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Reliance Industries, India’s most valuable company, is undergoing a transformation—its fourth this century. Chairman Mukesh Ambani probably deserves more shareholder love than he is getting right now.

Delayed gratification is always a tough sell. Despite high interest rates, Reliance secured board approval last week to raise as much as 20,000 crore, equivalent to $2.5 billion, to pay short-term debt maturities and double down on its 5G cellular rollout, new energy ventures and to expand its retail business.

On the same day, the oil-to-telecom conglomerate said net profit fell 15% to 15,790 crore in the quarter ended Dec. 31, mainly hurt by windfall taxes levied by the government on its refined product exports.

The disclosures showed debt service costs had jumped 36% during the quarter as total outstanding borrowings ballooned. According to Morgan Stanley estimates, loan maturity and cash flow generation imply nearly $25 billion of bonds will need refinancing in the next three years. The company had $12.5 billion in capital expenditures in the first nine months of the year. Unsurprisingly, the diversified conglomerate’s shares have remained almost flat over the past year.

They may not remain under the weather. With a market capitalization of about $200 billion, Reliance’s shares fetch just 20 times prospective earnings—a ratio that has been coming down since the height of the pandemic, when they touched almost 30. Peer Adani Group’s flagship company Adani Enterprises, another diversified conglomerate, is trading at an eye-popping multiple of about 131 times earnings.

Kick-starting another growth engine would require investment in the interim, and debt servicing costs will probably remain elevated in the meantime amid tight monetary conditions. However, the ratio of Reliance’s net debt to trailing earnings before interest, tax, depreciation and amortization of 1.46 is about half of what it was during its previous investment cycle involving the launch of its telecom business. Adani’s is far higher, at 5.78 times.

Morgan Stanley believes that, in contrast to the past three cycles, Reliance’s operating cash flow will be only slightly lower than its projected $47 billion investment spending planned over the next three years. According to the bank, the upcycle in refining, improving domestic natural-gas production and higher chemical margins should more than support $16 billion in annual investments with a minimal rise in debt ratios.

Reliance has committed $25 billion of investment to provide 5G coverage to the remotest corners of India by December this year at more affordable rates than anywhere else in the world and another $75 billion to clean energy projects over the next 15 years.

Over the past two years, the conglomerate has expanded its retail business, adding nearly 6,000 stores to its footprint. During this increased capital allocation to new ventures, the core businesses have done well. Notably, its refining margins shot through the roof following Russia’s invasion of Ukraine as discounted crude flowed to India.

Aggressive capital allocation during a time of monetary tightening is making shareholders nervous, but a little more patience and a closer look at the financials should give them some peace of mind.

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