The net debt on the books (the difference between its gross debt and the quantum of cash and cash equivalents in hand) is a function of the major capital expenditure programme being undertaken by the company to primarily augment capacity and improve efficiency at its integrated petrochemicals and refining complex at Jamnagar in Gujarat; and to launch its telecom venture.
RILs 2013-14 annual report states the Mukesh Ambani-led company is in the process of investing Rs 1.5 trillion across various businesses at the moment. This is the largest capital expenditure programme undertaken by RIL in its four decade history.
On the one hand, while RIL is drawing more debt (mostly foreign currency-denominated) to fund the planned capex, its cash flow from core businesses remains more or less stable, leading to a situation of net debt on the companys books.
RILs total debt, as on 31 March, stood at Rs 89,968 crore (up 24.2% year-on-year). The companys cash and marketable securities at the end of the same period stood at Rs 88,190 crore, up 6.3% over the year earlier. This led to a net debt of around Rs 1,778 crore on the companys books.
RIL moved from a net cash position at the beginning of the year, to a marginal net debt level during the course of the year as it drew down on funding to part finance the expansion of its petrochemicals capacities and setting up the new gasification plant and refinery gas off-cracker over the next two-three years, RILs annual report said.
For fiscals 2012-13 and 2011-12, RIL was a cash positive firm. The last fiscal in which the conglomerate has a significant net debt of R25,004 crore on its books was in 2010-11.
The reason for RIL being net cash positive in the two previous fiscals before 2013-14 has been the traditional growth model that RIL has followed, entailing alternate cycles of investment and capital creation, followed by cash generation by sweating the assets the created in the previous cycle. Fiscal 2012 and 2013 happened to be a part of the cash generation cycle.
In fiscal 2014 alone, RIL tied up debt facilities to the tune of $3.15 billion equivalent to part finance the petrochemical expansions and petcoke gasification projects (the latter project is aimed at reducing the Jamnagar refinerys dependence on expensive imported natural gas as fuel, but using cheaper petcoke and coal as alternate fuels).
RIL has also ramped up its investment in Reliance Jio Infocomm (its subsidiary that is going to roll out fourth generation broadband wireless services) in the last fiscal considerably.
A look at the companys investment schedule, which is a part of its annual report, shows RILs investment in fully paid up shares of Reliance Jio increased almost five times to stand at Rs 22,695 crore at the end of fiscal 2014.
At the same time, there has been a material reduction in the closing balance of RILs cash position at the end of 2013-14. There has been a net decrease of Rs 16,323 crore in cash and cash equivalents with the company during the year, versus a net increase of R9949 crore in 2012-13. The closing balance of cash and cash equivalents with the company as on March 31 was Rs 33,224 crore.
The reason for reduced cash with the company is the near doubling of purchase of fixed assets during the year at Rs32,456 crore. There has also been a corresponding decrease in the net inflow of cash into the company from investment activities.