RIL investments in petrochem, refining to be complete by June: Ambani

RIL chairman says petrochemicals and refining business was poised to grow at 40-50% in earnings and cash flow

Reliance Industries (RIL) expects some of its large investments in the petrochemical and refining business to near completion in the next one year.

"For all the investments we have made in Jamnagar, we will be operational. This investment cycle year will be over and we expect to bear the fruits in our 40th year," said Mukesh Ambani, chairman, at the annual general meeting on Thursday.

On the petroleum exploration and production business, he said the company was not going to withdraw the cost-recovery arbitration it had initiated against the central government on the D6 block in the Krishna-Godavari (K-G) basin.

About five years earlier, it had started an ambitious $12-billion investment project for its petrochemical business. Part of this was to set up petcoke integrated gasification combined cycle (IGCC) plant and a refinery off-gas cracker (ROGC) unit. The company aims to complete the former by the first half of 2017, Ambani said. "We are now close to completing the construction of this mammoth project and target it to be mechanically complete in the first half of next year."

The refinery off-gas cracker in Jamnagar, he said, is targeted to be mechanically complete by this December. For its planned imports of ethane from USA as feedstock for the cracker business, Ambani added the required dedicated ships are expected to be delivered over the next two quarters.

"This project involves dedicated ships, pipelines and modification to existing facilities and the full project will be ready by the end of this financial year....(there is a) delay of a few months; however, at this large scale, such delays do not matter. We expect 60-70 per cent of the benefits of these investments to come in the second half of financial year 2017-2018 and the remaining should be evident by 2018-2019. These projects will need a good amount of stabilisation," said an analyst with a domestic brokerage, who did not wish to be identified.

Petrochemicals and refining is its largest revenue contributor. Refining and marketing in the April-June quarter reported segment revenue of Rs 56,568 crore and the petrochemical division reported Rs 20,718 crore as segment revenue for the same period. In the same quarter, consolidated revenue was Rs 71,451 crore.

Ambani added the petrochemicals and refining business was poised to grow at 40-50 per cent in earnings and cash flow. "The size and scale of Reliance Industries' best-in-class refining assets should continue to drive earnings near-term, and the jump from the $40 billion of investments across telecom, gasifier, ROGC and petchem should be visible from the fourth quarter of financial year 2016-2017, resulting in substantial free cash flow from financial year 2017-2018," analysts from JP Morgan India and JP Morgan Securities wrote in a note this Monday.

On the exploration and production division, Ambani added, the company would evaluate development plans to monetise the remaining resources of the KG-D6 block. The company's coal-bed methane blocks in Madhya Pradesh are also expected to commence production in this financial year. RIL, added Ambani, had so far divested interests worth $1 billion in its midstream business and would look for further monetisation opportunities. Investment in its shale gas business continue to remain in capital preservation mode, on account of low commodity prices. The upstream business did not make any contribution to its net profit, though Ambani remains hopeful. "Our upstream business in partnership with BP will also have long-term value," he said in his closing remarks.