Reliance Industries believes the company’s energy and materials businesses could potentially have operating profits of Rs 100,000 crore within the next few years, almost twice the consolidated operating profit made by the entire company in 2016-17, driven by new capacities and investments, chairman Mukesh Ambani told shareholders at the company’s 40th AGM on Friday.
The conglomerate, along with joint venture partner BP, recently said it would invest another $6 billion (Rs 40,000 crore) in their joint venture that owns Krishna Godaveri-D6 gas field assets, a step seen as a reaffirmation of the company’s focus on its energy business. Ambani said that RIL’s new capacities will soon start showing full benefits and the company will continue to invest in energy.
“Our energy and materials businesses constitute a strong platform to generate stable, annuity-like cash flows with a potential to reach EBITDA of Rs 100,000 crore within the next few years,” said Ambani. The company reported a record operating profit, or EBITDA (earnings before interest, tax, depreciation and amortisation), of Rs 55,529 crore in the fiscal 2016-17, which is predominantly from its energy and material businesses since the contribution from its fledgling retail and broadband businesses are small.
“We will invest in new sources of energy, aiming for leading positions in renewables. We will invest in new materials which will have dramatic and multiple new applications. In refining and petrochemicals, our goal is to be fully integrated producer of refining and petrochemical products serving the Indian and global markets,” said Ambani as he chalked out the company’s plan for the next decade, which he referred to as the ‘golden decade’.
The company is on the verge of completing its biggest capex programme worth Rs 330,000 crore, of which over Rs 1.3 lakh crore was in energy and material businesses. “All of these investments will start generating operating revenues in the coming months. These investments have further strengthened our cost positions, enhanced our scale and competitiveness and created new lines of business,” Ambani explained.
The company has successfully commissioned its paraxylene complex, which makes Jamnagar the largest manufacturing facility of paraxylene in the world. It has also added new capacity in PTA (purified terephthalic acid) and in downstream polyester over the past two years. Ambani said that the investments have strengthened RIL’s position as the world’s largest integrated polyester player and once the other projects are completed, RIL would be among the top 10 petrochemical producers globally with a unique portfolio and the highest level of integration.
Commenting on the petroleum refining and marketing business, Ambani said, “We continue to derive value from an integrated business model with an optimised supply chain from crude purchase to product placement in over 100 countries.” RIL has faced headwinds in its oil exploration and production business given the sharp decline in shale gas in the US and the decline in output from its assets in the Krishna Godavari basin.
The company, along with its shale gas joint venture partner Pioneer Natural Resources Company, has already sold stake in EFS Midstream, a pipeline subsidiary, for $2.15 billion to Enterprise Products Partners
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