India’s largest company will soon turn debt-free. Reliance Industries Ltd, the country’s biggest company by market value, aims to be debt-free on a net basis in the year ending March, 2012, even as it seeks to foray into new business areas, its chairman Mukesh Ambani said in his annual address to the shareholders on Friday.
“Reliance will be completely debt-free, net of cash balances within the year 2011-12,” he said, which will help the company finance emerging opportunities. Reliance will get $7.2 billion from BP Plc., which is acquiring 30 per cent stake in 23 of its oil and gas fields in India and may receive an additional $1.8 billion linked to discoveries. The funds will help finance new ventures. It is currently sitting on cash and cash equivalents of Rs 42,393 crore or $9.5 billion.
But this was not enough for investors and Reliance shares closed at Rs 936.15 at BSE, down 1.65 per cent, after trading 1.7 per cent up before Ambani’s statement. The stock was the second-biggest loser in the 30-share benchmark index Sensex.
While some analysts feel that Ambani hasn’t offered anything big which is not previously known, others feel the plans to go debt-free don’t appear too positive as it shows that the firm does not have new ideas to expand. And that, too, at a time when its core business has not been sending the best growth signals.
Reliance Industries scrip has been one of the biggest reasons for the drag on Sensex over the past few months, as the firm has a high weightage in the index by virtue of its size.
Outlining the key achievements of the different businesses of the group, Ambani has indicated that retail is likely to be a major thrust area for Reliance Industries and the company will soon launch a cash-and-carry format. “This format will offer regional, national and international brands to millions of small traders and kirana shop owners,” said Ambani. RIL will compete with global biggies like Bharti Walmart in this segment in the domestic market.
Cash-and-carry is essentially a wholesale form of trade in which goods are sold to shop owners and not to retail consumers directly. In fact, such cash-and-carry stores are spread across 50,000-100,000 sq. ft. and are much larger in size than supermarkets.
Most international retail chains such as Germany’s Metro, Walmart and Carrefour who have entered India have started with cash-and-carry business where foreign investment is not restricted as in multi-brand retail to consumers. Reliance will be taking on these big international giants in this space.
Today, Reliance Retail is the largest food retailer in India. All specialty formats including electronics and apparel, are poised to attain market leadership position in the next two years, Ambani said.
“Reliance Retail is now at the inflection point of a new paradigm. We are positioning Reliance Retail to be the undisputed leader in retailing in India,” he added.
Reliance competes with Pantaloon Retail’s Big Bazaar in the fast-growing organised consumer retail market in India.
Ambani said that in the last two years, its Indian joint venture with UK’s Marks & Spencer has grown more than three times and is poised to become a leading retail chain in the country in the coming years. Vision Express, its optical retail format, crossed a milestone of 100 stores in its second year of operation.
“Hamleys is built on experiential shopping and has brought a new era in the evolution of the toy market in India. Our partnerships with Apple, Asics and Timberland continue to grow aggressively and expand their presence in the country,” he added. Reliance Retail has the biggest geographical footprint with over 1,000 stores across 86 cities.
The company also sees broadband and broadband-enabled digital services as a compelling business opportunity. “Reliance plans to create end-to-end solutions that address the complete digital value chain, including rich content, applications and services,” the billionaire said.
Without disclosing too many details, he added that the services would be in the domains of education, healthcare, entertainment, financial services and government-citizen interfaces.
Among other businesses, the group is increasing its polyester capacity to 3.6 million tonnes and its butyl rubber plant, to be located at Jamnagar, will have an initial capacity of 100,000 tonnes.