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Business News/ Companies / News/  Reliance Jio launch in December, says Mukesh Ambani
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Reliance Jio launch in December, says Mukesh Ambani

Mukesh Ambani lays out ambitious plans for much-awaited telecom venture, roadmap for RIL's e-commerce entry

Mukesh Ambani also announced expansion of the retail business network from 200 cities to 900 cities over the next year. Photo: AFPPremium
Mukesh Ambani also announced expansion of the retail business network from 200 cities to 900 cities over the next year. Photo: AFP

Mumbai: Reliance Industries Ltd (RIL) will commercially launch its much-awaited telecom services in December, having spent more than 85,000 crore to build a network that will take on established operators such as Bharti Airtel Ltd and Vodafone India Ltd.

India’s most profitable company chose the annual shareholders’ meeting to address concerns related to issues surrounding its heavy investments in the telecom business through its Reliance Jio Infocomm Ltd (R-Jio) unit.

“As we speak, we have an end-to-end initial capacity to serve in excess of 100 million wireless broadband and 20 million fibre-to-the-home customers," chairman Mukesh Ambani said at the company’s 41st annual general meeting (AGM) on Friday.

“Over the next few months, we will initiate an extensive beta launch involving millions of friendly customers across all our markets. This beta programme will be upgraded into commercial operations around December of this year. I am glad to announce that financial year 2016-17 will be the first full year of commercial operations for R-Jio," he added.

R-Jio, which got a telecom licence in June 2010, plans to provide 4G (fourth-generation) services, using LTE (long-term evolution) technology, in the 800 megahertz (MHz), 1800MHz and 2300MHz bands through an integrated ecosystem. With access to these bands, R-Jio has spectrum in 20 of the 22 circles in the country in the 800MHz and 1800MHz bands. The firm has access to the 2300MHz band across all 22 circles.

Ambani said the company’s telecom unit is now present in all 29 states of the country, with a direct physical presence in nearly 18,000 cities and towns and over 100,000 villages. “We are expanding this footprint to cover nearly 80% of India’s population by the end of this year. Our roadmap is to have 100% national coverage within the next three years," he added.

By April next year, R-Jio will connect over a million homes via fibre with a capacity to rapidly scale up in the top 50 cities of India, Ambani said.

While the update on telecom was much awaited, it has failed to allay concerns related to its R-Jio venture.

“R-Jio’s entry on this scale could be potentially disruptive. However, R-Jio lacks competitive advantage. The sector already has formidable players who lack neither technology nor capital," said Mahesh Uppal, director of Com First, a consulting firm on regulation and policy related to various sectors, including telecom.

He said telecom is a services business where good project management skills and deep pockets are not sufficient for success. RIL is yet to demonstrate strength in a services business.

Ambani spent half of his hour-long speech on telecom, underscoring the importance the company attaches to the venture.

He said R-Jio has been working with several phone makers to introduce a complete spectrum of 4G-enabled smartphones which can cater to high-end as well as entry-level customers.

“The combination of R-Jio’s strong initiatives and a supportive global environment gives me the confidence that we will see 4G LTE smartphones in India at prices below 4,000 by December of this year," he said.

Retail push

Ambani also laid out a road map for the company’s entry into e-commerce.

Reliance Retail will expand its presence to 900 cities from the current 200 over the next one year, across all formats, Ambani said. After nine years of operation, Reliance Retail has emerged as the biggest organized retailer in the country, with revenue of 17,640 crore and an operating profit of 417 crore.

The five categories where Reliance Retail currently operates are the value format comprising stores such as Reliance Fresh, Reliance Super, Reliance Mart and the wholesale cash-and-carry business; the digital segment with sub-segments called Reliance Digital, Digital Express and Digital Express Mini; jewellery; fashion and lifestyle; and the brands format, under which the company offers international premium and super-premium brands.

Ambani, in his address, said the company is now readying for its next level of growth, and is contemplating an entry into the e-commerce space.

