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Reliance Industries To Turn Into A Holding Company After Deal With Saudi Aramco

Reliance Industries Ltd. will turn largely into a holding company with stakes in different businesses.

Mukesh Ambani’s Reliance Jio Infocomm Ltd (RJIL). (Photo: PTI)
Mukesh Ambani’s Reliance Jio Infocomm Ltd (RJIL). (Photo: PTI)

Reliance Industries Ltd. will turn largely into a holding company with stakes in different businesses—refining and petrochemical, retail, telecom and media.

The Mukesh Ambani-controlled conglomerate will be left with only the domestic oil and gas exploration arm in its standalone business, while all the other units will be held through structures similar to subsidiaries.

That will happen after Saudi Arabian Oil Co. buys 20 percent in RIL’s refining and petrochemical business for an enterprise value of $75 billion, though the exact details aren’t known. RIL plans to move the refining and petrochemical assets into a new subsidiary in which Saudi Aramco will be given the 20 percent stake, while the remaining 80 percent will be held by RIL’s current shareholders.

Reliance Industries To Turn Into A Holding Company After Deal With Saudi Aramco
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Direct Business–Domestic Exploration

After the Saudi Aramco deal, RIL’s standalone business will only house the domestic oil and gas exploration business—to which analysts hardly assign any value. The company holds 60 percent stake in the Krishna Godavari basin D6 block, while the remaining is held by BP Plc. and Niko Resources Plc. Additionally, the company also owns 30 percent stake in Panna and Mukta oil fields, while it owns 100 percent of the two coal bed methane blocks in Sohagpur East and West in Madhya Pradesh.

However, the financial contribution of these assets on the bottomline is negative.

Refining & Petrochemical

This business has been RIL’s cash cow, generating most of its free cash flow. The company has seen a steady rise in its revenue and earnings before interest and tax on the back of expansion, favourable crude sourcing strategy and cost controls.

For the year ended March 2019, the refining and petchem segment had an EBIT margin of 10.4 percent, while gross debt stood at close to Rs 1,61,720 crore.

Retail

RIL holds nearly 94.5 percent stake in its retail venture, while the remaining is owned by two private entities—Vanishree Commercials Pvt. Ltd. and Infotel Infocomm Enterprises Pvt. Ltd. Over the last two years, revenue from this segment has grown over 3.5 times, while its operating profit has risen five times on the back of increasing store count and cost control. The expansion, however, has added debt on the retail division, which as of FY19, was Rs 12,832 crore.

Reliance Jio

RIL owns 100 percent stake in its telecom arm—Reliance Jio Infocomm Ltd.—which started charging customers nearly two years ago. The business had a gross debt of Rs 67,018 crore as of the year ended March 2019. Since the telecom arm started charging customers for its services it has seen two times and three times jump in its revenue and operating profit mainly on the back of rising subscriber base. As of June, the telecom operator had over 33 crore users on its network, which generated an average rental of Rs 122 per month.

Media Investments

RIL owns stakes in various media houses and allied companies like Network18 Media Investments Ltd., TV18 Broadcast Ltd., Hathway Cable Datacom Ltd. and Den Networks Ltd. These companies, as of FY19, had a total revenue of Rs 7,880 crore and negative earnings before interest and tax of Rs 155 crore. The total debt on the books of these companies were nearly Rs 5,437 crore.

Shale Gas & Others

Reliance Holding USA is the holding company for RIL’s shale assets. It accounted for $1.1 billion of provision through impairment in 2018, taking the cumulative provisions and write-offs to $5.4 billion between 2014 and 2018 amid a sharp fall in global crude oil prices. It reported net loss of $1.2 billion in 2018. However, RIL has been exiting these investments and is focusing only on India.

RIL also holds stakes in various companies involved in the business of investments, support services to group entities, digital content creation and distribution, trading in crude oil and petroleum products, sports among others. That apart, it also holds 48.5 percent stake in Jio Digital Fibre Pvt. Ltd.—the company that manages its fibre assets.

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