Mukesh Ambani has no fresh investment plans

Mukesh Ambani’s Reliance Industries Ltd has not worked out any fresh investments plan for the next three years. The first indication of this came on September 1, when Ambani’s address to the shareholders at the AGM did not have a word on investment plans.

At a time when the country needs a mega refinery, investments in oil and gas exploration, as well as infrastructure, and the government talking about ‘ease of doing business’, the silence on future investment plans by Reliance Industries raises questions.

Why is the company, with a heavy balance-sheet — it is sitting on huge cash reserves of over ₹90,000 crore — not making any fresh investment proposals? Why the sudden halt when the company has been very aggressive in its investment till recently?

This could be due to RIL preferring to follow an investment pattern of five years and then taking a three-year break to consolidate before making fresh investments. Besides, Ambani has made commitments to shareholders for better rewards.

After a little prodding, those closely associated with the company reveal “while on policy front all right steps are being taken by the government, implementation is a different story.”

In the last five years, RIL’s investment has exceeded the company’s cumulative investment made in the previous 35 years. The biggest investment is of $40 billion, comprising ₹1,50,000 crore ($23 billion) in Jio and ₹1,10,000 crore ($17 billion) in refining and petrochemicals expansion.

RIL has had a rough run in its oil and gas exploration business, while the refinery journey has been smooth sailing.

The strategy adopted for the recently launched telecom business has made competitors nervous.

But, the investments made in telecom and oil & refinery will start fructifying in the coming financial year and strengthen the company’s balance-sheet further.

In the past two years, RIL’s earnings have grown substantially, despite the drop in oil prices to below $40 per barrel.

The complex configuration of RIL’s refineries and ability to process almost any kind of crude available globally provides flexibility in changing product mix as per market conditions and helps de-risk refining operations from the vagaries of fluctuations in crude prices.

In other words, it has a strategy in place to de-risk its revenue stream from the vagaries of volatility and cyclicality. But the operator of the country’s biggest private sector refinery-cum-petrochemical complex (the combined capacity of RIL’s two refineries in Jamnagar, Gujarat, is 60 million tonne per annum) is still not taking on any new challenges.

RIL, which operates the country’s east coast gas fields (KG-D6 block), also seems averse to taking up any exploration challenges. Its exploration team has not moved any fresh investment proposals to its board as yet. According to sources, RIL’s constant differences with the government on the interpretation of the production sharing contracts (PSCs), and arbitrations arising due to challenges it faced in the producing gas fields in the D6 block, have made it more cautious.

Adding to the woes is the latest $1.55-billion compensation demand made by the government for the benefits RIL and its partners would have got from the gas that has flowed from ONGC’s adjacent fields. RIL is challenging the government notice.

Indications are that RIL, one of the joint venture partners in the Panna-Mukta-Tapti (PMT) fields, is also not keen to renew the contract, which expires in 2019-2020.

The RIL stock has been under-performing the benchmark indices over a five-year period. As against the S&P BSE Sensex’s return of 55 per cent, RIL shares gained just 14 per cent in the five-year period.

However, the recent gains in share price lifted the market-capitalisation to a peak level of about ₹35 lakh crore.

But due to the weakness last week on global worries, the market-cap of RIL dipped marginally to ₹32.62 lakh crore.

COMMENT NOW