MUMBAI: Mukesh Ambani is upping the ante on investment and growth projections for his flagship Reliance Industries (RIL) even in the backdrop of what he has termed two unprecedented economic shocks in the last five years.
Seemingly unperturbed by the regular run-ins with the petroleum ministry and the regulators, the RIL chairman and managing director aims to double the company’s operating profit in the next five years from Rs 34,508 crore in FY12, as it boosts spending and capacity in its core energy business and builds newer retail and telecom operations. Ambani talked about a proposed investment of Rs 1 lakh crore across businesses.
“We are now ready for the next period of growth at Reliance by investing across all our core businesses in new capacity and margin improvement projects,” Ambani told shareholders at RIL’s 38th annual general meeting (AGM).
The headline numbers were also meant to pacify the company’s retail and institutional investors sceptical of “unrelated investments” and diversifications into media, hospitality or education. Many of these investors also expressed their apprehensions publicly at the AGM.
The market wasn’t enthused by the projections. The RIL stock went up 0.92 per cent to Rs 720.70 on a day when the Sensex was up 1.18 per cent.
RIL’s businesses have been hit by inflation, subsidies and lower growth and its profits have fallen for the past two quarters.
Its falling stock price has seen it overtaken asIndia’s most valuable firm. According to RIL’s annual report, its net profit margin, or net profit as a percentage of revenue, fell to a 10-year low of 5.9 per cent in 2011-12, showing the company has to work hard to generate income from operations.
Speaking on the RIL-BP partnership, Ambani said it would bring in the best technology to achieve the best results. “Partnerships similar to the one with BP will be important for the company’s growth; RIL has grown stronger due to the expansion of its asset base.”
Reiterating the company would continue to invest inIndiain the next decade, Ambani said investments in organised retail would create more jobs. Making it clear the group’s consumer-facing businesses would lead its second phase of growth, Ambani set a top line target of Rs 40,000-50,000 crore from retail operations alone in the next four-five years. The retail business will also see the group making an entry into the ready-to-eat food segment.
RIL officials added the company and BP were planning to import natural gas (LNG) fromAustraliaand market it inIndiafor domestic consumption. On RIL’s exploration and production business, Ambani said volatile crude oil prices and a subdued margin outlook for products had deterred profit growth. Adding that Reliance would continue to reinvest its cash flow in new projects to boost earnings, Ambani announced the setting up of a new gas-cracker plant at theJamnagarrefinery. In petrochemicals, RIL is betting on the elastomer and acetyl portfolio for higher growth. The petchem projects and their ongoing capex will start reflecting in the RIL financials in the next one-three years. In refining too, the company is using five new crude varieties to improve margins.
Acknowledging that gas reserves from the D1 and D3 fields in the KG-D6 block proved far more difficult for production, Ambani said, “RIL hopes to produce an additional 30 million cubic metres per day of gas at KG-D6. The additional production will be realised through further exploration and development at the field.”
Gas output at Reliance’s D6 block, is projected to decline to 20 million standard cubic metres a day (mscmd) in 2014-15 from 28 mscmd in the current fiscal year, lower than half the 60 mscmd RIL was producing in 2010 and far lower than the planned peak capacity of 80 mscmd.
Speaking on the 4G roll-out, Ambani said RIL was finalising plans to offer internet services in the key areas of education, security, financial services and entertainment on a nationwide basis. He said the company had a uniquegreenfieldopportunity to create a state of the art digital services platform, without being constrained by any legacy issues.
RIL holds pan-India spectrum for broadband services. “We are confident that in the coming years, Reliance’s digital services would fundamentally change the lives of hundreds of millions of ordinary Indians,” Ambani said. “Our vision is to help develop the hard, soft and social infrastructure needed to create an integrated digital services business model,” he added.
INDIA REDUCES MAY IRAN OIL IMPORTS BY 38 PER CENT
NEW DELHI: Indian refiners cut imports fromIranby 38% in May from a year ago, tanker discharge data showed, in a second month of steep reductions as they switch suppliers to cushion the impact of newUSsanctions onTehran.
The cutbacks raiseNew Delhi’s chances of winning a waiver similar to that granted by theUnited StatestoJapanand some European countries after “substantial” reductions in their imports.Indiais discussing withWashingtonan exemption from the sanctions, which focus on banking and are being imposed overIran’s disputed nuclear programme, a source had said.
ChinaandIndiaareIran’s biggest crude clients and reductions in their purchases are crucial to Western attempts to crank up the pressure onTehran. Neither has officially sought a waiver, although both have cut volumes.
