After a Street-beating performance by the company, Mukesh Ambani, CMD, commented that the company’s performance had improved with margin expansion in petrochemicals and earnings in refining.
Here’s weighing the prospects for RIL:
Strengths
At Rs 5,500 crore, net profit not only beats estimates by 10% but also suggests earnings growth is sustainable as core business performance improves. Refining margins up 2% and petrochemicals Ebit up 11%sequentially
High cash generation from core businesses is a key strength, allowing RIL to fund its many growth plans
Ebitda up 26% sequentially to $123 million in fast-growing US shale gas business
Focus on increasing exploration activity, where it now has access to BP’s expertise, in 2013 should help expand RIL's oil & gas reserves
Potential of increase in gas price earlier than 2014
Three years of declining Ebitda cycle expected to end
CLSA expects Ebitda to double in four years
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Weaknesses
Continued investments in non-core businesses unlikely to add significant value to the stock price on SOTP basis in the next two-three years
Past attempts to grow the inorganic way through major global acquisitions have not proved successful
Inability to deploy large amounts of cash balances leading to subdued return on capital employed
Despite rejig in retail operations, the business has not delivered according to Street’s expectation
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Opportunities
Investments worth $12 billion planned over the next few years in petrochemicals and refining. First phase of petrochemicals expansion to commercialise by Q1FY14 and last phase by FY16, resulting in doubling of capacity
Net production volumes from US shale business are now more than a third of its share of KG-D6 production. Both sales volumes and drilling activity have doubled over the last four quarters
Gas production might pick in D6, with the company beginning to explore deeper areas of the basin
Entry into telecom could provide a growth opportunity, if the rollout is executed successfully
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Threats
Regulations and policy on the exploration front, as well as gas pricing
Exploration bring capital-intensive and high-risk, a decline in success rate of new reserves could hurt stock valuations
Any unexpeected decline in global economic growth could hurt core business margins, impacting overall margins
Cooling of crude oil prices, a possibility as US is set to be self-sufficient, could also hurt margins
An irrational move by telcos could hurt plans
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Top Key Players in Reliance
Meet the people who are taking the Rs 3,39,792 crore company to the next level
Mukesh Ambani | In 2012, he has retained his position as the world’s richest Indian for the fifth year in a row, although his net worth declined by $1.6 billion to $21 billion but remained well above that of the second-ranked Lakshmi Mittal, as per global business magazine Forbes’ annual ranking of 100 wealthiest Indians.
He is known as the boardroom boy, drawing strategies and business expansion plans of the Reliance group. Reliance Infocomm is his brainchild, though it has gone to his younger sibling Anil.
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Nita Ambani | 'Nita bhabi,' as she is referred to in the RIL family, has come to the fore after her husband Mukesh took over as RIL chairman following his father Dhirubhai's demise on July 6, 2002. She is involved with various charitable projects and with her pet project: the Dhirubhai Ambani International School. She played a vital role in RIL's decision in 2010 to buy 14.8 per cent in East India Hotels, where she is now on the board of the company along with Manoj Modi. She also plays a key role in RIL's retail operations.
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Manoj Modi | He is RIL boss Mukesh Ambani's right hand man. Modi was Ambani's classmate at the University Department of Chemical Technology in Mumbai. They both studied chemical engineering in the mid-seventies.While Modi may be known in corporate circles as a tough negotiator and a no-nonsense person, the man is a staunch believer in God. He consults a small almanac that he carries along with him and he turns to it before embarking on any major projects. He's also a fitness freak, practising yoga for half an hour a day, come what may, in addition to half an hour of regular exercise.
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Nikhil & Hital Meswani | They are the sons of Rasikbhai Meswani, Dhirubhai Ambani’s first cousin. Nikhil's larger responsibilities include overseeing RIL's petrochemicals business. He hols about 279,000 shares in RIL.
Hital owns about 212,000 shares in RIL. He has implemented major projects, including the Hazira petrochemicals and Jamnagar refinery complexes.
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PMS Prasad | Better known as PPMS, joined RIL in the late-1970s. He headed the team that set up Jamnagar refinery complex in 1999. He is known for his man management skills and detailed planning. The engineering graduate was also RIL's representative in the gas dispute hearings in the Supreme Court. Prasad stoutly defended RIL's stand, citing the government's pricing policy.
Alok Agarwal | Agarwal manages RIL’s cash pile of $15 billion. He's the man responsible for making Reliance the first Asian corporate to issue 50- and 100-year bonds in the US debt market. An IIT (Kanpur)-IIM (Ahmedabad) alumnus, he is the man who's ensured that the treasury of Reliance keeps humming, and the cash that its mega-projects guzzle, keeps coming.
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