Dreaming big: RIL bets on education, telecom and finance

“Big bang” bets is how Business Standard describes it.

According to the newspaper, Reliance Industries, India’s largest private-sector company, is planning to make high-impact forays into telecom, financial services and education.

In financial services, the Mukesh Ambani-owned group has entered into an equal joint venture with US financial services giant DE Shaw and is slated to start operations in January.

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In telecom, the plan is to re-enter the space by leasing 50,000 towers, most likely from brother Anil Ambani’s telecom company and developing applications for fourth-generation tablet computers. RIL has also bought a 38.5 percent stake in Extramarks, a digital education company, and plans to spend Rs 500 crore in this sector over the next three years.

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If we know anything about the Reliance clan, it is that they always do things larger than life. And these launches will be no different.

To the cynic, however, it might seem that at least some of these forays might be prompted by the company’s deepening problems with its big bet in the gas business - the Krishna-Godavari (KG) D6 basin.

There have been a series of problems with the block and on Wednesday, newspaper reports said the government might soon restrict the amount RIL, which generates the bulk of its revenues from oil refining, is allowed to recover from its investments in these blocks.

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Oil secretary GC Chaturvedi was quoted as saying that the petroleum ministry was consulting with the law ministry on restricting cost recoveries (currently calculated at 100 percent) in proportion to gas output.

The production-sharing contract allows the operator to recover 100 percent of their exploration and production costs and does not link cost recovery to output.As per The Economic Times, the decision was based on a clause in the contract, which required the operator to conduct costly, conventional tests to check the actual flow of gas. However, RIL opted for a modern technique using a modular dynamic tester that was cheaper and faster.

RIL has made investments of up to $5.8 billion and is geared to handle about 80 million cubic metres per day of gas production. However, it is currently producing less than 42 mmscmd**.** A calculation of cost recoveries based on gas output could,therefore, be very bad news for the company.

So far, the government has not yet decided how much of the $5.8 billion that RIL has invested should be disallowed, according to Hindustan Times. Yet Kotak Institutional Equities rates the company’s stock a ‘buy’ with a target price of Rs 1,000. The stock is currently trading at Rs 772.

While debate- and legal battles- on this front seem destined to continue for a long time, clearly, they’re not going to hold back the company from dreaming big again.