RIL to invest $27 billion in next four years: report

Deutsche Bank report says RIL at cusp of next capex cycle; amount 50% more than Mukesh Ambani stated in June ’12

RIL’s management expects its money-losing retail venture to break even next fiscal, the report said. Photo: HT

Mumbai: Reliance Industries Ltd (RIL) will invest around $27 billion (Rs.1.47 trillion) in the next four years till the end of fiscal 2017 across its various businesses, according to a Deutsche Bank AG report issued after its analysts met one of the company’s two joint chief financial officers (CFOs). The number is about 50% more than the estimate mentioned by RIL chairman Mukesh Ambani in June last year.

“We believe RIL is at the cusp of its next capex (capital expenditure) cycle as it invests around $27 billion over FY13-FY17 (85% in its core business),” said the 11 March report by analysts Harshad Katkar and Amit Murarka.

In a related development, the report also said that RIL’s management expects its retail venture, which has been a loss-making one thus far, to break-even next fiscal.

RIL has two joint CFOs, Alok Agarwal and V. Srikanth. The Deutsche Bank report didn’t specify which of them it met.

The company reiterated its investment target in an email that it sent in response to queries.

“As highlighted in the past, we have plans to invest around Rs.100,000 crore over the next five years in India across our businesses,” the company said. “We are also planning to invest in a series of projects to develop around 4 trillion cu. ft of discovered natural gas from the KG-D6 block, which would entail a potential investment in excess of $5 billion over the next three to five years. RIL’s share would be around 60% for this potential investment.”

The company added that “any additional capital expenditures in Deutsche Bank’s report is based on their own estimates”.

Reliance said, “All these projects are proposed to be fully funded by RIL through a combination of export credit agency financing, accessing the public markets, syndicated loans and cash that exists on the balance sheet.”

The Deutsche Bank report provided a break-up of RIL’s proposed investment as per its calculations—$11 billion for exploration and production (including US shale gas), $4 billion on refining, $8 billion for petrochemicals, $3 billion on telecom, and $1 billion on retail.

The Deutsche Bank analysts noted that their meeting with RIL’s joint CFO convinced them of their bullish view based on expectations of approval for gas price increases in fiscal 2014; approvals for the company’s R-Series gas field in the Krishna-Godavari (KG) D6 gas reservoir and development plans in the next fiscal for the NEC-25 gas block; improving visibility on monetization of these discoveries; and the start of a new capex cycle.

The prospects of RIL’s hydrocarbons exploration and production business have begun looking up after a period of challenges over the last three years, especially with gas production from the flagship D6 reservoir in the KG basin falling.

The company and its British partner BP Plc have been lobbying for more remunerative gas prices. The demand may have received a boost with a committee led by C. Rangarajan, chairman of the Prime Minister’s economic advisory council, recommending a new formula for gas pricing in India. According to this, natural gas prices work out to around $8 per million British thermal unit (mmBtu), nearly double the current $4.2. To be sure, the pricing proposal is yet to be accepted by the government, although the agreement to supply gas at $4.2 per mmBtu ends next year.

 

 

 

Amit Singh

PGDM 2ndSem