“This year will bring about a disruptive shopping experience for consumers as they embrace technology and get access to anytime-anywhere shopping. With the advanced Internet infrastructure built by R-Jio and a robust physical retail business built by Reliance Retail, we will create a differentiated e-commerce model for India," said Ambani.

He did not provide details on how the forthcoming telecom network will integrate with the retail e-commerce strategy and the synergies that will bind the two.

“The world over, there is no precedent of any telecom company venturing into retail and e-commerce because of some obvious synergy available. If there was one, it would have been done by several other players," said an analyst with a domestic brokerage firm. He did not want to be named as RIL is not under his coverage.

The analyst said if RIL manages to innovate a strategy to combine both, it will be the first and set a precedent.

Refining and petrochemicals

Refining and petrochemicals are RIL’s mainstay businesses, with the two divisions contributing almost 90% of the company’s revenue. It also runs a flagging domestic exploration and production (E&P) business.

In March 2012, RIL embarked on a $12 billion (around 76,800 crore today) capital expenditure programme spread over four years which envisaged augmenting petrochemical capacity by 66% and a near-doubling of its profits from core operations by the end of fiscal 2016-17.

“Reliance has embarked on a journey of investing over 2 trillion on building new facilities and creating new businesses that will come to fruition in the next 12-18 months. These investments will build new capacities, strengthen our global positions, improve the return on capital and make our existing refinery and petrochemical businesses among the most competitive in the world," said Ambani.

A major part of the capex was directed at setting up of a petcoke integrated gasification combined cycle (IGCC) plant and a refinery off-gas cracker (ROGC) each costing $4-5 billion.

The IGCC project entails converting the petcoke produced internally at its Jamnagar refinery into gas which can be used as a feedstock for its refinery, while freeing up the gases released in the refinery which was earlier captured and used as feedstock. These freed-up gases are then converted into petrochemicals using the ROGC process. Both the projects are expected to be completed by the end of the current fiscal year and are likely to boost its gross refining margin—the major determinant of the company’s profitability—by almost $2.5 per barrel, RIL informed analysts during a meeting after its results on 17 April.

“We expect around $17 billion of investments in core business projects till FY 2017, including $12 billion of capital WIP (work-in-progress) and $5 billion of incremental capex, to drive a robust 57% growth in standalone EBITDA (operating profit) and yield 14% adjusted CRoCI (cash return on capital invested) in FY 2018, despite assuming a moderation in global benchmark margins from current high levels," said a 8 June report by Kotak Securities Ltd.

Ambani told shareholders that while the company will continue to invest in India’s E&P sector, it is imperative for the government to get “the risk-reward balance right and provide marketing and pricing freedom".

The company’s ambitious D6 oil and gas block in the Krishna-Godavari basin has been struggling with a fall in production since 2010 because of geographical challenges in the block. At the same time, the company is also locked in two arbitrations with the government in terms of cost recovery and pricing of natural gas.

Ambani said RIL is hopeful that the government will resolve these issues keeping in mind the larger interest of encouraging investment in the oil and gas exploration business.

However, till now there has been no hope in sight for the company and its partners in the block.

These disappointments on the E&P front have ensured that RIL’s shareholders remain a worried lot.

The shares of RIL have underperformed the benchmark Sensex for the last seven years, saddling its shareholders with low returns on their investments. At the same time, in the last two years, RIL has also become a net debt company with total debt (as on 31 March) at 1.6 trillion against cash and cash equivalents of 84,472 crore.

“The board is committed to reward shareholders with a combination of dividend bonus and buy-back post the completion of the investment cycle," said Ambani in his closing remarks during the AGM.

He did not answer questions raised by shareholders.

On Friday, the company’s shares rose 1.36% to close at 889.15 apiece on BSE, while the exchange’s benchmark Sensex gained 0.21% to 26,425.30 points.

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Published: 12 Jun 2015, 02:00 PM IST
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