 "5 key takeaways from Mukesh Ambani's AGM speech")
For those who expected some big announcements to be made by Mukesh Ambani during the 40th AGM of RIL, the event was a damp squib. Though the senior Ambani did not say anything that could move the stock price higher in the short term, the underlying message from the AGM gives an indication of the thought process and the direction the company is expected to take.
Following are the five key takeaways from Reliance’s AGM
1) Reliance will invest Rs 1,80,000 crore over the next three years with the lion’s share of investment going to the petrochemical business. Though the petrochemical segment delivers lower margin, this segment adds a lot of value to refining and feedstock streams and is the bread and butter earner for the company. Reliance has added 395,000 tonnes of polyester capacity during the year. Ambani said that all new petrochemical projects are expected to be completed over the next 24 months.
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2) After petrochemicals, retail and telecom will be the key area of focus for the company. On the retail business, Mukesh Ambani said that Reliance Retail is now the largest retailer by revenue. The company added 367 new stores in the previous fiscal. Ambani said that the retail operations will be a major growth engine for the company and was confident that the division would double every 3-4 years. The division is already profitable at the operating profit levels.
3) There were strong expectations that Mukesh Ambani will announce the exact launch date of its telecom operations. Instead he said that Reliance Jio will be launched in a phased manner in 2015. Ambani however, gave some important insights into the business. He disclosed that the 4G services of Reliance Jio has already attracted an investment of Rs 70,000 crore. Though limited trails are currently on, the company will be expanding the field trials from August 2014. In the first phase, Reliance Jio will be covering 5,000 towns and 2.5 lakh villages. The fact that Reliance Jio will catapult Reliance to the bigger league can be judged from the fact that Ambani has said that it will be one of the largest wealth creator businesses of the company and push the company to the Forbes top 50 list in the next 2-3 years. None of the analysts covering the company are as bullish as Ambani on this business, but if the company is able to deliver on the numbers, we can see a big re-rating in Reliance.
4) Though Mukesh Ambani did not talk much about the contentious KG D6 gas basin, most of the talking was already done in the document on the issues titled “India has never been here before. Facts you did not know about KG-D6” which was given to shareholders [Read here]. Ambani however said that they are working with the government to resolve issues concerning KG-D6 production. He also added that efforts are being made to maximise production from KG-D6 wells and that the company was also assessing the potential of new gas discoveries in India. The company has also started work on coal based coal bed methane gas production. Reliance has also started work on coal gasification project. Reliance intends to add more oil and gas assets by evaluating opportunities in Venezuela.
5) Mukesh Ambani seems to have addressed a key concern of the analysts on deployment of excess cash. Ambani said that next three years will be transformational for the company. Reliance’s profit has been range bound for the last five years though turnover has doubled and the business has generated strong cash flows.