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Mukesh Ambani-controlled Reliance Industries (RIL), India’s largest private company by revenues, is set to build its third refinery of 20 million tonne per annum (MTPA) capacity at Jamanagar in Gujarat to battle it out in the world-league of petroleum giants. The company has twin refineries of 68 MTPA or 1.4 million barrels per day (mbpd) capacity at the Jamnagar complex, the single largest refining location in the world.The news agency Reuters reported on Saturday (30 August) that the company has sought the approval for a $12.8 billion upgrade to its Jamnagar complex, including a 400,000 barrels per day (bpd) refinery for processing cheap and heavy grades of crude that are increasingly available in Asia.Sources close to the development confirmed to BW|Businessworld that the proposal has been given to the environment ministry. “Applying earlier would help the company to reduce the time lags in getting approvals. Usually it takes 2-3 years for completing the process for approvals and clearances,” said sources. However, they said that the finalisation of investment has not yet been completed.RIL is in the process of investing around $12 billion at the Jamnagar complex for building petrochemical plants and cracker units. It moved from a net cash level at the beginning of the year, to a net debt position as it drew down on funding to part finance the expansion of its petrochemical capacities and setting up the new gasification plant and refinery off-gas cracker over the next two to three years.Of the existing RIL refineries, the first caters to domestic and export markets while the other is dedicated only for exports. The configuration of the refinery gives RIL the technical ability to process almost all grades of crude oil produced and meet the increasingly differentiated and more demanding product specifications. Of the Rs 4.46 lakh crore RIL’s revenue in the last financial year, about 78 per cent revenue share came from refining business.The refining and marketing segment had a record annual EBIT of Rs 13,220 crore, supported by a Gross Refining Margin (GRM) of averaging $8.1 per a barrel. EBIT increased on account of stable middle distillate cracks, improved light-heavy crude differentials and favourable currency movement. RIL performed significantly better than the benchmark Singapore GRM, which averaged at $5.9 per a barrel during the year. RIL refineries processed 68 MTPA of crude oil, at an operating rate of 110 per cent.The company’s export revenue has reached $46 billion in the last financial year, contributing 69 per cent of revenues. Of the total export, about $41 billion achieved from sale of refined products.According to industry experts, it will take at least six years for the refinery to come up --- including 2-3 years for clearances and 3-4 years for construction. Also, the world is at present witnessing excess capacity with the construction of giant refineries in Asia and West Asia, putting pressure on older and lesser sophisticated plants in more mature markets.But the experts say that this downward cycle will change in 3-4 years. RIL’s new refinery would be planned for riding wave after the sluggish phase. They agree that the company has financial power to back up the investment.The company had last year sought the approval of the environment ministry to build the third refinery and some polymer units, and to switch the fuel for a 450 megawatt power plant from gas to coal, according to a copy of the proposal obtained by Reuters. The environment ministry wrote back in May this year asking RIL to meet certain conditions in order to secure a green light for the projects. RIL spokesperson declined to comment.Nevin@businessworld.innevinjl@gmail.com