Indiaimported about 243,000 barrels per day (bpd) of oil fromIranin May, down about 10% from April and about 38% from 394,000 bpd a year ago, the data showed. In April — the first month of new contracts — imports fromIranslid nearly 40% from a year ago.
Falling imports from the Opec member have pushedIranto fifth position in the list ofIndia’s crude suppliers in April-May, compared with the third position it enjoyed a year ago and second in the first quarter of 2012.
Refiners are expected to cut volumes they ink under term deals that started April 1 by more than 20%, according to Reuters calculations, while the government says it aims for imports to be down 11% from 2011/12 liftings to about 310,000 bpd.
Indian refiners may lift significantly lower volumes out ofIranfrom July, when European sanctions will severely reduce the availability of insurance cover for cargoes and vessels.
Among Iran’s other Asian buyers, South Korea plans to halt all imports by the time the European measures hit, industry sources have said, and Japan could follow suit unless Tokyo provides a sovereign insurance guarantee for oil tankers.
Indian refiners have been asked privately by the government to cut Iranian oil imports by at least 15%, even though publiclyNew Delhidoes not support unilateral sanctions, according to government officials. The refiners are making up for the shortfall in Iranian cargoes by raising imports from the world’s biggest exporter,Saudi Arabia, as well as fellow Opec memberIraq.
The 12-member Organisation of the Petroleum Exporting Countries (OPEC) pumped 31.80 million bpd in May, up from 31.75 million bpd in April, a Reuters survey found.
INDIAN OIL SEEKS 120,000 TONNES DIESEL ON DEMAND
SINGAPORE: Indian Oil Corp. has emerged in the spot market for the second time in two weeks to seek diesel due to increased demand and refinery maintenance, industry sources said on Thursday.
The company’s latest requirement brings its total diesel needs in the spot market to 180,000 tonnes for delivery in June and July, they said.
India’s biggest refiner plans to shut a crude unit and a fluid catalytic cracking unit (FCCU) at its 150,000 barrels-per-day unit at Haldia plant in June for maintenance.
IOC will also shut a vacuum distillation unit (VDU) at its 274,000 bpdGujaratrefinery during June-July for maintenance. But details, including duration of the planned shutdowns, are not known.
The shutdowns are expected to increase the company’s diesel needs as it tries to meetIndia’s growing demand for diesel-powered vehicles, which accounted for more than 40 percent of new car sales inIndiain the year to March 2012.
In its latest tender, Indian Oil is seeking two 60,000-tonne diesel cargoes with a sulphur content of 320 parts-per-million (ppm).
The first cargo is for delivery into Chennai, Haldia and Paradip over June 28-30 while the second cargo is for delivery into Chennai, Vizag and Haldia over July 7-9.
The tender closes on June 14. Last week, the company issued a tender seeking 60,000 tonnes of diesel for delivery into Chennai, Vizag and Paradip over June 19-21. That tender closed on June 6 and is valid until June 7.
GAIL SAYS SHALE INVESTMENTS TO HEDGE US LNG IMPORTS
KUALA LUMPUR: GAIL (India) Ltd has around $1 billion to spend on shale gas assets in North America, which will act as a hedge against planned imports ofU.S.liquefied natural gas, a company executive said on Thursday.
“We need gas, so equity gas is also required,” Prabhat Singh, director marketing of GAIL India, told reporters on the sidelines of the World Gas Conference inKuala Lumpur.
GAIL signed a deal with U.S.-based Cheniere Energy in December to buy 3.5 million tonnes of LNG a year under a 20-year contract starting from 2017.
It has also been in talks with Macquarie Energy, which has a share in the U.S.-based Freeport LNG project, and last year, agreed to buy a 20-percent stake in one of Carrizo Oil & Gas Inc’sU.S.shale gas assets for $300 million.
India,Asia’s third-largest economy, is already the world’s eight-largest importer of LNG. Those imports could rise five-fold in the next decade as its domestic gas output falls and demand surges.
RIL’S NEXT BIG BET: THE INDIA GROWTH STORY
MUMBAI: Despite the immediate macroeconomic circumstances, oil-to-yarn and retail conglomerate Reliance Industries Ltd (RIL) has linked its fortunes to what it believes to be the bright future growth cycle forIndia.
While it is very much in keeping with its tradition of discovering a new growth cycle nearly every five-six years for the last three decades, it may yet be the riskiest bet given the lengthening shadows over the global economy and an uncertain domestic political environment that has roiled policymaking.
