RIL's CMD Mukesh Ambani: RIL has become four companies that investors can buy into for the price of one

WHAT SETS RELIANCE APART

» Reliance Infocomm could enter the black in its first year of operations » The oil & gas business could record incremental annual revenues of Rs 10,000 crore in three-four years » 1,500 retail outlets for marketing petroleum products are to be in place by June 2004 » The value of the FII holding in RIL stands at just under Rs 11,000 crore

Brace yourself to take in these figures: Since the last stockmarket peak of 6000 or thereabouts in February 2000 till last fortnight, Reliance Industries Ltd's (RIL's) market capitalisation has more than doubled to Rs 67,208 crore, from Rs 33,382 crore. In that same period only the ONGC stock has shown a more impressive appreciation (of some Rs 64,000 crore). All the other beacons of the ''new economy''-boosted rally of 2000-Zee Telefilms, HCL Tech, VSNL, Infosys, Wipro, et al-have witnessed massive erosions in market cap, as much as Rs 100,000 crore in some cases. Amidst this backdrop it's easy to digest the fact that the Reliance stock has appreciated 361 per cent over a five-year period, 80 per cent over two years, and 62 per cent in the current year till date.

And, if you take a cursory glance at the frenetic activity that's happening at the $16.8-billion (Rs 77,280 crore) giant, you'd conclude the party-at least for Reliance's 3.1 million shareholders-has barely begun.

When last fortnight RIL Vice Chairman & Managing Director Anil Ambani announced that a subsidiary of Reliance Infocomm would acquire flag (Fibre Loop Across the Globe) Telecom-the London-headquartered bandwidth colossus with 50,000 km of undersea optic fibre cable network spanning Asia, Europe, the Middle East and the US-for $207 million (Rs 952 crore), yet another piece of the huge convergence picture fell in place. And as the days pass, the ''well-head to wall-socket'' blueprint seems to be all coming together in grand style. Consider: The Ambanis see a fair chance of Reliance Infocomm, which is 45 per cent owned by RIL, showing a net profit in its first full year of operations. The oil and gas exploration and production (E&P) portfolio is in a position to contribute to 15 per cent of RIL's revenues in three to four years, from under 1 per cent currently. In petrochemicals, which account for 45 per cent of RIL's revenues, the cycle is just beginning to turn upwards, and by 2005-06 analysts are expecting prices to peak. On the petroleum marketing front, RIL says it will have 1,500 retail outlets in place by June 2004 (it has approvals for 5,800), whose throughput will be three times that of the existing ones...

The Foreign Hand

With so much happening it's easy to understand the sense of bullishness amongst investors-particularly the foreign institutional variety. Indeed, the cumulative holding of FIIs as a percentage of RIL's equity has crept up from 15.5 per cent last December to 20.1 per cent as of September-end. In that period, the foreigners have pumped in $600 million (roughly Rs 2,700 crore) into the stock with funds like Emerging Markets Growth Fund, Janus Worldwide Fund, and Capital International Emerging Markets Fund being some of the largish investors. The total foreign investment in RIL vaults up to 26 per cent if you consider the 6.13 per cent and the 0.93 per cent held by holders of the company's global depository receipts and by NRIs, respectively. One more nugget: The current value of the FII holding in Reliance is Rs 10,962 crore, placing RIL just behind Infosys, where the FII holding is worth Rs 12,583 crore.

If investors are bullish like never before on the RIL stock, it's because they see so much value that could be unlocked over the years. From the refining business. From oil & gas. From Infocomm. And yes, petrochem too. Broking house UBS Warburg's global equity research cell, for instance, puts a value of Rs 287 on just RIL's petrochem business post first-half results-which is what the entire company was quoting at a few months ago. The refinery has been given a valuation of Rs 102, oil & gas Rs 51, and Infocomm Rs 42.

PATALGANGA FACILITY: Reliance stands to benefit from the upcycle in petrochem prices in 2005-06, given that current price are half those of the previous peak

Small wonder then that the RIL stock has almost doubled in the current rally since May and at the time of writing it was quoting at its all-time high, nudging the Rs 500-mark. Whispers of Reliance driving up its own share price are easily heard on Dalal Street, but it's difficult to pay heed to them amidst a scenario that hasn't looked brighter in a long time. That's why last fortnight Moody's upgraded its outlook on Reliance from negative to stable, in just six months. Standard & Poor's has reaffirmed its ''constrained by sovereign rating'' status, Fitch continues to bestow its highest credit rating of Ind AAA and domestic credit rating major Crisil has stuck to its AAA rating for Reliance for the past decade-during which time the company's assets have grown from Rs 1,930 crore to just under Rs 64,000 crore.

If the Moody's of the world are more comfortable with RIL today, it's thanks largely to the rapid reversal of Infocomm's fortunes, which six to eight months ago appeared a gigantic blunder. At a time when the company was grappling with customer service and distribution issues, the huge proposed capital expenditure of Rs 18,000 crore got magnified against the backdrop of RIL's balance sheet. However, RIL's exposure to Infocomm is just Rs 6,000 crore, Rs 2,363 crore of that in equity. And for a company that's expecting cash flows of Rs 8,500 crore this year, a Rs 6,000 crore investment appears comfortable.

BETTING ON TECH: Data centres such as this one in Dhirubhai Ambani Knowledge City from one hinge of the group's tech thrust

Aces Up Their Sleeves

But the Ambanis have little to worry these days about Infocomm going awry. In five months, the mobile operator has emerged top dog, with a 21 per cent marketshare as of September. The number of Reliance subscribers (CDMA plus GSM) tots up to 4.9 million-with one organisation picking up 2.5 lakh handsets at one go-the average revenue per user is a healthy Rs 450-500 per month, and at coming close to a six-million subscriber base Reliance Infocomm hopes to enter the black. The race towards profitability will gather pace once Reliance launches its pre-paid services soon. What's more the service, which till date is available in 480 cities, will reach 693 cities by the year-end, and the enterprise broadband services are also in the pipeline. Significantly, the Infocomm project has used up just Rs 9,600 crore of the total capex till date, and the balance will be spent in the next 18-24 months. That explains why Reliance could afford to pay a premium of 50 per cent-plus to market price for flag's shares. Also, if Chairman Mukesh Ambani has to pay around Rs 1,000 crore-as some analysts estimate-to migrate to a unified telecom licence, his unused capex could come to the rescue. The Ambanis are also confident of making all future investments via the strength of Infocomm's balance sheet.

There's another gleam in the Ambani brothers' eyes: The E&P business. The country's largest private sector E&P player, with close to 3 lakh sq km of awarded exploration acreage (this includes 32 blocks in India and one in Yemen), is projecting a whopping Rs 10,000 crore of incremental revenues from just one block-the Krishna Godavari D6 block, which has estimated reserves of natural gas of 14 trillion cubic feet, equivalent to 2.3 billion barrels or 300 million tonnes of crude oil. Anil Ambani expects operating margins as high as 40-50 per cent from this business, and the Rs 2,500 crore E&P investment to pay back in three-four years. Clearly, with Infocomm and oil & gas, the Ambani brothers are on the threshold of altering the dimensions of the enterprise their father created in mind-boggling proportions.