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Finance Minister Arun Jaitley's maiden budget promises better business opportunities for infrastructure companies, especially the ones in manufacturing and construction sectors. The FM allocated funds for improving infrastructure --- roads, ports, airports, railways and industrial infrastructure --- besides ensuring adequate flow of funds and financing of projects.The country is in no mood to suffer because of lack of infrastructure and apathetic governance, he said. “The task before me today is very challenging because we need to revive growth, particularly in manufacturing and infrastructure to raise adequate resources for our developmental needs," Jaitley said.Anuj Puri, chairman and country head, JLL India says the infrastructure and manufacturing sectors have been given paramount importance in this budget, since these are job creating verticals.The budget has allocated Rs 37,880 crore to NHAI for the construction of highways, and an additional Rs 3,000 crore to boost road connectivity in the North-East regions. For the current year, it has targeted the completion of 8,500 kilometres of national highways, which are a known real estate catalyst and will have long-reaching implications on the markets of the cities they connect, Puri says.Ahmedabad and Lucknow have been singled out as special beneficiaries of this budget with the allocation of Rs 100 crore towards the deployment of metro rail systems in these cities. The increased connectivity will raise the scope of real estate development there and also have an impact of property valuations over the mid to long term.The development of 16 new ports has been proposed at an outlay of Rs 11,000 crore. Additionally, an allocation of Rs 11,600 crore has been made for the development of outer harbour port projects. The combined effect of these provisions will be that there will be an increase in demand for commercial office space from the manufacturing sector in India’s major port cities.Richard Rekhy, CEO, KPMG in India says the FM has provided some good measures by incentivising the manufacturing and infrastructure sector. Banks will now be encouraged to extend long-term loans for infrastructure projects without any regulatory pre-emptions such as CRR, SLR and priority sector lending norms. This additional enforcement of banks to support the creation of infrastructure will result in faster infrastructure creation and the consequent benefits to the real estate sector.Debasish Mishra, Senior Director, Deloitte in India says In the power distribution segment announcement of Rs 500 crore for “Deen Dayal Upadhyaya Gram Jyoti Yojana” for feeder separation is a good move to improve power supply quality in the rural areas. “But the allocation seems to be too little to make any real impact.”“To finance Clean Environment initiatives, Clean Energy Cess increased from Rs 50 per tonne to Rs 100 per tonne of coal. This along with earlier increase in railway freight (6.5 per cent) – is going to have adverse impact on power consumer tariffs to an extent of 14-15 paise a unit.”Extension of 80IA benefit, (10 year tax holiday) to generation, distribution and transmission of power by till March 2017 is a big positive as it gives the investors certainty. Also as banks to be permitted to raise long term funds for lending to infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and Priority Sector Lending is also positive for power sector.FM promised coal supply to all existing and power project coming up by March 2015. This is a huge positive for many generation projects stuck because of lack or inadequate coal supply. However, it is not clear how this is going to be achieved, Debasish Mishra adds.The budget has laid focus on Natural gas and related infrastructure. However, apart from talking about production enhancement from marginal/declining fields using modern technology, no direction has been provided for indigenous exploration activities. Reduced reliance on imports and vulnerability due to external conditions can only be achieved by domestic exploration activities, says Nabin Ballodia, Partner – Tax (Oil & Gas), KPMG.After operating in standalone silos for a long time, the need to adopt an integrated approach towards industrial development and urbanization has finally been acknowledged, Arindam Guha, Senior Director, Deloitte in India.“The Budget therefore, talks of “development of industrial corridors, with smart cities linked to transport connectivity” being the cornerstone of India’s strategy to drive manufacturing growth and urbanization. This is in line with the experience in other countries like China, Korea, Japan where high speed transport networks connect manufacturing hubs with urban centers,” he adds.Additionally, the Rs 4000 crore low-cost housing schemes and FDI norms for the affordable housing sector and the creation of 100 smart cities across India, investing Rs 7060 crore will have positive implications for construction, manufacturing and commodities companies.