Addressing the company’s 38th annual general meeting (AGM), Mukesh Ambani, RIL chairman, said the firm was uniquely positioned to tap the emerging growth sectors in the country, such as automobiles and the digital economy, even as it consolidated its hold in the core hydrocarbons business. Keeping with the AGM’s theme, Partnering forIndia’s new future, Ambani disclosed that RIL is looking to “align its own growth toIndia’s growth as a strong, prosperous and self-confident nation”.
“We believe thatIndiais poised to be one of the growth engines of the global economy over the next decade. Its demographics, talent pool and a democratic society give it a unique position among emerging countries globally,” Ambani added.
The big question is, however, whether investors, who lately have been voting with their feet, restless over the rising pile of cash reserves and shrinking profits in the company and tired of the policy paralysis that has afflicted the Union government, will endorse RIL’s latest bet. They have been used in the past to superbly timed business investment decisions that had regularly set the company on a new growth cycle and latelyon rapid growth in sync with the unprecedented growth trend in the Indian economy. Each new growth cycle came as the earlier capex cycle started generating lots of free cash flow.
In the 1970s, the company was launched on a plan to compete in textiles, which later morphed into production of polymers in the early 1980s, and a few years later into the petrochemicals business. Thereafter, in the mid-1990s, the company developed verticals by going into the exploration of oil and gas, before taking the big bet on telecom and information technology—subsequently hived off when the company was split up between the two Ambani brothers.
“RIL may be looking at new avenues of growth that are consumer focused since it has to deploy the significant amount of surplus cash it has, and further growth opportunities in the oil and gas and refining businesses are limited,” said Shishir Bajpai, senior vice-president at IIFL Private Wealth Management. “It is too premature to say whether these new investments will fructify. Ambani has the vision and he is delivered on past projects. There is risk, but the amount of investment made so far isn’t too high compared to the company’s overall balance sheet.”
Ambani’s demeanour at the AGM indicated that the recent criticism of the company had begun to get to him. Usually a picture of calm, an emotional Ambani, clad in a black suit with a red-and-white check tie and accompanied by his family, defended the company’s strategy for future growth and sent out a strong message to the critics.
Some shareholders present at the meeting echoed some recent investor concerns about RIL’s ability to arrest the fall in gas production and improve output from its D6 reservoir in the Krishna-Godavari basin, investment into so-called non-core businesses such as media, and the company’s declining stock price. Fears of lower-than-expected gas output from D6 have also landed RIL in trouble with regulators such as the oil ministry.
“It is very easy to sit there and criticize, but I think the very fact that we have found gas in the Krishna-Godavari basin after 30 years should not be undermined by anyone,” Ambani said. “I am confident that our young engineers will deliver, and we should appreciate and support them. I expect you (shareholders), me, my entire board and the country to support them,” he said while responding to the observations.
Earlier, in his opening remarks, Ambani said RIL was targeting a sustained gas production of 60 million standard cubic meters per day in the next three-four years.
A senior RIL executive who works closely with Ambani stated that though rare, he has seen Ambani get upset earlier, especially when the company and its employees were criticized. “He doesn’t care about personal attacks, but he feels for the company and especially the young employees when they are targeted,” this executive said, on condition of anonymity. “He may have also wanted to send a strong message to his employees, especially those working towards improving D6 output, that the top management was firmly behind them.”
Throughout his 20-minute speech, Ambani defended RIL’s diversification plan, including investments in the consumer economy. “These new investments, on the back of a robust balance sheet, will create new waves of growth and value for Reliance,” he said.
After traversing the entire energy chain from hydrocarbon exploration to producing petrochemicals, RIL has invested in new businesses such as retail (which it commenced around five years back), high-speed wireless broadband and financial services. It has also made equity investments in other companies such as hospitality firm EIH Ltd, and in banks and financial institutions. While businesses such as fourth-generation (4G) wireless broadband and financial services are yet to take off, the retail arm is still posting losses, albeit narrowed, year-on-year.
The RIL chairman stressed that this was in line with the company’s founder and his father Dhirubhai Ambani’s strategy of investing in the future and reiterated that company will continue to put money in these ventures.
He expressed disappointment that some shareholders, despite being associated with the company for a long time, did not understand his late father’s philosophy and said that if RIL did not invest in forward-looking businesses, it would have remained a textile company.
Citing the benefits of the expansion across the full value chain, Ambani said, “We are now building the chain of consumer businesses. Across the world, the top value generators are energy companies and consumer companies. InIndia, we have the unique opportunity to create this new consumer business in 10 years in retail and digital services. All our investments will stick within these two (segments), and I want to assure each and every one of you that we do not have unrelated focus.”
