The decision last week to defer a gas price hike until September is a setback for Reliance Industries (RIL) in terms of further delay and uncertainty on the new price.

The disappointment saw the RIL stock losing ground last week.

The stock had earlier gained smartly since February on hopes of quick and favourable gas pricing reforms and likely benefits from growth initiatives But for investors with a long-term perspective, the stock is still a good buy. One, valuations are not demanding. The stock trades at a reasonable 13 times the trailing earnings — lower than the 15-17 times it has traded in the past. More importantly, in the next two-three years, the company’s ongoing massive investment programme, worth about ₹1.8-lakh crore across its businesses, should give a boost to its now tepid earnings growth.

A chunk of this investment will be used to increase capacity across the petrochemicals chain, which will strengthen its position internationally. A petcoke plant will enhance its product basket and reduce the dependence on costly imported gas.

Big investments are also envisaged in the retail business. Telecom, which has the potential to be a major growth driver is a big focus area, with the company planning to invest ₹70,000 crore.

While RIL’s domestic business is struggling due to the KG-D6 block issue, its international business is doing quite well. The domestic exploration business now pulls much less weight (6-7 per cent) in terms of standalone operating profit, from nearly a third in June 2010.

That said, an increase in the domestic gas price, which should encourage additional output, will be a positive.

With a cash hoard of nearly ₹90,000 crore and with debt-to-equity less than one as of March 2014, funds are not a constraint for RIL’s growth ambitions.

The company expects its net debt (debt less cash) to increase to about ₹60,000 crore over the next two years but envisages a return to net debt-free status after that.

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