Mukesh Ambani is upping the ante on investment and growth projections for his flagship Reliance Industries (RIL) even in the backdrop of what he has termed two unprecedented economic shocks in the last five years.
Seemingly unperturbed by the regular run-ins with the petroleum ministry and the regulators, the RIL chairman and managing director aims to double the company’s operating profit in the next five years from Rs 34,508 crore in FY12, as it boosts spending and capacity in its core energy business and builds newer retail and telecom operations. Ambani talked about a proposed investment of Rs 1 lakh crore across businesses.
“We are now ready for the next period of growth at Reliance by investing across all our core businesses in new capacity and margin improvement projects,” Ambani told shareholders at RIL’s 38th annual general meeting (AGM).
The headline numbers were also meant to pacify the company’s retail and institutional investors sceptical of “unrelated investments” and diversifications into media, hospitality or education. Many of these investors also expressed their apprehensions publicly at the AGM.
The market wasn’t enthused by the projections. The RIL stock went up 0.92 per cent to Rs 720.70 on a day when the Sensex was up 1.18 per cent.
RIL’s businesses have been hit by inflation, subsidies and lower growth and its profits have fallen for the past two quarters.
Its falling stock price has seen it overtaken as India’s most valuable firm. According to RIL’s annual report, its net profit margin, or net profit as a percentage of revenue, fell to a 10-year low of 5.9 per cent in 2011-12, showing the company has to work hard to generate income from operations.
Speaking on the RIL-BP partnership, Ambani said it would bring in the best technology to achieve the best results. “Partnerships similar to the one with BP will be important for the company's growth; RIL has grown stronger due to the expansion of its asset base.”
Reiterating the company would continue to invest in India in the next decade, Ambani said investments in organised retail would create more jobs. Making it clear the group’s consumer-facing businesses would lead its second phase of growth, Ambani set a top line target of Rs 40,000-50,000 crore from retail operations alone in the next four-five years. The retail business will also see the group making an entry into the ready-to-eat food segment.
RIL officials added the company and BP were planning to import natural gas (LNG) from Australia and market it in India for domestic consumption. On RIL’s exploration and production business, Ambani said volatile crude oil prices and a subdued margin outlook for products had deterred profit growth. Adding that Reliance would continue to reinvest its cash flow in new projects to boost earnings, Ambani announced the setting up of a new gas-cracker plant at the Jamnagar refinery. In petrochemicals, RIL is betting on the elastomer and acetyl portfolio for higher growth. The petchem projects and their ongoing capex will start reflecting in the RIL financials in the next one-three years. In refining too, the company is using five new crude varieties to improve margins.
Acknowledging that gas reserves from the D1 and D3 fields in the KG-D6 block proved far more difficult for production, Ambani said, “RIL hopes to produce an additional 30 million cubic metres per day of gas at KG-D6. The additional production will be realised through further exploration and development at the field.”
Gas output at Reliance’s D6 block, is projected to decline to 20 million standard cubic metres a day (mscmd) in 2014-15 from 28 mscmd in the current fiscal year, lower than half the 60 mscmd RIL was producing in 2010 and far lower than the planned peak capacity of 80 mscmd.
Speaking on the 4G roll-out, Ambani said RIL was finalising plans to offer internet services in the key areas of education, security, financial services and entertainment on a nationwide basis. He said the company had a unique greenfield opportunity to create a state of the art digital services platform, without being constrained by any legacy issues.
RIL holds pan-India spectrum for broadband services. “We are confident that in the coming years, Reliance’s digital services would fundamentally change the lives of hundreds of millions of ordinary Indians,” Ambani said. “Our vision is to help develop the hard, soft and social infrastructure needed to create an integrated digital services business model,” he added.