In his address to shareholders, Ambani said RIL aimed to invest Rs.1 trillion across its various businesses inIndiaover the next five years to build a “stronger and more diversified Reliance”.
“We can achieve this growth while maintaining our financial strength. I have set myself the target to double the operating profits of your company in about five years,” Ambani told investors.
However, some were sceptical.
S.P. Tulsian, a Mumbai-based independent stock market analyst, found the company’s 2011-12 annual shareholders’ meet a routine affair that saw a vision statement from the chairman for the next few years without much specific clarity on current concerns.
“The statement of sourcing five new varieties of crude to boost refining margins and the fact that they have accelerated the share buy-back programme were slight positives,” Tulsian said.
“There was not much clarity on the cash surplus apart from the assurance that the cash will be invested in various businesses and the projects,” A.K. Prabhakar, senior vice-president of equity research at Anand Rathi Financial Services Ltd, said in a note on Thursday. “There was no talk on the telecom business front in terms of any plan roll-out going forward…and overall not much could be interpreted from the AGM.”
According to Ambani, the next wave of opportunity will emerge in the consumer economy and in meeting the needs of a rapidly urbanizing and growing Indian economy. While he did flag macroeconomic risks of high inflation, adverse foreign exchange movements, continuing state subsidies for petroleum products and a slowdown in overall growth, Ambani was convinced the country will realize its “latent potential for economic growth, opportunities for investments, and untapped entrepreneurial energies”.
WithIndiapoised to become a hub for automobile production in this part of the world, Ambani said this is opening up as an opportunity for elastomers—RIL is building a new global-scale business in the material—used in the manufacture of tyres and automobile accessories.
At the same time, increased urbanization, rising aspirations of consumers and their higher disposable incomes, Ambani said, have led to the transition from “need-to-have” products to “nice-to-have” products. “This will create new and sustainable demand for products, particularly plastics, fibres and chemicals, in the areas of agriculture, housing, retailing, infrastructure, apparel and automobiles,” he said.
Not surprisingly, Ambani dwelt at length about the company’s retail operations, perhaps more so than ever. The RIL chairman said he expected revenues from the retail business to grow five-six times and achieve Rs.40,000-50,000 crore over the next three-four years.
Another senior RIL official, who spoke after the meeting on condition of anonymity, said the company was in the process of building a ready-to-eat food factory in Kurkumbh inMaharashtra. The unit, which will come up in partnership with another firm, will manufacture food that canbe heated in a microwave, such as pasta and sandwiches, and will market them through retail outlets of Reliance and others. The plant will start output in a few months, the official said.
Shareholders raised concerns about the fact that the company hasn’t yet rolled out 4G broadband services despite acquiring Infotel Broadband Services, a company that won pan-India 4G spectrum in 2010.
This official said the broadband roll-out was taking a bit longer since RIL has decided to build the back-end infrastructure in the form of telecom towers and an optical fibre cable network rather than acquiring or leasing it from existing providers.
“It will be cheaper for us to build this network organically since the valuation and rentals for such assets are unviable at present. If we can bring down the cost, we can pass on the benefit to the consumers as well,” the official said. “We have built it once when we rolled out telecom services in 2002, and we can do it again.”
Ambani, who completed a decade as RIL’s chairman after stepping into his father’s shoes following the latter’s demise in July 2002, said that in his 35 years of association with the company, he was used to people being cynical and negative, and recounted how in the 1980s many thought “Reliance was a bubble”.
“I respect everyone’s views, but you know what Reliance is today,” Ambani said.
BG ROPES IN SHALEEN SHARMA FROM GUJARAT GAS AS NEW MD
AHMEDABAD: UK-based BG Group appointed Mr Shaleen Sharma as the new President and Managing Director of BG India on Thursday.
Mr Sharma is currently the MD of Gujarat Gas Company Ltd (GGCL), the company in which BG had announced to divest its 65.12 per cent stake eight months ago but has yet to finalise it. The new appointment of Mr Sharma, who joined GGCL in 2000 and became its MD in July 2007, will be effective July 1, 2012, BG India said in a statement here.
Mr Sharma will take over from Mr Walter Simpson, who has moved to another role in BG Group as Operations Director, QGC,Australia.
BG India, part of the BG Group plc, has a 30 per cent stake in the Panna-Mukta and Tapti (PMT) oil and gas fields, which produce 6.5 per cent of India’s total domestic oil and gas production. It also has a 30 per cent participating interest in KG-DWN-2009/1 block. A consortium led by BG Group (50 per cent and operator), has been identified as a qualifying bidder for a exploration block (MB-DWN-2010/1) offshore the west coast of India in the NELP IX licensing round launched in October 2010. The award of the block is subject to final approval by the Government of India.
