BackReliance Industries bets on India growth story
Reliance Industries unveils massive spending, expansion plans, looks to roll out Reliance Jio telecom venture next year
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Mumbai: Reliance Industries Ltd (RIL), India’s largest company by revenue, plans to spend in three years 75% of what it has invested in the past 37 years, as it returns in 2015 to the telecom industry after a decade’s hiatus and expands businesses ranging from oil to yarn and retail.
The company’s debt will multiply more than 33 times as a result, but it will return to debt-free status by 2017-18, chairman Mukesh Ambani said at RIL’s 40th annual general meeting (AGM) on Wednesday.
Over the next two years, RIL will focus on bringing its petrochemicals, refining, retail and telecom projects on stream.
“In the past 37 years, we invested ₹ 240,000 crore and in this current three years’ investment cycle, we will be investing over ₹ 180,000 crore," Ambani said.
Of the total investment planned, ₹ 70,000 crore will flow into RIL’s much-anticipated and much delayed telecom venture under Reliance Jio Infocomm Ltd. That will mark the return of RIL to the telecom business that Ambani’s younger brother Anil Ambani took over under a 2005 split of the family businesses.
RIL, in the middle of the largest investment programme in its history, is betting on the long-term prospects of the Indian economy as it seeks rapid expansion. The company’s three-year investment target has increased 20% from the ₹ 1.5 trillion it had set at last year’s AGM.
“...the commissioning of each of our large projects will propel us closer to our aspiration of being a Fortune 50 company," said Ambani, 57.
“What we are trying to do in the next three years is unique," Ambani said. “While we were debt-free, we will go up in debt to about ₹ 60,000 crore in the next two years. But our goal is that again in the year 2017-18, after one full year of 2016-17 we will be debt-free on a much larger basis," he said in response to a question from a shareholder.
The increase in debt would be temporary, most analysts said.
“As long as the company is generating sufficient cash flows equivalent to the debt being raised, there is not really much concern on the part of the investments and debt raised," said S.P. Tulsian, an independent investment advisor.
The company has its sights set firmly on the planned launch next year of its 4G telecom network.
Ambani said limited field trials for 4G services are in progress, and 2015 will see a phased launch of Reliance Jio’s network across India. He added that expanded field trials for Reliance Jio will start from August.
“The network and broadband services will be ubiquitous—initially covering all states, all the 5,000 towns and cities accounting for over 90% of urban India and over 215,000 villages in India in the first shot itself," said Ambani.
The timeline for the network’s rollout reflects a further delay in RIL’s telecom plans, said Harit Shah, a telecom analyst with Nirmal Bang Securities Pvt. Ltd. Some of this delay may be justified, he conceded.
“We believe this delay may be on account of testing for 4G in the recently acquired 1800MHz (megahertz) spectrum band in February, which has proven more efficient globally for 4G, rather than the 2300MHz band that Reliance Jio acquired in 2010," said Shah.
Last month’s acquisition of Network18 Media and Investments Ltd, which will provide RIL with content for its 4G platform, may be another reason that the rollout is being pushed back, he said.
The telecom venture has been delayed by more than 18 months, noted Manoj Alimchandani, a practising chartered accountant and an RIL shareholder. Investors have not seen major returns from the company’s shares in the last five years, he said.
Over the past five years, RIL shares have risen 5.37%, according to the BSE website. The shares have significantly underperformed the benchmark BSE Sensex, which gained 76.97%, and the BSE oil and gas index, which has risen 23.8% over the same period.
On Wednesday, RIL shares closed at ₹ 1066.80 per share on BSE, down 2.12% compared with the previous session, while the Sensex fell 1.08% to 25,246.25 points.
Detailing plans for RIL’s core petrochemicals business, Ambani said the business will get the highest allocation of capital and all new projects will be completed in the next 24 months.
RIL, which is currently embroiled in arbitration with the government on the issue of pricing of gas from its D6 block in the Krishna-Godavari (KG) basin, is in the process of carrying out appraisals of new discoveries and another block (CY-D5), said Ambani.
“Timely regulatory approvals and market-based gas prices are the key to developing these resources," said Ambani, adding that the company will work with the government to resolve the matter.
On its retail business, Ambani was silent on any specific expansion plans but said retail would be a “major growth engine for its consumer business" in the coming years.
Tulsian said Ambani had neither spelled out a plan for ramping up gas production from the KG basin nor had he given details on how retail would be a major growth driver.
“Retail is only contributing on the topline. But RIL does not have concerns on topline, I was expecting a one-year plan on how will these activities enhance the bottomline. I expect telecom to also go that way," said Tulsian.
Some shareholders at the AGM also questioned Ambani on when Reliance Retail and Reliance Jio would be demerged from RIL, and sought an initial public offering of its retail business. These steps would generate better dividends and bonuses, they said.
Ambani, in response, said RIL had delivered investors the highest returns in the last 40 years. “I assure you that your board and me, in particular, will make sure that whether it is bonuses, dividends or your suggestions, they are always taken very seriously," he said.
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