New Delhi: The plans of Reliance Industries Ltd, or RIL, India’s biggest private sector company by market capitalization, to set up special economic zones, or SEZs, at Jhajjar and Gurgaon in Haryana may slow due to the global financial meltdown and a fall in demand for such projects.
An executive at RIL’s external public relations agency, however, said that work on the SEZs had not begun.
A senior RIL executive said the project was going slow and blamed the current business environment, which he described as “bad in all areas”.
“At this moment, we have been told not to spend money. Our capital expenditure on the sites have been stopped. The meeting to decide what to do next will happen next week in Mumbai,” said the executive, who didn’t want to be named because he is not authorized to speak to the media. “However, no formal directions have been issued.”
The SEZ plans are being executed by Reliance Haryana SEZ Ltd, a joint venture between Reliance Ventures Ltd, a subsidiary of RIL, and the Haryana State Industrial and Infrastructure Development Corp. Ltd, or HSIIDC, the state’s industrial development agency. While Reliance holds a 90% stake in the SEZ arm, the rest is with HSIIDC.
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Mint had reported in July that Reliance Haryana SEZ’s land acquisition plans were facing hurdles, with land owners in the area demanding around three times the amount the company is willing to pay because land prices have increased since late 2006, when it made its offer. The company had acquired 9,500 acres of a targeted 25,000 acres in July.
A spokesman representing RIL did not specifically answer questions on the latest update on land acquisition or the deadline for the completion of the project. “With regards to Jhajjar SEZ, we have not begun work, hence there is no question of putting the work on hold,” Manoj Warrier, an executive with Neucom Consulting, a public relations agency working for RIL, wrote in an email.
SEZs are industrial enclaves that come with fiscal and other benefits. Companies wishing to set them up have to take initial approval from the government, acquire the land, and then have the SEZ “notified”, which means the units based there are eligible for the fiscal benefits.
RIL had originally planned one SEZ at Jhajjar, but after the government capped the size of such zones at 12,500 acres, the company decided to create two adjacent SEZs.
The Haryana SEZs are expected to require an investment of Rs25,000 crore and have provisions for a cargo airport and a 2,000MW power plant.
“A significant profit for the organization (RIL) is from polymers for which the rates have gone down. The first priority is for traditional business and SEZs are low on priority. Even if we put up the SEZ infrastructure, where is the demand for it from the consumers?” the RIL executive asked.
The company has a current polymer production capacity of 3.5 million tonnes per annum of polypropylene, polyethylene and polyvinyl chloride. The outlook for revenues from such products, however, is uncertain, as new polymer capacity comes on stream in West Asia amid a slowdown in global economic growth.
RIL posted the smallest profit increase in at least 10 quarters as it earned less from processing crude oil into fuels, although revenue jumped 40% to Rs44,790 crore in the quarter ended 30 September. Net profit for the quarter rose by a modest 7.42% from a year ago to Rs4,122 crore.
A Mumbai brokerage recently reduced the profits it expected from RIL’s SEZ projects. In a late-September report, explaining a reduction in the target price set for the share price of the company to Rs2,540 each from the earlier Rs2,780, Enam Securities Pvt. Ltd analysts Ballabh Modani and Parikshit Shah wrote, “The decline is mainly due to a cut in our SEZ valuation from Rs157/share to Rs30/share due to lack of clarity.”
The report, published on 22 September when the share closed at Rs2,039.10 each, was written before a steep fall in Indian stock markets. The RIL stock on Friday closed at Rs1,220.75, 40.13% lower from the 22 September price, a period during which the Bombay Stock Exchange’s benchmark index dropped 28.8%.
Explaining the probable reasons for RIL going slow on its SEZs, an analyst at a Mumbai-based domestic brokerage firm, who also did not wish to be named, said gestation periods in the business are long “and so generating revenues from them also takes a long time”.
Similarly, a New Delhi-based analyst at an accounting and consulting firm, who asked he or his employer not be named because of business considerations, said, “There is a slowdown in demand from the real estate and the industrial sectors. On the other hand, this being an election year, land acquisition will also be a problem.”
Shabana Hussain contributed to this story.