the government to clear the deal in the next few weeks.
“Meanwhile, vigorous efforts are under way to accelerate the development process of other discoveries—not only in the KG basin, but also in the Mahanadi, Cambay and other basins,” he said.
This was the first time Ambani spoke to investors about the problems in raising gas output.
“Nothing very material was disclosed about the gas situation,” said Alok Deshpande, an oil and gas sector analyst at Elara Securities (India) Pvt. Ltd, the Indian arm of a UK-based brokerage.
RIL may not comment on a timeframe in which the problem can be resolved before the next three-six months till BP takes a look into the drop in output, Deshpande said.
V.K. Sharma, head of private broking at HDFC Securities Ltd, said RIL was not expected to disclose much on the gas supply issue ahead of a scheduled meeting of an empowered group of ministers on 9 June to decide on gas allocation to consumers.
Ambani was unexpectedly silent on RIL’s plans in financial services and power.
Arun Kejriwal, director of Kejriwal Research and Investment Services Pvt. Ltd, said this was perhaps the most unexciting of RIL’s last few AGMs in terms of major announcements, after Ambani and his brother Anil split the Reliance empire between themselves.
The only piece of information that Ambani gave at the AGM on financial services was that RIL was not looking for a bank licence. The Indian banking regulator is drafting licensing norms for a new set of private banks and many believe that industrial houses will be permitted to enter the sector.
Sharma of HDFC Securities said that financial services and possible power generation ventures not finding a mention in Ambani’s speech could point to a “re-think” of the company’s investment strategy.
Ambani was relatively more vocal about his company’s future plans in the broadband wireless services business, saying RIL planned to create digital content, services and applications.
“Such digital services would be in the domain of education, healthcare, entertainment, financial services and government-citizen interfaces,” Ambani said.
RIL re-entered the telecom sector following the termination of a pact with younger brother Anil Ambani’s Reliance Group, which had prevented their respective groups from entering each others’ areas of business. Last June, it acquired Infotel Broadband Services Ltd—the sole winner of broadband wireless spectrum across the country—for Rs 4,800 crore.
Mukesh Ambani said recent initiatives such as broadband and shale gas acquisitions should start yielding results in the next three-five years.
“We are quite upbeat about RIL’s plans in the telecom sector and feel that it could add value earlier than any projects that RIL may undertake in sectors such as power,” Sharma said.
Next growth phase
Clad in a black suit, white shirt, and a red and white tie at the AGM, Ambani told shareholders that while RIL’s value creation thus far had been in the physical realm—built around its energy and materials businesses—the next phase of growth would be more service-oriented and customer-centric.
One such business is RIL’s retail venture. Ambani informed stakeholders that RIL will soon launch a cash-and-carry business as part of its retail efforts “by sharing benefits of strong sourcing capabilities and relationships with a large network of vendors”.
The RIL chairman also spoke of a few capacity additions at some of its petrochemicals units that would help business from the segment to grow exponentially.
“As we diversify our portfolio from commodities to specialities, we will accomplish in the next five years what we have achieved in the last 30 years in terms of earnings from this segment,” he said.
RIL’s pursuit for new opportunities will benefit from a solid financial foundation as it will become “completely debt free, net of cash balances” in fiscal 2012, Ambani said.