BG Group holds a 65.12 per cent stake in the Ahmedabad-based GGCL and also holds a 49.75 per cent stake in Mahanagar Gas Ltd, Mumbai, which is India’s largest city gas distribution company (by customer base).
MANCHESTER AIRPORT TO TAKE UP FUEL SHORTAGE ISSUE WITH ESSAR OIL
LONDON: Manchester Airport officials said they would be looking into what went wrong, after the busy international airport in the north of England ran out of fuel supplies on Wednesday following problems with supplies from Essar Oil UK’s Stanlow refinery in north west England.
A spokesperson for the airport said they would be taking the matter up with Essar, as well as the fuel supplier, the Manchester Airport Storage and Hydrant Company. While a disruption to fuel supplies had occurred in 2008, never before had the airport run short, the spokesperson said, coming at a particularly busy time for the airport, at the end of a four-day weekend to celebrate the Queen’s Diamond Jubilee.
“It was certainly not ideal as it happened during the big bank holiday weekend.” They added, “We have had a direct fuel supply since the late 1960s and this is the first time this had happened.”
Supplies were affected from around 8.30 a.m. on Wednesday, with the airport running out of fuel completely around 5.15 p.m. The airport had been warned that supplies would be disrupted because of a “quality problem” with supplies due from Stanlow. It is understood that the disruption occurred following the discovery of problems with a single batch of fuel.
The busy airport typically uses 3 million litres of jet fuel a day – the equivalent of around 80 tanker loads. The majority of the fuel comes from the Essar refinery. The airport normally holds around 80 per cent of its usage in reserve to cover disruptions, but that figure had fallen to less than 50 per cent because of the extra traffic.
The airport spokesperson said that travel disruption had been kept to a minimum with some 13 flights delayed on Thursday and no cancellations, and that stocks had been replenished by 8.30 a.m. local time that day.
Jet fuel production was back to normal at Stanlow, Essar Energy had confirmed late on Wednesday.
Essar Energy completed the takeover of Royal Dutch Shell’s Stanlow refinery in August last year, a move the company said at the time gave it the double advantage of a foothold in Europe’s refining market, and the potential to bring product from Vadinar.
In addition toManchester, it supplies Liverpool andEast Midland’s airports with fuel, though it is not their main supplier.
ADANI WEIGHS BID FOR SOME OF CONOCOPHILLIPS CANADIAN OIL SANDS ASSETS
Adani Group is evaluating a possible bid for some of the Canadian oil sands assets being divested by ConocoPhillips, two people directly briefed on the matter said on the condition of anonymity. Adani has sought a memorandum of information from ConocoPhillips to study the assets but is still yet to take a decision if it will bid for them, one of the people quoted above said.
A successful bid for the assets could cost the Adani Group in excess of $5 billion.
A spokesperson for the Adani Group declined comment when contacted for this story.
Houston-based ConocoPhillips said in January that it is selling a stake in sixAlbertaproperties that produce 12,000 barrels of oil a day from an estimated 30 billion barrels of bitumen.
The company has appointed the investment banking arm of Bank of Nova Scotia to run the auction process for the sale of the assets.
ConocoPhillips recently completed the spin-off of its refining activities into Phillips 66, a newly created independentU.S.company and has been looking to divest some of its non-core assets as part of a global restructuring exercise.
ConocoPhillips did not respond to an ET NOW query seeking comment for this story.
State-run oil explorer Oil and Natural Gas Corporation Limited (ONGC) is also said to be in the fray to bid for Conoco’s Canadian oil sands assets which are likely to attract interest from a number of international bidders including some large Chinese companies.
The Adani Group has been evaluating an entry into the oil and gas business which it believes will provide it a strong hedge against some of the other more volatile businesses such as commodity trading that it is engaged in, a person close to the group said.
Adani also evaluated a bid for Gujarat Gas but did not finally make a binding offer for the same.
The company has been scouting for global acquisition opportunities across its various businesses. Adani acquired the coal mining assets ofAustralia’s Linc Energy in a $2.7 billion deal in August 2010 in a bid to secure essential fuel required for its power generation business.
Adani subsequently acquired the Abott Point coal export terminal in the state of Queensland in Australia where its coal mines are also located in a $2 billion deal in June last year.
The company is currently also building rail and road infrastructure to support the transportation of coal from some of the mines located inQueenslandto the coal port that it owns.
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