RIL to Invest 1-L cr in 5 Years to Double Profit

Bid to Diversify Operations Company to focus on retail and telecom to drive growth

Mukesh Ambani sees retail revenues at . 50,000 crore and gas output rising to 60 mmscmd in 4 years

Reliance Industries Chairman Mukesh Ambani said the conglomerate will invest . 1 lakh crore in five years to double operating profit from a more diversified operation, but his pledge did little to reassure impatient investors who want faster growth in earnings and better returns from the company's languishing shares. 

Reliance, the only business group with ambitious investment plans in a period of slow growth and policy uncertainty, sees its retail business taking centre stage in the conglomerate's operations and becoming an engine of growth along with oil & gas, refining and petrochemicals, Ambani told the Annual General Meeting of shareholders on Thursday. 
While Ambani was upbeat about the company's fundamentals and future growth, investors and equity analysts have raised concerns about the outlook in times of global economic turmoil, fall in gas production and the group's disputes with the oil ministry. Ambani, accompanied by mother Kokilaben, wife Neeta, sons Aakash and Anant, and daughter Isha at the Annual General Meeting, struck an emotional chord in his concluding remarks when he addressed shareholder concerns about the outlook. "If we had listened to skeptics, we would still be only a textile company," he said, bringing back memories of legendary founder Dhirubhai Ambani, under whose leadership the company and its investors made handsome gains. 
Reliance's gas output, which has fallen below 35 million metric standard cubic metres a day will rise to 60 mmscmd in 3-4 years while revenue from retail will see a six-fold jump to . 50,000 crore, said Ambani. He also said RIL's broadband wireless plans, currently being finalised, would be a "significant value creator" for the firm  and its shareholders. 
    Analysts said the thrust on new businesses, to some extent, reflects Reliance's frustration with its core business of oil & gas, which has suffered in recent years as natural gas output from its KG-D6 block has halved, prompting the oil ministry to financially penalise the company. Reliance's dispute with the government, which has adopted a stern approach towards the company, has hurt investor sentiment, and its shares have risen barely 4.4% this year, trailing the 7% rise in the Sensex. No Short-term Gains in Oil and Gas Business 
On Thursday, RIL shares rose 0.75%, again lagging the 1.2% rise in the benchmark index. 
Ambani did not signal any short-term gains in the oil & gas business, in which global major BP is now a partner, but he reaffirmed its strategic importance. "We have experienced some disappointment with the reserves and consequently seen production drop below the originally estimated quantities. Our domestic oil & gas portfolio remains a key strategic asset for Reliance, its partners and India. We are confident about its enormous value from a mediumterm perspective, which will eventually benefit all the stakeholders," he said. 
The RIL chairman said new fields in the KG-D6 block would add 30 mmscmdgas, while total output would be 60 mmscmd in 3-4 years, and this production would be sustained. But this required government approvals, he said. Reliance has had a rocky relationship with the oil ministry since Murli Deora left the ministry early last year, and the company has struggled to obtain approvals to produce gas from proven discoveries. In 2011-12, profit was flat because of weak margins in petrochemicals and transport fuels, volatility of crude oil and fall in gas output. 
This has disappointed investors, who have seen the company grow spectacularly since its IPO in 1977-78. Since then, the company has posted an annual growth of 29% in profit and 27% in revenue, while shares have risen 21.6% a year on a compounded basis, he said. Reliance's expectation of raising natural gas output to 60 mmscmd is short of its initial projection of 80 mmscmd as the geology of the block turned out to be more challenging than estimated, but the increase in production will help consumers. "The statement is important from the point of view of energy security, especially in the background of current phase of declining production affecting over Rs 50,000 crore of investments in power projects," said former ONGC chairman RS Sharma. Analysts said they did not see a nearterm upside for RIL shares, although Ambani said the share buyback — in which 2.7 crore shares were purchased for . 1,929 crore — will help. "It will supplement earnings growth from operations, for higher EPS, in the near future. We are also reinvesting our cash flows at an accelerated pace in new projects and businesses. These will bear fruition and growth in earnings over the next few years," he said. 
Analysts had a different perspective on the outlook for shares. "The nearterm impact on the stock could be neutral as all the information on resuming gas production and doubling operating profits is over a 3-4 year window. Also, retail continues to be a concern as there are execution difficulties given that the business is still not profitable, and the telecom rollout plan is not specific. But from a long-term perspective, the stock could be attractive," said Sandeep Randery, energy analyst, Brics Securities. Deven Choksi, MD, KR Choksi Securities, said: "The market should see the long-term potential in RIL's retail and telecom ventures, although on the energy side the outlook remains bleak."