RIL's Mukesh Ambani: His plans are now global

If 'thinking big' is one of the legacies that the late Dhirubhai Ambani handed down to his successors, then the group's flagship oil and petrochemicals giant, Reliance Industries Ltd. (RIL), is in able hands. Last fortnight, at the company's first annual general meeting (AGM) since the two sons of Dhirubhai parted ways, Chairman Mukesh Ambani announced that RIL would be investing Rs 25,000-crore to double the refining capacity at its oil refinery in Jamnagar (Gujarat), from 30 million tonnes to 60 million tonnes. This will make it the world's largest grassroots refinery. It would have also pleased the group's founder and India Inc.'s original big thinker, had he been alive. For, the capacity at the Jamnagar refinery has already been expanded by more than six times since it was originally conceived by Dhirubhai with a capacity of just 9 million tonnes in 1993.

Yet, big announcements have become de rigueur at RIL AGMs. Last year, it was the Rs 440-crore acquisition of European polyester major Trevira that was announced with much fanfare. This year, Mukesh Ambani unveiled investment plans that total up to a neat Rs 50,000 crore ($ 11.36 billion), half of which will fund expansion of RIL's refinery. The increased production levels at the refinery will translate to 1.2 million barrels per day of crude throughput with the export market being the prime target. "We are setting ourselves an aggressive schedule of the second half of the 2008-09 financial year for completion, while the full benefit of the new capacity will be available from 2009-10," Mukesh told applauding shareholders.

Along with plans for expanding refining capacity, RIL, the Chairman said, would also expand its polyester capacity and increase its upstream oil and gas exploration. He also announced 10 new oil finds-three in north-eastern India, six in the Krishna-Godavari (kg) basin and one in Yemen. This takes Reliance's total number of discoveries to 28.

Global Thrust

What was perhaps most noteworthy was Ambani's continuous emphasis, in his address to shareholders, on the need for RIL to have a global presence. Although RIL's exports in 2004-05 were valued at $5,840 million (Rs 25,532 crore), they constituted 34.89 per cent of its Rs 73,164-crore total turnover. Not surprising, because hitherto most of Reliance's businesses have primaRILy targeted the vast Indian market. Now Ambani wants the company to take its core businesses-oil and gas, petroleum refining and petrochemicals-to new levels. Amidst speculation over a possible attempt to acquire Dutch petrochem giant Basell NV (on which he didn't comment), Ambani mentioned that "scale of operation, overseas forays, exports and acquisitions" would help Reliance go global: broad hints about the future direction that the company could take. Says Mumbai-based Karvy Broking's Vice-President Ambareesh Baliga: "After the announcements, the long-term perspective for RIL looks good, particularly with the doubling of capacity at Jamnagar."

Yet there are concerns. Reliance's giant refinery sits a trifle oddly in a country that imports 70 per cent of its oil requirement at a hefty annual cost of Rs 1,10,000 crore. Says Rajeev Thakkar, head of Research at Parag Parikh Financial Advisory Services Limited: "If there are changes in the duty structure, for instance, margins could come in for some pressure. The issue in the refining business is that while volumes will come in, profitability will be difficult to sustain."

In Reliance's grand scheme of things, as envisioned by the late Dhirubhai, vertical integration is at the core. That's why a world-scale refining capacity conceptually fits in with its upstream plans in oil and gas exploration and production (E&P) and downstream plans in retail petrol pumps. Because only by straddling the entire value chain, besides building a large scale of operation, can Reliance win in the petroleum business. Still, despite RIL's 28 discoveries, E&P is a business that is fraught with risks and long gestation. Ambani hopes Reliance's E&P activities will bear fruit in 2010-20, which he has dubbed the "golden period" for that business.

But the story Dhirubhai's elder son is scripting for Reliance is not just about what his father began in 1959, when from being a trader in synthetic textiles, he moved into manufacturing, first of textiles and fibres, then of intermediate chemicals that were inputs for those and so on, till a vertically integrated petrochemicals giant emerged. At an emotionally charged AGM-where younger brother Anil made an impassioned speech about parting ways (see ...Anil Ambani Starts Off)-Mukesh Ambani also hinted at a fresh thrust on his group's fledgling life sciences business, which could eventually lead to a presence in the healthcare sector. With his attention off the group's telco, Reliance Infocomm, which (along with Reliance Capital and Reliance Energy) is now with his brother, life sciences could be Mukesh's new new thing.