INDIA
S MOST RESPECTED COMPANIES NUMBER 2 RIL
Oil’s Well That Ends Well
With
its feet firmly set in traditional businesses, RELINCE INDUSTRIES LIMITED is now steadily moving into sectors that will
be dominant in the future
Like in earlier shareholder
meetings, Mukesh Ambani’s family — mother Kokilaben, wife Nita, son Anant and
daughter Isha — was present at the 39th annual general meeting of Reliance
Industries (RIL) held on 6 June. Kokilaben and Nita warmly greeted shareholders
and exchanged pleasantries with some whom they knew personally. This has been
the practice since the times of Dhirubhai, who used to treat shareholders as
family.
“The company always rewarded us with bonus shares and dividends. It protected share value through buybacks,” says a Mumbai-based shareholder. In addition to being a hit with shareholders, RIL has topped on other fronts too. So much so that in BW’s most respected companies survey it finishes in second place in the overall rankings.
Arvind Mahajan, executive director at KPMG, says the company has strengthened its ability to quickly design, execute and create a new business. Mahajan also credits RIL with having a board of veterans, which includes long-term company executives P.M.S. Prasad and Pawan Kumar Kapil. “RIL is investing heavily in sustainability too,” says Mahajan.
Over the years, RIL has moved out of its comfort zone of petrochemicals, refining and later, hydrocarbon exploration and production (E&P), into retail, 4G telecom services and shale gas. These moves have been further prompted by the company’s high cash flow, rising cash reserves and low debt. It generated a revenue of Rs 3,71,119 crore in the last fiscal — a 5.5 times increase in a decade. Profit went up three times during the same period to Rs 21,003 crore.
Deven Choksey, managing director of K.R. Choksey Securities, says RIL’s focus on building size and scale helped it become financially sound. “In five years, the new businesses will start contributing to the balance sheet in the same volume as the current performing verticals.”
The past 2-3 years have, however, been tough for the company. It was hauled up by the government for poor gas production at the Krishna-Godavari (KG) D6 basin. Globally, the euro zone crisis and the geopolitical upheaval in West Asia tested its marketing skills. But it has weathered the financial downturn better than most of its global and domestic peers thanks to the high gross refining margins at the Jamnagar refinery.
The lesser-than-expected production at KG D6 — 14 million standard cubic metres a day (mscmd) at present, according oil secretary Vivek Rae, versus a target of 80 mscmd — put a question mark on RIL’s technical competency. But the company managed to convince British giant BP Plc to take a 30 per cent stake in a majority of its upstream assets in 2011. After two years of inaction, in May 2013, RIL and its partners BP and Niko announced they had found large reserves of gas and condensate in one well of KG D6. Following this, the company has laid out an investment of $6.5 billion to enhance production. In addition, the government has approved a proposal to double the price of gas from 1 April 2014.
Compared to fiscal 2010, RIL’s dependence on refining went up 10 per cent in March 2013, considering its contribution to revenues. But a fall in natural gas production from the KG basin has shaved off nearly Rs 5,000 crore from the topline. The entire petrochemical business has, in fact, been volatile.
At the June shareholder meeting, Ambani unveiled a Rs 1,50,000-crore investment plan to create four strong portfolios. RIL has spent Rs 18,000 crore to buy spectrum, and begun the R&D for 4G service rollout. But Ambani has indicated that the launch will be around mid-2014.
In the retail business, Reliance Retail has turned cash flow-positive (earning before depreciation and income tax was Rs 78 crore). Ambani plans more investments in the business, which generated Rs 10,000 crore in revenues from around 1,500 stores. The year before, the company had clocked Rs 7,500 crore from 1,300 stores. With Ambani planning to infuse fresh money into retail, the value format’s CEO, Robert Cissell, is looking to build more hypermarkets of 50,000 sq. ft and more, rather than the small Fresh stores, where the margins are lower.
Even though RIL is India’s largest exporter of petrochemicals and refined crude, and the highest foreign currency borrower, it has few global assets. This may change with the investments in shale gas assets in the US. The company has also ventured into the competitive resource base of Marcellus and Eagle Ford Shale gas formations by entering into three joint ventures (with Chevron, Pioneer and Carrizo) in 2010. According to Ambani, “After building a materially significant business position in the US, Reliance is committed to expanding and creating similar positions in other countries.”
The company has signed a memorandum of understanding with a Venezuelan company to evaluate opportunities for the development of heavy oil fields in the Orinoco Oil Belt of Venezuela.
