IndiraVergis
The worst is not over for Reliance Industries, despite the optimistic projections of chairman Mukesh Ambani at Thursday’s AGM. The company’s fourth-quarter results highlight why. Net profit for the March-ending quarter got a generous leg-up from other income, clearly suggesting that India’s biggest private-sector conglomerate is making money from money, not from its main businesses. The outlook is unlikely to change in the medium term. For one thing, the outlook on the company’s gas output and petchem and refining margins remains grim. Two, Reliance derives nearly 60 percent of its turnover from exports, which could be badly affected should the world economy head into another financial shock. Finally, its various expansions announced across segments in the AGM will take time to bear fruit, possibly after two to three years. Its retail business, on which it seems to be pinning a lot of hope for the future, will take some time before generating profit, although it predicts revenues of Rs 50,000 crore in the next five years from these operations. Given that retail is an extremely tough business with wafer-thin margins, it will be interesting to see how Reliance carves out its success. In the interim, life will continue to be tough. read less read more
R Jagannathan
The answer to whether the worst is over for Reliance or not depends on whether you think the policy paralysis is over in India. If the answer is even half a yes – and the signs are indicating that - the worst may be over for Reliance. As an integrated energy player, Mukesh Ambani’s flagship company is the second major loser from high government subsidies on diesel – the biggest losers being the public sector oil companies – since he can’t sell his Jamnagar refinery products here. He has to send them all over, incurring transport costs that would translate as better margins if sold in India. Once this policy anomaly is corrected, his company will immediately benefit. The same goes for gas prices, once they are reset in 2014, if not earlier. As for the group’s digital foray, Reliance Infotel is the only player to enter the market without baggage. While all other players have to adjust painfully to the new regulatory regime and spectrum policy, Reliance benefits from the fact that it will start afresh later this year or early next year with 4G services. The rest of the industry will be stuck with legacy issues, legacy technology. Reliance starts on a clean slate. In retail, it has now started achieving scale, and in a couple of years it should start breaking even. And with Rs 70,000 crore-and-odd in cash – cash is king in a downturn – Reliance has no worries on how to ride the next upturn. Reliance’s fortunes could be about to turn around this year or the next. read less read more
