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Reliance to invest $26B in 3 years to expand business

06 June, 2013

The country’s largest company Reliance Industries has enhanced its proposed investment plan across businesses. In his AGM speech to shareholders, the company’s chief Mukesh Ambani said the firm will invest Rs 1.5 lakh crore ($26.3 billion) in the next three years across business lines spanning sectors including energy, petrochemicals, retail and communications.

This marks a significant ramp-up from the figure of Rs 1 lakh crore that Ambani said the firm will invest in next five years in his interaction with shareholders last year. He did not elaborate how the investment corpus would be spent across business lines but his focus on the core business in the speech indicates a bulk of it would be absorbed by the three related businesses of exploration and production, petroleum refining and marketing besides petrochemicals.

Reliance Industries recorded its highest ever turnover of Rs 371,119 crore and net profit of Rs 21,003 crore in FY13 with exports accounting for almost two-thirds of revenues. It continues to be India’s largest exporter, accounting for 14 per cent of the total exports from India and is the highest tax payer in the private sector, accounting for 4.8 per cent of the country’s total indirect tax revenues.

Reliance Jio – digital services business

He said Reliance Jio has grown from less than 700 professionals—most of them based in the Navi Mumbai campus—a year ago, to a national footprint of over 3,000 professionals today. He said the firm would add nearly 7,000 employees in the business in a year.

The firm has finalised the key vendor and supplier partnerships that are required for the initial launch of its 4G services.

“Our vision for India is that broadband and digital services will no longer be a luxury item—a scarce commodity—to be rationed among the privileged few. We envision an India where these are basic necessities to be consumed in abundance by consumers and small businesses alike, as much in far-flung villages as in our largest cities,” said Ambani, hinting at bringing down the cost of high speed internet access as the firm launches its operations.

He said the firm has charted an ambitious plan for the next 12 months. “Our impatience to reach our goal demands a sense of urgency, but not careless haste,” he said.

Retail

The firm’s six-year old retail business hit a milestone of crossing revenues of Rs 10,000 crore during the last financial year and achieved cash breakeven with earnings before depreciation, finance cost and tax expense (EBDIT) of Rs 78 crore.

He said the retail business would undertake multi-fold growth in the next few years by delivering over 50 per cent revenue growth in various formats year-on-year and is on its way to achieve revenue target of Rs 40,000 crore to Rs 50,000 crore as shared by the management last year.

During the year, Reliance added 184 stores across formats. The company now operates around 1,500 stores spanning 130 cities across India and covering an area of over 9 million square feet, Ambani said.

He said Reliance-One loyalty programme now enjoys patronage of over 13 million customers contributing 65 per cent to sales during the year.

Ambani said the value retail format has consolidated its position as the largest grocery retailer in the country and Reliance Trends has become the leading value fashion specialty retailer.

Petrochemicals

Reliance, the world’s largest producer of polyester fibre and yarn and the fifth-largest producer of polypropylene, is expanding its polyester capacity by 1.5 million tonnes per year to reach 4 million tonnes per year. The polyester filament yarn plant at Silvassa will be commissioned during the first half of the current financial year. This will be followed by a PET resin plant in the second half of this financial year at Dahej, making it the seventh-largest producer of PET in the world.

It will commission a million-tonne PTA plant in the first half of next year, followed by another plant of similar capacity within the next six months, taking the total PTA capacity to 4.3 million tonnes per year. Reliance will thus emerge as the third-largest producer of PTA in the world. It will also double its paraxylene capacity at Jamnagar over the next 30 months to become the second-largest producer in the world.

Reliance is building one of the world’s largest ethylene crackers, taking advantage of the refinery integration at Jamnagar. This project will be commissioned in the second half of financial year 2016 and would nearly double the ethylene capacity to 3.3 million tonnes per year. Downstream to the cracker, it will have the world’s largest LDPE plant, a swing PE plant and a glycol plant. This will make Reliance amongst the top five glycol producers globally. With implementation of these projects, it will be amongst the top five petrochemical producers in the world.

Petroleum refining and marketing

In the previous year, the refinery complex recorded its largest exports of 41.2 million metric tonnes valued at over $39 billion; gross refining margins improved to $9.2/barrel against $8.6/ barrel. As a result, Reliance’s refining and marketing business earned its highest ever EBIT at Rs 12,788 crore during 2012-13.

Oil and gas exploration and production

Talking about the company’s association with British Petroleum, Ambani said, “Our first success has been achieved in the MJ1 well in KG D6 block. Success that we now know has the potential to significantly add to our resource base.”

He said this gas and condensate reservoir is located two kilometres below the currently producing D1 D3 gas fields and has exhibited very good potential during the flow test. Over the next few quarters, more prospects have been lined up for exploration drilling in the Krishna Godavari and Cauvery basins.

“There have been challenges in sustaining production, which we are now addressing having received the requisite regulatory approvals. Various production augmentation efforts are underway including those to maximise recovery from the existing fields in KG D6 block. Additional hydrocarbon resources in the KG D6 and NEC25 blocks are planned to be developed over the next few years, subject to all necessary regulatory approvals,” Ambani said.

He said the firm is set to proceed with the development of two coal bed methane blocks in Sohagpur, Madhya Pradesh, and it is awaiting approvals to build a pipeline to connect to the major pipeline grid of the country for immediate utilisation of this gas by consumers.

The firm is targeting for first gas from these fields in 2015. With the development of CBM blocks, Reliance will become the largest player in the unconventional energy sector in India.

International oil and gas

Reliance ventured into the resource base of Marcellus and Eagle Ford shale gas plays in the US, by entering into three JVs (with Chevron, Pioneer and Carrizo) in 2010. Ambani said today Reliance is among the largest foreign investors in this business, with investments exceeding $5.7 billion as on March 31, 2013.

All the three JVs are now operational and are selling into markets in Pennsylvania and Texas. “With the current increase in the US gas prices, coupled with the continued focus on the liquid-rich acreages in the Eagle Ford area, technological advancement and on-going initiatives for reducing cost, this business is expected to grow sustainably over the next few years. US shale gas business of Reliance has more than doubled its revenues and EBITDA compared with last year. It has become a significant contributor to our E&P portfolio. Production from shale gas will be in excess of one-third of our aggregate production this year,” Ambani said.

The firm is planning to expand and create similar positions in other countries. As a first step, it has rationalised its international portfolio with profitable divestments of its positions in Kurdistan and Yemen and has signed a MoU with Venezuelan state-owned Petróleos de Venezuela, S.A., to evaluate opportunities to participate in development of heavy oil fields in Orinoco Oil Belt in Venezuela, the country with largest oil reserves in the world.

Ambani said the firm has been pre-qualified by Iraqi government to bid for the Al-Nasiriya Integrated Project for development of an upstream oil field and construction and operation of a 300,000 barrels per day petroleum refinery in Iraq, the country with second-biggest oil reserves in the Middle East.

Clicker here for highlights of Mukesh Ambani’s speech in 2012.

(Edited by Joby Puthuparampil Johnson)


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Reliance to invest $26B in 3 years to expand business

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