With its feet firmly set in its traditional businesses, RIL is now steadily moving into sectors that will be dominant in the future.
(This story was published in BW | Businessworld Issue Dated 09-09-2013) - See more at: http://www.businessworld.in/news/business/corporate/oil%E2%80%99s-well-that-ends-well/1042012/page-1.html#sthash.6BZ1aM0y.dpuf
“The company always rewarded us with bonus shares and dividends. It protected share value through buybacks,” says a Mumbai-based shareholder. In addition to being a hit with shareholders, RIL has topped on other fronts too. So much so that in BW’s most respected companies survey it finishes in second place in the overall rankings.
Arvind Mahajan, executive director at KPMG, says the company has strengthened its ability to quickly design, execute and create a new business. Mahajan also credits RIL with having a board of veterans, which includes long-term company executives P.M.S. Prasad and Pawan Kumar Kapil. “RIL is investing heavily in sustainability too,” says Mahajan.
Over the years, RIL has moved out of its comfort zone of petrochemicals, refining and later, hydrocarbon exploration and production (E&P), into retail, 4G telecom services and shale gas. These moves have been further prompted by the company’s high cash flow, rising cash reserves and low debt. It generated a revenue of Rs 3,71,119 crore in the last fiscal — a 5.5 times increase in a decade. Profit went up three times during the same period to Rs 21,003 crore.
Deven Choksey, managing director of K.R. Choksey Securities, says RIL’s focus on building size and scale helped it become financially sound. “In five years, the new businesses will start contributing to the balance sheet in the same volume as the current performing verticals.”
The past 2-3 years have, however, been tough for the company. It was hauled up by the government for poor gas production at the Krishna-Godavari (KG) D6 basin. Globally, the euro zone crisis and the geopolitical upheaval in West Asia tested its marketing skills. But it has weathered the financial downturn better than most of its global and domestic peers thanks to the high gross refining margins at the Jamnagar refinery.
The lesser-than-expected production at KG D6 — 14 million standard cubic metres a day (mscmd) at present, according oil secretary Vivek Rae, versus a target of 80 mscmd — put a question mark on RIL’s technical competency. But the company managed to convince British giant BP Plc to take a 30 per cent stake in a majority of its upstream assets in 2011. After two years of inaction, in May 2013, RIL and its partners BP and Niko announced they had found large reserves of gas and condensate in one well of KG D6. Following this, the company has laid out an investment of $6.5 billion to enhance production. In addition, the government has approved a proposal to double the price of gas from 1 April 2014.
Compared to fiscal 2010, RIL’s dependence on refining went up 10 per cent in March 2013, considering its contribution to revenues. But a fall in natural gas production from the KG basin has shaved off nearly Rs 5,000 crore from the topline. The entire petrochemical business has, in fact, been volatile.
At the June shareholder meeting, Ambani unveiled a Rs 1,50,000-crore investment plan to create four strong portfolios. RIL has spent Rs 18,000 crore to buy spectrum, and begun the R&D for 4G service rollout. But Ambani has indicated that the launch will be around mid-2014.
In the retail business, Reliance Retail has turned cash flow-positive (earning before depreciation and income tax was Rs 78 crore). Ambani plans more investments in the business, which generated Rs 10,000 crore in revenues from around 1,500 stores. The year before, the company had clocked Rs 7,500 crore from 1,300 stores. With Ambani planning to infuse fresh money into retail, the value format’s CEO, Robert Cissell, is looking to build more hypermarkets of 50,000 sq. ft and more, rather than the small Fresh stores, where the margins are lower.
Even though RIL is India’s largest exporter of petrochemicals and refined crude, and the highest foreign currency borrower, it has few global assets. This may change with the investments in shale gas assets in the US. The company has also ventured into the competitive resource base of Marcellus and Eagle Ford Shale gas formations by entering into three joint ventures (with Chevron, Pioneer and Carrizo) in 2010. According to Ambani, “After building a materially significant business position in the US, Reliance is committed to expanding and creating similar positions in other countries.”
The company has signed a memorandum of understanding with a Venezuelan company to evaluate opportunities for the development of heavy oil fields in the Orinoco Oil Belt of Venezuela.
With its feet firmly set in its traditional businesses, RIL is now steadily moving into sectors that will be dominant in the future.
(This story was published in BW | Businessworld Issue Dated 09-09-2013) - See more at: http://www.businessworld.in/news/business/corporate/oil%E2%80%99s-well-that-ends-well/1042012/page-1.html#sthash.6BZ1aM0y.dpuf
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