Reliance Industries ups O2C play as competitive intensity grows

Adani, TCG among key rivals in the sector

Mukesh Ambani-led Reliance Industries (RIL) may have to contend with competition sooner than later in oil-to-chemicals (O2C), its largest business segment.

On Monday, the country’s most-valuable company announced a surprise Rs 75,000-crore investment in O2C, mainly to expand capacities in existing and new value chains.

This included investment in areas such as purified terephthalic acid (PTA), polyethylene terephthalate (PET), polyvinyl chloride (PVC) and carbon fibre. The push comes amid plans by rival groups such as Adani and The Chatterjee Group (TCG) in the sector.

Adani group sources said that by November 2024, a 1,000-kilo-tons-per-annum (KTPA) PVC plant would be commissioned. This is part of a larger plan to set up a 2,000 KTPA PVC plant in Mundra in phases, using coal as a feedstock.

Sources in the know said that the PVC plant by Adani will be able to produce goods, including emulsion PVC, suspension PVC and chlorinated PVC. This is at a time when overall PVC production in the country has been stagnant at about 1.5 million metric tonnes per annum (MMTPA).

India imports about 1.8-1.9 MMTPA of PVC, according to sector experts, as demand for the material has remained consistently high owing to its wide industrial applications.

The entry of large players such as Adani is expected to bridge the gap, sector experts added.

Meanwhile, TCG plans to make polymers, chemicals and PTA at Cuddalore in Tamil Nadu. For this, it acquired the assets of Nagarjuna Oil Corporation (NOCL) in the state from a bankruptcy court. It will set up a petrochemicals complex in the initial phase, followed by a crude oil refinery in the second phase, industry sources said.

“Competitive intensity will increase over the next few years, prompting Reliance to take proactive steps now to ring fence itself,” said Deven Choksey, managing director (MD) at Mumbai-based brokerage KR Choksey.

He added, “O2C is the largest revenue contributor to Reliance. By enhancing capacity and integrating the value chain further within O2C, the aim is to ensure that gaps are plugged. RIL also wishes to ensure that O2C remains the largest contributor to top line and bottom line. This comes even as its consumer businesses, such as retail and telecom, continue to scale up in terms of size.”

Brokerage Morgan Stanley said in its update on RIL on Wednesday that it saw the Rs 75,000-crore investment push into downstream chemicals as a positive for the company.

“Investments into polyester and vinyl look opportune, while carbon fibre will integrate back into acyronitrile, which is the feedstock for the material. And, acyronitrile will integrate back into propylene and green ammonia,” the brokerage said. 

In FY22, O2C contributed 57 per cent to the revenue and 40 per cent to the operating profit of RIL. Retail and telecom together contributed 34 per cent to its revenue and 45 per cent to the operating profit for the year.

Enhanced production of PTA and PET will help RIL consolidate its position as a key raw-material supplier to the textiles and packaging industries, respectively. However, it is PVC and carbon fibre that are the big focus areas for it, Reliance group executives said.

RIL produces 0.7 MMTPA of PVC and is the largest manufacturer in the country, sources said. With the announcement of an additional 1.5 MMTPA of PVC by 2026, RIL’s PVC capacity will expand to about 2.2 MMTPA, giving it an edge over rivals. The capacity addition by Reliance will also help double India’s domestic PVC production to around 3 MMTPA, said experts.

Sources said carbon fibre is an emerging area for Reliance, thanks to its adoption across a wide variety of industries. They include aerospace to defence, wind energy, electric mobility and drones.

BATTLE READY

• Reliance’s investment in O2C aimed at plugging gaps and ring fencing against competition
• Capacity addition in PTA and PET will help consolidate RIL’s position in textiles and packaging
• Fight in PVC expected to grow as Adani eyes entry 
• TCG group looking to expand presence in petrochemicals
• Carbon fibre is an emerging area for Reliance. It has big plans to integrate backwards in this area