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India’s largest private company, Reliance Industries has slipped at three fronts — revenue, export and cash flow — in its first quarter result while discounting the rupee depreciation. The company’s revenue fell by 4.6 per cent to Rs 90,589 crore and net profit rose by 18.9 per cent to Rs 5,352 crore in rupee terms. But the revenue fall is higher at 10.53 per cent or $1.8 billion — from $17.1 to $15.3 — while comparing it in dollar terms that stated in the media releases.There is a reason why Reliance’s revenues in dollars need to be compared. In the June ended quarter, the company has earned an export revenue share of 62.75 per cent or $9.6 billion. A lion share of these transactions is believed to be in dollars because of the company’s higher dependency in the refined petroleum products export, which is mostly in the US currency.Reliance claims the export has risen by 3.2 per cent to Rs 57,026 crore. Again in dollar terms, the export revenue has slipped by 3 per cent to $9.6 billion from $9.9 billion. This comparison is more accurate than doing it in rupee terms. (According to Reliance’s numbers, the dollar stood at Rs 55.82 in Q1 12-13 and at Rs $59.40 in this quarter.) In fact, export revenue share has increased to 62.75 per cent from 57.89 per cent because of the natural gas output fall at Krishna Godawari (KG) basin and the resultant domestic revenue reduction. And, that doesn’t need to be counted, say analysts.Read Also: Reliance Industries Q1 Net Jumps 19%After revenue and export falls, the third dent in the balance sheet is at the cash flow. Reliance’s profit before depreciation, interest and tax (PBDIT) went up by 10.3 per cent to Rs 9,610 crore again in rupee terms. But the media releases of both the quarterly results quote the dollar PBDIT as flat at $1.6 billion.The Rs 849-crore jump at the net profit is partly because of the reduced depreciation, which fell by Rs 325 crore. Moreover, the interest cost was higher by just Rs 26 crore even after the rupee fell by Rs 4-5 year-on-year. Considering Reliance’s higher foreign currency borrowings, the interest outgo was expected to be higher. The outstanding debt stood higher at $13.5 billion at the end of June 2013 compared to $13.2 billion a year back. The saving grace is that the cash reserve of $15.7 billion, which went up by $3 billion in one year because of the cash flows in the previous quarters. nevin (dot) john (at) abp (dot) in
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At the TCS’s annual general meeting on 28 June, the big light was on Cyrus Mistry, the new chairman of Tata Sons, who made his debut at this AGM. And the first without Ratan Tata. He impressed the shareholders with his speech (and smiling all along), and also managed to evade some contentious questions. A shareholder said after the meeting that Ratan Tata would have answered the some of the questions like that on TCS’s challenges after N.R. Narayana Murthy's return to Infosys. One of the shareholders remarked 'Tata is Tata', in line with Ratan Tata's famous quote after launching Nano “A promise is a promise”.TCS AGM was a confident boosting affair for Mistry. Here's why:1) The TCS numbers were one of the best in the industry. 2) Mistry has managed to build a mutually respectful rapport with the top management of the company, and 3) There is further potential for him to play a role in TCS’s challenging future, whether in cost discipline or building a diversified and relevant portfolio. Though Mistry missed the charisma of Tata, everything fell in favour of the 44-year-old at the shareholders meet held in Mumbai. Some shareholders say that it may not be the same with the AGMs of other group companies like Tata Steel and Tata Motors. Tata Steel struggles with the sinking performance of its European division and Tata Motors loses its plot in the home-land. Mistry will have to deal with the worries of the respective shareholders. “Tata knows to manage the scene. And the shareholders have faith in him,” says a shareholder. Surely, building the faith would be a bigger challenge for Mistry at the initial phase of his stint. nevin (dot) john (at) abp (dot) in
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Aspirational Tony Fernandas sets it perfect for the AirAsia take off in India. After his mentor-turned-advisor Ratan Tata joined the new low cost airline concept in the country, Fernandas successfully boarded in S Ramadorai, vice chairman of TCS, as chairman. Don’t forget, as a strategic investor steel barron LN Mittal's son-in-law Arun Bhatia is also on board with 21 per cent stake.But Tata Sons, another minority stake holder with 30 per cent interest in the venture, managed to get four top posts, including the appointments of R Venkataraman, former executive assistant to Ratan Tata and Bharat Vasani, chief legal counsel of the Tata Group, Tony got his man Mittu as CEO in the firm where Air Asia of Malaysia holds the upper cut of foreign investment of 49 per cent stake.When Tony tweets out full praises on Tata veterans, Bhatia's role fades out. Most importantly, Bhatia failed to rope in his nominations. Is Bhatia's representation in the joint venture based purely on financial interest?The feel in the industry is that Tony wants the clout — read as political or industrial clout — of Tatas and financial muscle of Mittals. (There are reasons that Tony knows better that Mittals failed completely in India while they conquer the other parts of the world. And Tatas are the best friends any day here. Also, Tatas have pioneered in airline in India through Air India.Stuck At The TopThere