Reliance to invest $18B in 5 yrs to expand biz; Targets to double operating profit

If growth in the topline of Reliance Industries, the country’s biggest company by market value (and one of the biggest in revenues and profits), is taken as a proxy, it should be one of the hottest blue chips around. But it’s not. The problem shows up in bottomline even as the energy giant is trying to expand its horizons in the consumer-centric businesses of retail and digital communication.

Reliance Industries has seen its consolidated revenues grow almost threefold (2.6x, to be precise) between FY2008 and FY2012 to Rs 3.58 lakh crore but its net profit has budged up a mere 1 per cent in the same period. Not surprising that it is one of the laggards among the blue chip stocks.

So when group chief Mukesh Ambani, in his annual interaction with the company’s shareholders, said, “I have set myself the target to double the operating profit of your company in about five years,” it would be interesting to see if he hits the bull’s eye.

Reliance Industries' scrip rose a shade less than 1 per cent to close at Rs 720.7 a share on the BSE on Thursday.

In his speech in the company’s AGM on Thursday, Ambani said that the firm was looking to invest Rs 1 lakh crore ($18 billion) to scale up its diversified businesses over the next five years. He also said that the group was looking at the consumer business as the ‘second dimension’ for future growth and disclosed plans to enter two new segments related to its core petrochemicals business.

Reliance is now building a presence in elastomers, a product used in tyre and automobile industry. The company is building capacities at Hazira and Jamnagar to become the largest producer in India and among the top 15 in the world. The other category is acetyls, which will help it build presence in coatings, adhesives and paints market.

These two projects, coupled with ongoing greenfield expansion, will see the petrochemicals capacity rise from 15 million tonnes to 25 million tonnes, with value-added products commanding better margins.

Ambani also stressed on the big plans for consumer businesses, led by retail. According to him, Reliance Retail has garnered a business of Rs 7,600 crore and is now targeting growth of 5-6 times to hit Rs 40,000-50,000 crore over the next 3-4 years.

“With scale, supply chain integration and continuous learning, we expect this business to be profitable within the same time period and achieve a satisfactory return on capital,” he said.

However, he didn’t detail the plans for broadband wireless access business, nor gave a time frame for launching the services. According to Ambani, the company plans to provide a range of services in areas like education, healthcare, security, financial services, government-citizen interfaces and entertainment.

Giving a value creation roadmap, Ambani said that the company had grown by investing in new businesses of scale every five years – corresponding to the investment cycle in the energy chain. Reliance Industries is now ready for the next period of growth by investing across all core businesses, he said.

In the energy business, it will extend its India-centric vertical integration to a global partnership model and seek partnerships and investments in feedstock opportunities to reduce risk and improve margins.

“The consumer businesses offer a new value platform and will form a significant part of your company’s value in less than a decade,” he said.

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