RIL’s new push, more of the same

RIL’s new push, more of the same
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First Published: Wed, Nov 18 2009. 12 09 AM IST

Oil hunt: Mukesh Ambani at the Reliance AGM in Mumbai. Santosh Hirlekar / PTI
Oil hunt: Mukesh Ambani at the Reliance AGM in Mumbai. Santosh Hirlekar / PTI
Updated: Wed, Nov 18 2009. 12 09 AM IST
Mumbai: Mukesh Ambani said on Tuesday that Reliance Industries Ltd, or RIL, would revive a two-year-old plan to build a new petrochemicals unit in its Jamnagar complex and would also get its toes wet in the business of renewable energy, as part of a plan to fund new sources of value creation for India’s largest company by stock market value.
Oil hunt: Mukesh Ambani at the Reliance AGM in Mumbai. Santosh Hirlekar / PTI
The RIL chairman was addressing the firm’s annual shareholders’ meeting in Mumbai.
The 52-year-old Ambani also dropped some broad hints about what RIL’s new growth drivers would be: more oil and gas exploration, overseas acquisitions and retailing. His speech, titled A Time For Transformations, was short on details, though Ambani had said in a series of interviews in October that the firm he heads had completed one value creation cycle and that he would unveil the contours of the next cycle in the shareholders’ meeting.
An equity analyst who tracks the company and who requested anonymity billed the Ambani speech “lacklustre”.
Shares of the sprawling conglomerate, with interests from oil to retail, fell 0.65% to close at Rs2,133.75 a share on Tuesday on the Bombay Stock Exchange, even as the bellwether Sensex rose 0.11% to close at 17,050.65 points.
Stating that the new petroleum refinery—the 580,000 barrels a day Jamnagar refinery next to the older 660,000 barrels a day one—brought out several “growth and value creation” opportunities, Ambani said, “At the 2007 AGM (annual general meeting), I talked about a new petrochemical complex in Jamnagar, with 2 million tonnes per year of olefins and matching downstream capacities. Now that the oil and gas and the petroleum refining projects are commissioned, Reliance will work on making this world-class project a reality.”
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He did not offer any information about the money involved or the time needed to complete such a project. The Mumbai-based analyst with a foreign brokerage, quoted earlier, said that two years ago, when this plan was first proposed, it was a $3 billion (Rs13,890 crore) project.
“It is pretty much the only takeaway (from the speech). The project could be ready by 2013-14 and that may not be a bad time to bring in extra capacity.”
He added “this new cracker will be very cost-effective too” as it will use refinery off-gases as feedstock which is “currently only being burned”. Refinery off-gases are a byproduct of crude refining.
RIL is also stepping up its oil and gas exploration programme. Its D6 block in Krishna-Godavari basin has already started pumping gas. Field development planning—which is done after seismic surveys and government approvals—was underway for nine more gas discoveries in this block, Ambani said. He added: “We are exploring in more areas. We are poised to produce in more discovered areas... We have planned an aggressive exploration campaign aimed at diversifying our search for new accumulations over the next three years. We plan to drill in a majority of our blocks.”
Prayesh Jain, analyst with Mumbai-based India Infoline Ltd, too, pointed to the new petrochemical complex as the marquee announcement at the RIL shareholders’ meet, after “it was put on hold after the financial meltdown”.
“The thrust on renewable energy sources is another key area. It is a progression of what the company has been saying, but now that it has been identified as a ‘platform for value creation’, we can expect more concrete announcements from the company,” explained Jain.
Ambani charted out a “renewed five-platform road map for value creation” with new hydrocarbon discoveries, the petrochemicals project and “global growth by acquisitions in the energy and materials value chain” as the first plank.
“Our efforts will be on piloting projects in alternative energy. Research and proof-of-concept projects in biofuels, solar energy and fuel cells, to understand and enable scale-up,” constitute the second value creation driver, Ambani said.
Services, such as organized retailing, innovation that lead to “new performance materials and new process technologies” and rural transformation were identified as the other three planks of RIL’s next growth leap.
Reliance Retail, with at least five million customers in 86 cities and 14 states, will get back to “expanding coverage” by reaching out to “new cities, new markets and new strategic alliances”. RIL’s nascent retail business has taken a “short-breather”, Ambani said.
Ambani’s speech was made against the backdrop of high expectations that he would reveal a detailed investment plan and media speculation about whether RIL is looking to acquire the North American and European assets of bankrupt petrochemical maker LyondellBasell Industries.
Speaking about RIL’s financial health, Ambani said that net debt was at less than 21 months of cash flow and the current cash balance was nearly Rs19,421 crore. RIL’s short-term investments and cash have risen about 20-fold since 2003 to Rs25,600 crore, news agency Bloomberg estimated. This exceeded the $1.31 billion held by China Petroleum and Chemical Corp. as of 30 June. Chevron Corp., the second largest US oil company, had $7.6 billion on 30 September.
Graphics by Ahmed Raza Khan / Mint
Ashwin Ramarathinam and Bloomberg contributed to this story.
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First Published: Wed, Nov 18 2009. 12 09 AM IST