Disappointing the Street which was looking for a road map on the ramp-up of production of both oil and gas at the KG D6 basin as also some colour on how the company would use its huge cash reserves, Reliance Industries (RIL) chairman Mukesh Ambani preferred on Friday to talk to shareholders about RIL?s focus on the broadband wireless and organised retail spaces.
Addressing RIL?s 37th annual general meeting in Mumbai, Ambani skirted any big-ticket announcement and made no mention of the proposed foray into the power sector, a subject he had dwelt on at the shareholders? meeting last year.
On production at the KG D6 basin, where output has fallen way below targets, Ambani said: ?After the government approvals for the BP-Reliance partnership, the KG D6 reservoirs will be jointly assessed to address the technical issues in ramping up production.?
That, however, was not enough to appease shareholders and the RIL scrip, already an underperformer over the past year, came off by 1.65% on Friday to R936.15 on the Bombay Stock Exchange. The stock has lost 9.6% in the two months since April this year while the Sensex, of which it is the biggest constituent, has fallen just over 5.4%. Ambani?s observation last year that RIL?s enterprise value (EV) would double in 10 years had left analysts unimpressed because it implied a compounded annual growth rate of an uninspiring 7%. This time around, Ambani avoided any comments on future growth, simply saying that RIL would become debt-free in a year?s time.
Significant efforts are underway to comprehend the character and the behaviour of the complex KG reservoirs, the first-of-its-kind developed in Indian deep waters, Ambani told shareholders. ?These include extensive geoscientific and engineering work to be undertaken with our partners to sustain and augment the production, ? he added. Oil and gas volumes at KG D6 have dropped from their peak levels of 25,000 barrels per day and 60 mmscmd, respectively, in March 2010 quarter to 17,000 bpd and 49 mmscmd currently.
The accent on broadband wireless, which Ambani said would create end-to-end solutions that addressed the complete digital value chain, including rich content, applications and services, suggests it will be a key focus area for RIL. In June last year, RIL had acquired a 95% stake in Infotel Broadband Services for R4,800 crore and has since invested another R10,000 crore.
Ambani said that India is on the verge of a digital revolution that will connect, enable and enhance lives. ?Broadband ? and broadband enabled digital services ? is the next big leap forward in the digital transformation of the knowledge economy,? he said, adding Reliance would enter digital services in the domains of education, healthcare, entertainment, financial services and government-citizen interfaces.
?Currently, we are in the process of conceptualising our products and services,? Ambani said.
Ambani also dwelt at length on the retail space, saying it will soon launch a cash-and-carry format along with an ?aggressive investment?. Signalling the firm?s intent to scale up the business, Ambani said: ?All specialty formats including electronics and apparel are poised to attain market leadership position in the next two years.? RIL today has the biggest geographical footprint in the country with over 1,000 stores across 86 cities.
SP Tulsian, investment advisor, said he was disappointed that there was no mention by the RIL chairman on the steps to improve production at KG D6 or the company?s proposed entry into the power sector.
?The market would have liked to know by when gas production will stabilise and what levels of production we could expect to see in FY12 and FY13.? Tulisan added that there are very few investments that can absorb large capital and give good returns, like power.
In February, Reliance said it will sell a 30% stake in 23 production sharing contracts, including some in the KG basin, to British oil & gas major BP in a $7.2 billion deal and is expected to benefit from BP?s deep water exploration expertise.
In a recent report, HSBC had noted: ?With the BP-RIL team having already been working for two months, we expect it to be ready with the plan for D6 over the next 2-3 months. We now expect the management to take an active role in the rollout of its broadband business having already invested $ 3 billion a year back. Additionally, with limited opportunity in India for deployment of capital, we would also expect RIL to pursue overseas acquisitions with increased intensity; else there would be increasing pressure on the RIL board to return a part of the cash to shareholders.?