Net-zero debt, listing for Jio, Retail—dominant themes of Mukesh Ambani’s speech at RIL’s 42nd AGM

New Delhi, Aug 12 : A mega deal, commitment to become a net zero debt company, plans to unlock value for shareholders and rapid growth in the consumer business — these were the key themes in Chairman Mukesh Ambani’s speech at Reliance Industries Ltd’s 42nd annual general meeting.
In particular, a concrete deadline of 18 months for reducing the net debt to zero will assuage the concerns of investors and analysts, some of whom were calling attention to the company’s rising liabilities.
Under the deal with Saudi Aramco — the largest foreign investment in RIL’s history — the Saudi petroleum major will buy 20 percent in RIL’s oil-to-chemicals business at an enterprise value of $75 billion or approximately 5.25 lakh crore.
At the end of financial year 2018-19, RIL had net debt of Rs 1.54 lakh on its books. RIL’s deal with Saudi Aramco and BP, monetisation of telecom assets through an infrastructure investment trust, strong investor interest in Jio and Reliance Retail, and the proposed monetisation of real estate and financial investments should help the group achieve the net zero debt target within the deadline.
Ambani said the deals Aramco and BP would be completed within this financial year and that the proceeds from the two deals were about Rs 1.1 lakh crore.
He added that the group had received “strong interest and commitments from reputed global investors” for telecom assets worth around Rs 1.25 lakh crore that were spun off and housed in an infrastructure investment trust. Ambani expressed confidence that the transactions would be completed by the end of this financial year.
RIL’s stated objective of both consumer-centric businesses (retail, telecom) and the legacy businesses contributing equally to the overall revenues over the next decade, appears to be on track. The consumer businesses now collectively contribute nearly 32 percent to the consolidated operating profits, up from 2 percent five years ago.
In his speech, Ambani said that RIL had proved skeptics wrong that the group could not succeed in consumer businesses.
“Jio and Reliance Retail have proved them wrong. If these two consumer businesses had been separately listed companies, each would be ranked among the top 10 in India today, in terms of value,” Ambani said.
Ambani said the investment cycle for Jio was now complete and that only marginal investments in access were now required to build capacity to meet growing demand. This gives the business huge operating leverage and would result in robust returns over the years.
Jio will now bet on Internet of Things, and broadband for homes and businesses as its next growth engines.
In the retail business, Ambani said that Reliance Retail had cemented its position as India’s number one retailer with a turnover of Rs 1.3 lakh crore last year.
Ambani highlighted the fact that milestone was achieved faster than any other retail company in the world, and that Reliance Retail’s operating profit margins were among the best globally.
RIL has plans to take both Jio and Reliance Retail public over the next five years.
Ambani said that the group had received “strong interest from strategic and financial investors” for both businesses.
On the slowdown in the economy, Ambani said that it was temporary as the fundamentals of the economy were quite strong and there was political stability.
“The opportunities will grow further with structural reforms. The government is laying the foundation of new institutions for business promotion and regulation,” Ambani said.
He assured shareholders that as RIL achieved a net zero debt target, they would be rewarded “abundantly through higher dividends, periodic bonus issues and other means, and at a more accelerated pace than any time in our history.”