are many reasons why Pidilite is the darling of stockmarket. The company had never fallen back in their top and bottom line numbers in the last 13 years and showed consistent growth. They have created solid brands like Fevicol, Dr Fixit, Fevikwik, M Seal and Fevicryl hobby ideas. But the reality that everybody agrees is that the company needs to generate new cash streams to maintain the upswing, especially on a larger base numbers.The company’s revenue has reached Rs 3657.90 crore in the last financial year compared to Rs 500 crore in 2000-01. The PAT grew to Rs 460.80 crore from Rs 47.90 crore. Eventually, the financial downturns failed create an impact on Pidilite in all these years. The share price of the company has risen about 75 per cent in the last one year. The company is valued more than Rs 14,000 crore in the market.Anil Jayaraj, chief marketing officer, Pidilite industries, says the company has had a long term focus on the brands and its business, irrespective of the recessionary conditions. The company has always tracked the needs of its consumers. Understanding it they launched products like Fevicol Speedx, a fast- setting white adhesive. When other adhesives take 6-8 hours to set, Speedx takes just 2 hours, claims Jayaraj.Pidilite’s product research potential is unmatchable. But they need to find new markets. The company is already exporting to 80 countries. But their revenue from export was just $53 million — less 10 per cent of the total. They have 14 overseas subsidiaries with relatively low incomes. Pidilite needs to create its opportunities.
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It was a shocker for both the company as well as its shareholders. The day after Apollo Tyres announced it will take over US-based Cooper Tire & Rubber Company for Rs 14,500 crore, Apollo shareholders scurried to sell the stock, shaving off a quarter of the company’s valuation in a day’s trading to Rs 3,457 crore. The company’s shares fell 25.43 per cent to a 52-week low of Rs 67.75 on BSE on Thursday (June 13). The stock, which closed Wednesday at Rs 92, opened at Rs 86 and fell sharply before closing at Rs 68.60.So why did Apollo shareholders panic at the announcement of one of the most audacious attempts at a corporate takeover by an Indian company abroad? The answer lies in some really patchy performance of most global acquisitions by Indian companies.Around 2007, Indian companies had shown unusual aggression — finding new export markets, building greenfield plants and acquiring companies overseas. But the scene turned gloomy with the fall of subprime mortgage market in the US and the chain of crises in Eurozone. But the Kanwar family led Apollo Tyres took the risk of buying a company of double its revenue (Apollo’s Rs 12,800 crore and Cooper’s Rs 24,350 crore) at Rs 14,500 crore. That too, in the matured and saturated US market.Read Also: Apollo Tyres To Buy Cooper Tire for $2.5 BnCooper Tire & Rubber Company is a home grown tyre company focused on North America, from where its $3.1-billion of the consolidated revenue of $4.2 billion came in 2012. Indian companies have strong presence in the region where Cooper operates. Tata group has brands like Tetley, Good Earth, Eight O’Clock Coffee, The Pierre New York and the Campton Place Hotel (in San Francisco) in North America. Essar group operates steel mills like Algoma and Minnesota and the BPO service. The group has 5000 employees there. Wipro is a major IT service provider in the region.In a sense, Apollo is venturing into a proven fertile land for Indian companies. But most Indian companies are struggling. Tata Steel is still struggling with the high net debt of over $10.5 billion because of the acquisition of Corus. AV Birla group’s Hindalco struggled during downturn, writing off $1.5 billion goodwill value of acquired entity Novelis. Bharti, which acquired Zain in Africa for $9 billion, is yet to make a mark in the continent. Apollo’s acquisition would form the world's seventh largest tire company. The major positive factor is that Cooper had a record $397-million operating profit in 2012, which is 9.5 per cent of net sales. The company still dominates the replacement tyre industry, which is highly fragmented in the US. The economic slowdown has led to a slump in the tyre sales but it recovered in 2010 with the stabilization of passer vehicle industry and the overall US economy.In the present scenario, the surging fuel prices are encouraging the consumers to move towards fuel efficient tires. Apollo needs to enquire about Cooper’s innovations in the category before closing the deal. Managing the debt will be another concern. Apollo needs to ensure consistent cash flow from Cooper to repay the debt. For instance, even Tata Motors had struggled with debt at one point because of the acquisition of Jaguar and Land Rover, though the cost was lesser at $2.3 billion."This (acquisition) will result in an increase in the consolidated debt:equity for Apollo from 0.75x to 1.35x and the net debt:EBITDA from 1.7x to 3.8x. The sharp increase in debt we reckon will be an area of concern for investors who were expecting balance sheet deleveraging in the next two years," Credit Suisse analysts said in a report. Goldman Sachs analysts feel that Apollo's net debt to equity will rise even though Cooper will service a significant portion of the additional debt. Kotak Institutional Equities says, since the size of the transaction is very large, compared with the current operations, it could swing either way for Apollo. Ambit Capital says Apollo's acquisition is aggressive and has downgraded the stock to "sell" from "buy."
