Mumbai: With most of its expansion and diversification plans completed, Reliance Industries Ltd, which has been reporting negative free cash flow for the past four years, will return to positive terrain starting 2018-19, say analysts.
Free cash flow is simply a company’s operating cash flow less capital expenditure. It is one measure, but not the only one, of a company’s overall financial performance and health.
Reliance’s free cash flow will turn positive on the back of lower capital expenditure and higher cash flow from its significantly expanded operations. As its free cash flow increases, Reliance will be able to pare its debt, and return more money to shareholders, the analysts added.
In a 25 April report, CLSA Research estimated RIL's free cash flow at Rs19,814.1 crore in 2019 against a negative Rs4,282.6 crore in 2018; a negative Rs27,267 crore in 2017; a negative Rs29,947.8 crore in 2016; and a negative Rs44,408.9 crore in 2015.
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RIL, which embarked on a multi-billion-dollar expansion programme five years ago, has so far spent $48 billion across its refining, petrochemicals and telecom businesses. It has also piled up significant debt. At the end of March 2017, its consolidated debt stood at Rs1.96 trillion, compared with Rs1.8 trillion a year ago. Cash and cash equivalents were at Rs77,226 crore, down from Rs89,969 crore in the year-ago period. Last year alone, the company’s capital expenditure was Rs1.15 trillion.
That number will come down, say analysts.
"Excluding telecom, RIL capex (capital expenditure) should fall from $7.5 billion in 2016-17 to below $2.5 billion in 2017-18," Credit Suisse said in a 25 April report. The losses in its telecom businesses and “vendor payables" of $9.4 billion will, however, mean that the free cash flow will turn positive only in the second half of 2018-19, may be even “beyond", it added.
An RIL spokesperson did not respond to an email sent on 2 May.
After announcing its results for the fourth quarter of 2016-17 on 25 April, RIL said its Ebitda (earnings before interest, taxes, depreciation and amortization, a measure of operating profit) could increase by $3.2 billion to $3.5 billion on a full-year basis.