As the Chief Strategist and Group Director for Reliance Anil Ambani Group, Lalit Jalan wears multiple hats. But one of his biggest focus areas is on making Reliance Infrastructure a debt-free company by 2017.
To do this, the company has embarked on a strategy aimed at divesting non-core businesses and at the same time grow businesses such as defence and power distribution. BusinessLine met Jalan to find out more about this game-plan.
Reliance Infra is exiting from a number of verticals. What is the thinking behind such a move?
If Reliance Infra were to grow in verticals such as road construction, cement and metro, it would require huge capital. The payback time on these investments would take many years. Some of the projects require over ₹13,000 crore investments and revenues are only ₹800-1,000 crore. Therefore now we have decided to focus on Defence equipment manufacturing, electricity distribution and EPC construction businesses.
In the road infrastructure business a ₹3,000-crore investment fetches you revenues of ₹200 crore, but in the Defence business the same level of investment could earn revenues of ₹30,000 crore.
We will sell some of the infrastructure assets to foreign companies and funds, which are interested in annuity type of incomes.
What is the current state of the sell-off plan of your cement business, given that the plant has reached a capacity of 5.6 million tonnes and capacity utilisation of 72 per cent?
We are planning to monetise 5.6 mtpa of operational capacity cement business along with related assets of the company. The due diligence process is at an advanced stage and seven potential buyers have been shortlisted from 15 bidders and we expect to complete the transaction by the end of this calendar year.
Reliance Infra is looking to sell its roads portfolio too. By when will that deal be closed and how much do you expect to raise?
We have portfolio of 11 revenue generating road projects of 4,600 lane km with total investments of over ₹9,000 crore. These projects connect high growth urban corridors of Delhi, Bengaluru, Pune and Jaipur with significant traffic growth potential. We have shortlisted five international bidders and expect the transaction to be completed by end of this financial year.
Will the sale of assets make you debt free?
We decided to divest cement, roads and 49 per cent of Mumbai power distribution business. Today our debt is at ₹16,000 crore, which would be reduced by ₹7,000 crore after selling the roads and cement assets. Another ₹7,000 crore will come from the divestment of the Mumbai power business. Plus another ₹4,000 crore will come from equity in the power business. Therefore we will be debt free by 2017. We hope the issues in the Mumbai and New Delhi metro projects to get resolved and revenues to flow in from there.
Despite the asset sales, we expect a better EPS. From this base of zero debt we will grow Defence, power distribution and EPC construction businesses.
You have made several announcements in the defence business. How will you execute this given the huge capital involved?
We see a big opportunity in the Modi government’s Make in India programme for Defence manufacturing sector. Therefore we have taken 12 industrial licences and are applying for 16 more. Our engineering skills, low-cost production can help us become an indigenous arms maker with a potential for exports.
In Nagpur we are putting up a 300-acre Defence park, which will be our hub for aerospace business. Around the main manufacturing centre there will be other suppliers and ancillary units that will supply spares to the main company. An ecosystem would be built there for the Defence sector. The company will make warships to intelligent body armour for the armed forces.
Forty executives with domain expertise in Defence production have been inducted recently. The business will continue to be a subsidiary of RInfra. In August, the company had entered into a deal with the Russian Government company for manufacturing Kamov Helicopters.
What makes you so bullish on Defence business?
The Defence sector has relatively lower capital intensity, low gestation period unlike roads, minimal regulatory uncertainties and potential for superior return on equity. The opportunities in defence is expected to be ₹20 lakh crore over next 10 years – ₹500 crore/day.
What are your plans for the power distribution and EPC businesses?
Using RInfra’s skills we will participate in the Centre’s UDAY (Ujwal DISCOM Assurance Yojana) scheme, which has called for franchisee and privatisation of power distribution. Cities such as Jaipur would be coming under the scheme. A number of State governments have approached us for privatising their power distribution business.
Our EPC construction business does not require huge working capital therefore we are looking for EPC projects in smart cities and power plants and projects such as the Power Ministry’s Accelerated Power Development Reforms Programme.
What is the update on your production centre for land based Defence systems in Madhya Pradesh?
Our talks with the Madhya Pradesh government for setting up the centre are at an advanced stage. We are also scouting for land in Gujarat and another State.
At what stage is the 49 per cent stake sale in the Mumbai electricity business in? When do you expect to close the deal?
RInfra has signed non binding term sheet with PSP Investment of Canada wherein we will continue to hold controlling stake at 51 per cent. The due diligence process has started and we expect to sign the binding documents by the end of the financial year.