Amid wide speculations of a much public truce between the Ambani brothers at the 36th annual general meeting of Reliance Industries, RIL chairman Mukesh Ambani unfolded plans that would double its $80-billion enterprise value in the next decade. RIL, which is looking at a transformational phase mirroring the India’s economic growth, is hoping that sectors such as power, telecom, energy and retail would drive it.
RIL chairman cemented the peaceful overtures with the younger Ambani by saying, “Supply of gas to ADAG power plants is subject to Government allocation and the company looks forward to a harmonious and constructive relationship with ADAG.” The two brothers, estranged since 2005, recently scrapped a non-compete agreement allowing them to enter into each other’s domains. Anil Ambani, however, did not make an appearance at the AGM as was widely speculated.
Outlining RIL’s growth path, the elder Ambani brother said, RIL plans to foray into clean coal based power generation projects, hydel and nuclear power and alternate energy soon. Mr Ambani said, “There is tremendous opportunity in Indian power sector, which see higher demand for electricity at lower rate.” Power business is a natural extension of our energy portfolio, he added. Reliance has executed a 1 MW roof-top project at Thyagaraja Stadium for the Commonwealth Games in New Delhi. Reliance is also implementing a 5 MW solar electricity farm at a site near Jodhpur in Rajasthan. "This will be the largest solar electricity farm in India," he said.
Commenting on the AGM announcements, Ajay Parmar, Head (Institutional Research), Emkay Global Financial Services, does not see any immediate impact on RIL following its foray into power and broadband sectors. He said, "These are long-term investments, especially in green energy such as solar. In India, the solar power is at a nascent stage. However, Mr Ambani has shown the direction of RIL's way in the future. Afterall, as funding is not a concern for them, they can gain from whatever sector they enter into."
Deepak Pareek of Angel Broking sees the announcements as a positive move by RIL. The foray into new sectors shows the company moves in right direction. Their plans for partnerships and alliances in broadband space shows RIL's strong commitment for its foray into broadband space. "There is nothing new on expansion plans in oil & gas sector as the annaouncements were made in 2007," he said.
In telecom, RIL plans to offer 4G infocom services in India soon. Apart from that, a Wireless Innovation Centre will be set up in Mumbai to develop products for 4G. RIL plans strategic tie-ups and partnerships in broadband services. The company plans tie-ups with device manufacturers, infrastructure providers and content providers in broadband space.
RIL recently entered into an agreement last week to acquire a substantial stake in Infotel Broadband Services (P) Ltd. Infotel emerged as a successful bidder in all the 22 circles of the auction for Broadband Wireless Access (BWA) Spectrum conducted by the DoTse. RIL will invest about Rs 4,800 crore by way of subscription to fresh equity capital at par to be issued by Infotel Broadband. Post this investment, RIL will own 95% of the equity and Infotel Broadband will be a subsidiary of Reliance Industries Limited.
“In India, the broadband penetration is lesser than 1%. It is much higher in other countries such as China. With our new initiatives we hope to increase the penetration level to 4-5%. The new initiatives in broadband will enable the rural India get access to information easily.”
RIL has an investment in capex of Rs 21,943 crore in difficult operating environment and paid Rs 17,972 crore in taxes and duties an increase of 55%, he added.
Satyender Khatter, telecom Analyst, Elara Capital said, "RIL’s entry into the telecom space is beneficial for the stock in long-run as the future belongs to data services and data enabled applications. Since RIL is the only player having a pan-India BWA spectrum, the status gives it a sustainable competitive advantage. Further, adopting an asset-light approach puts it in a better competitive position as it provides a better bargaining power to RIL to secure infrastructure at competitive prices and it keeps the balance sheet light, therefore the impact of depreciation (of assets) at the PAT level earnings will be limited."
On the Supreme Court verdict in May 2010, on the oil and gas allocation and pricing issues with ADAG, Mr Ambani said, "The Supreme Court upheld, in most parts, the stand of Reliance Industries Limited. It has always been our position that we are, and continue to be, governed by the provisions of the Production Sharing Contract in all respects of the Petroleum Operations carried out by us. We have also been fully conscious that the Government of India has more than a significant say in these operations."
As and when the power plants of ADAG are ready to receive gas, we would commence supplies to them subject to Government granting allocations to these plants in the same manner as we do to all other plants to whom Government has allocated gas from the KG-D6 gas field, he said.
Reliance, the largest producer of polyester in the world with facilities in multiple locations in India and Malaysia, is focused on sustaining its leadership position by making significant investments in new capacities in India. The Asian demand for polyester will grow rapidly as several end-user industries are shifting their base to Asia.
RIL also setting up an integrated 2.3 million tons of Purified Terephthalic Acid, 540,000 tonne of Polyethylene Terephthalate complex at Gandhar and 360,000 tonne of polyester filament yarn plant at Silvassa.
In petrochemicals, Reliance is unleashing new projects, encompassing existing and new product-market domains. Mr Ambani said, "Currently, due to the current economic crisis, capacity building in this sector globally is at a low. This provides Reliance with a unique opportunity to build world scale capacity at competitive capital costs."
RIL is accelerating the implementation of off-gas cracker at Jamnagar announced in 2007. This off-gas cracker with over 1.5 million tonne per annum of olefins capacity with matching downstream capacities will be one of the largest facilities in the world. He said, "We will value-add kerosene to normal paraffin at Jamnagar to address the growth opportunity in the growing Indian detergent market."
Reliance, the largest player in the synthetic rubber business in India, plans to become one of the top 10 elastomer companies in the world by creating additional capacities of poly butadiene rubber at Baroda and styrene butadiene rubber at Hazira.
"In the next five years, our total investment in all the new polyester and petrochemical manufacturing facilities will be the largest investment in this sector to be made anywhere in the world at any given point of time," Ambani said.
On gas exploration, he said, "Accelerated development of discoveries in the blocks KG D6 in the Krishna-Godavari basin, NEC 25 in the Mahanadi basin, CB10 in the Cambay basin and Coal Bed Methane in Sohagpur, Madhya Pradesh are our priorities. Within just one year of start-up, Reliance has ramped up production at KG-D6 and supplied about 510 billion cubic feet of natural gas to the nation."
"Internationally, we shall be drilling the first exploration wells in our assets in Kurdistan in Northern Iraq and in East Timor. In Colombia, Yemen, and Oman we shall continue our efforts through application of cutting edge technology to establish the presence of petroleum systems within our acreages. Shale Gas is the most promising development in the energy area in North America. It is likely to overtake both conventional gas as well as liquid fuels as a source of energy within the next decade."
Shale gas development represents a low level of geological risk as the gas is trapped in rock across a wide geographical region in excess of tens of millions of acres. Reliance aspires to build a significant position in the shale gas business, he added. By entering into a partnership with Atlas Energy to acquire a 40% interest in Atlas’s core Marcellus shale acreage position in the USA, Reliance has access to approximately 343,000 acres of undeveloped land with estimated gross resource in excess of 13 trillion cubic feet of gas.
On retail front, he said, Reliance Trends, Reliance Footprint, Reliance TimeOut, Reliance Jewels will roll out their ambitious expansion plans. "I believe that organised retailing in India is poised to take off to the next orbit of growth, and that your company is well equipped to be a national leader in this space," he said. He expects RIL's retail business to register 10-fold growth over next five years to be national leader to Rs 45,000 crore business from Rs 4,500 crore currently.
The RIL share price decreased to Rs 1,066. 45, down by 0.45% or Rs 4.85 on BSE at 12.45 today.