Reliance Industries’ 42nd Shareholder Meeting Will be About $23 Billion Investment in Jio
Reliance AGM this year is all about details of delayed Jio launch.
Reliance Industries’ 42nd shareholder meet on September 1 is likely to signal the culmination of the $42 billion capital expenditure cycle it embarked upon in 2013. Apart from any indication on shareholder reward that comes at the end of every capex cycle, investors and shareholders will closely watch Chairman and Managing Director Mukesh Ambani’s speech for the commercialisation of all ongoing projects, especially Reliance Jio Infocomm Ltd.
In the company’s 41st shareholder meeting last year, Ambani had talked about an investment of Rs 2 lakh crore over the next 12-18 months in building new facilities and creating new businesses. Reliance invested Rs 1,12,000 crore in capital expenditure in the financial year 2015-16, according to its annual report.
A Missed Promise
Ambani promised shareholders last June that financial year 2016-17 would be first full year of operations for its telecom arm, Reliance Jio Infocomm Ltd. Reliance is yet to announce the formal launch date but the company indicated in the analyst meeting, following April to June quarter earnings, that it is close to commercial launch and is evaluating launch plans. It also told analysts, at the time, that it will have a ‘few million’ customers ahead of the launch.
“There are some expectations about the commercial launch being announced, though in our view a full nationwide launch could still be a few weeks to a couple of months away,” JPMorgan says in a report.
Jio Investments
Reliance guided for Rs 1,50,000 crore investments in Jio by launch. It invested Rs 1,34,000 crore or over $20 billion by the end of June and infused an additional Rs 15,000 crore equity through a rights issue in July this year, taking the total investment to Rs 1,50,000 crore.
This includes Rs 60,000 crore in equity, over Rs 47,000 crore in debt, Rs 28,000 crore in vendor financing and Rs 14,000 crore as deferred spectrum payment, Citi Research says in a report. This investment is expected to increase further if Reliance Jio decides to participate in the forthcoming auctions in October for 700 MHz spectrum for strategic reasons, the brokerage adds.
Data Wars on the Anvil
Reliance, at its analyst meet in July, maintained its target of 100 million customers and at an average revenue per user of ARPU of Rs 400-500 per subscriber, though it did not spell out the time frame, according to the same Citi Research report. It has already sold nearly 2 million Lyf handsets and has now extended trials to other vendors like Samsung.
Ambani highlighted last year that Reliance Jio will provide handsets at a price point of around Rs 4,000, but Citi says so far, the average selling price of Jio handsets has been around Rs 6,000. Jio released 25 models of Lyf phones with a price range of Rs 3,000-20,000 per handset.
The company is adding nearly 40,000 to 50,000 customers daily in its trial phase, according to Nomura Global Markets Research. Telecom is going to be a near-term headwind, though the launch is imminent, the brokerage says.
Reliance said in its earnings statement in July that it is witnessing strong traction for its data offering during the trial period. Morgan Stanley says Jio already accounts for nearly 20 percent of India’s data consumption with just 1.5 million subscribers. Jio customers are using 40 times more data than the industry average, though for free. But “this usage level is likely not reflective of normalised usage once commercial charging begins,” according to Credit Suisse.
The initial 90-day free period of data and voice services for Reliance Jio, for the first trial launch phase ends in August, and it would be interesting to see if this will be extended till full-scale commercial launch of the tariff plan is announced, says JPMorgan in its report.
Telecom Not The Cash Cow
Reliance completed 90 percent of the near $19 billion capital expenditure in its core cash-generating businesses. “Unchanged guidance on project start-up timelines, which are now imminent (starting September), have also been completely ignored,”Citi Research says.
It pegged capex at $9 billion for the financial year 2016-17. It has already invested $4 billion in the first quarter of the financial year, including $2 billion in telecom. The capex intensity should fall, paving way for a multi-year cycle of strong free cash flow averaging $5 billion per year, Morgan Stanley said.
Ambani is expected to announce timelines for commercialisation of some of the major projects between September 2016 and March 2017. Reliance already guided that projects worth $30 billion will start in the next 6-9 months at its July analyst meet.
Ambani will re-iterate the timelines for petchem projects as disclosed to analysts.
- Paraxylene project: Q2-Q3FY17
- Refinery off-gas cracker: Q3FY17
- Ethane imports: Q3FY17
- Petcoke gasifiers: Q3-Q4FY17
Piling Debt
Gross debt for the company crossed $27.6 billion mark at the end of June 30, 2016, while cash and cash equivalents stood at $13.4 billion. Ambani said in last year’s shareholders’meeting that gross debt will peak by the time the current capex cycle concludes in March 2017. Net debt at the end of June stood at Rs 95,900 crore, and brokerage firm IDFC Securities says it expects peak net debt to rise to Rs 1,72,500 crore by March 2017, offsetting the advantages of strong downstream performance.