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Where are steel-baron Lakshmi Mittal’s younger brothers? After the merger of JSW Ispat with JSW Steel last month, the stake of Pramod and Vinod Mittal became insignificant in the joint entity. They are not visibly present in any other business also. After steering the erstwhile Ispat Industries for about 15 years, the Mittal brothers sold off a substantial portion of their shares to Sajjan Jindal-run JSW group in 2010. Later, JSW increased its holding to 46.75 per cent and finally by the beginning of June, Ispat was merged with JSW. Mittal brothers were on the board of the combined entity JSW Ispat before the merger. Pramod was the vice chairman. With the merger, their stake would have fallen to about 3 per cent. But with the brothers having been offloading their shares in the last few months, there is no clarity on their stake in JSW Steel. Also, they would have naturally lost their director roles after the merger, say market sources. Post-merger, Jindal family holds a little over 35 per cent stake in JSW Steel. The second largest shareholder Japan’s JFE Steel holds 14.92 per cent. Ispat’s major asset was a 3.3 million tonne a year integrated steel plant at Dolvi in Maharashtra. But it was struggling because of the expensive raw material purchases. Even JSW has failed to settle the issues at Dolvi and finally decided to merge for a cost saving of Rs 250 crore. nevin (dot) john (at) abp (dot) in
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Ever since broadband wireless licences were handed out over two years ago, the industry, the rivals, the analysts and the consumers have all speculated about when Reliance Industries will launch its services.Reliance chairman Mukesh Ambani has, however, refused to push his team to a deadline despite all the expectations. Reliance has finalised the key vendor and supplier partnerships but not yet announced the names. The Rs 1,200-crore network-sharing and the Rs 12,000-crore tower-sharing deal announced today have now plugged another gap in its strategy. Eariler, Reliance signed a deal with Bharti Airtel for cable network sharing.Since Mukesh is going for a big play, he wants his team to be free from compulsions. He told them to take their own time in building the platform for the service. Incidentally, broadband wireless business Reliance Jio will absorb nearly 20-25 per cent of the Rs 1,50,000 crore investment Reliance Chairman Mukesh Ambani announced at the AGM on June 6.Besides, there's the Hungama scheme in the works. Older shareholders of Reliance Industries still remember the ‘Monsoon Hugama’ of 2003. It was the launch offer of Reliance Infocomm’s cellular service, which was also spearheaded by Mukesh Ambani. The company gave mobile handsets for Rs 500 along with the CDMA connection. The customer base swelled week-by-week with the people from bottom-of-the-pyramid. Though CDMA technology failed to catch up with GSM, Monsoon Hungama went well with carpenters, rikshawallahs and so on. Reliance Infocomm, however, was apportioned to Anil Ambani when the family split in 2005.When Mukesh Ambani plans launching the his 4G service around monsoon 2014 is the big question. Since he has spent Rs 18,000 crore in buying spectrum and preparing the ground, a Hungama is necessary for Reliance Jio launch.
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In the last four years, hardly any Indian retailer increased their number of stores. Future group’s Big Bazaar and AV Birla group’s More have shut down more than 30 per cent of the value format stores and focused on high-margin super market and hyper market business. But Mukesh Ambani’s Reliance Retail has chosen to go against the conventional wisdom by attempting to create a large base.Yet, despite its Rs 10,000-crore revenue, Reliance Retail is struggling to succeed. It has increased the number of stores to 1,500 from around 1,150 in 2010. Last year, when Businessworld wrote on the value formats under Reliance Fresh, it had 1,300 stores and the total retail business reported Rs 7,500 crore of revenue (Read: Digging Day To Stay Fresh). The numbers are really landmarks. But Rs 10,000 crore from 1,500 stores means each store generates average annual revenue of Rs 6.66 crore. The analyst community says that the number is below expectation. Also, the EBDIT of Rs 78 crore that Reliance Retail posted could have been better considering the nearly 7 years of experience and the farm-to-fork format created by the company. Historically, the margins are higher for retail players who source everything directly from the producer. Ambani plans more investments in the retail business to catapult the revenue to Rs 40,000- 50,000 crore. Since this is topline focused growth, mass-base creation is important for him. But the value formats CEO Robert Cissell prefers to build more hypermarkets of 50,000 sq. ft or more rather than the small Fresh stores, where the margins are less. Creation of a solid retail business model is critical for Reliance.
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The Krishna-Godavari (KG) Basin, operated by Reliance Industries (RIL), is in a shambles. The natural gas production at the D6 block has sunk to an all-time low of 20.88 million metric standard cubic metre per day (mmscmd) after the company shut its eighth well, B6, on 9 January. B6 was in the main producing fields of Dhirubhai-1 and 3 (D1 and D3) and was shut “due to water loading”, according to a report by the Directorate General of Hydrocarbons (DGH). Since D1 and D3 started production in 2009, the production from 18 wells has gone down from 55 mmscmd of gas to 16.98 mmscmd during the week ended 13 January, after the well B6 was shut, the DGH said. Citi analysts say the decline is expected to continue through FY14, but may be arrested in FY15. Maintenance work in D1 and D3 fields has started. New production from satellite fields and R-series in Asia’s largest gas find are likely to come on stream by FY17. The firm has been awaiting approvals since last year from the oil ministry and the DGH to start maintenance work to revive the sick wells. The ministry says the approvals were withheld as RIL had denied access of its books to the Comptroller and Auditor General for a second round of audit. But, sources say, the audit began a week ago. RIL has already budgeted $100-120 million for the maintenance this fiscal, as it did the previous two years, which are still pending approval. 69% is the decline in production in D1 and D3 RIL’s exploration and production (E&P) segment reported earnings before interest and taxes (Ebit) at Rs 590 crore (down 54 per cent year on year) in the third quarter — below the estimate by research firm Nomura. “Higher depletion charges and charges on relinquishment of E&P blocks were key reasons for the lower numbers…The firm indicated that the declines would likely be arrested only when compression capacity is commissioned by FY15,” say Nomura analysts. RIL said that the C. Rangarajan Committee report addressed the key issue on the production-sharing contract, audit and gas price mechanism, and would help in creating an enabling environment, even if it didn’t seem to agree with the suggested pricing formula. It said the report could pave the way for finalising pricing in line with production-sharing contracts. Oil minister Veerappa Moily has said that the ministry had accepted the committee’s recommendations, including a new formula to link gas prices with international benchmarks. Deutsche Bank analysts say that after a long period, the management was optimistic on its upstream portfolio in India. “The firm is awaiting approval for the revised development plan for MA oilfield in KG-D6, gearing up to submit the development for R-series fields within a month and restart its exploration campaign,” they added. Meanwhile, the Centre wants to withdraw from arbitration proceedings and favours direct negotiations with RIL in its long-running dispute over the cost of developing the KG-D6 block, Moily said. Now after a positive Q3 result and with shares hitting a 19-month high, RIL has started studying ways to arrest the production decline.(This story was published in Businessworld Issue Dated 04-02-2013)
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