Reliance Industries Chairman and Managing Director Mukesh Ambani made a plethora of big-ticket announcements at the company's Annual General Meeting on Monday morning bringing cheer to shareholders. One announcement that must have delighted his investors, small and big, was his solemn assurance to turn the company into zero net-debt one in the next 18 months.
"We have a very clear road map to becoming a zero net-debt company within the next 18 months that is by 31 March 2021," Ambani announced at the RIL AGM and went on to set out a clear vision and a roadmap for achieving the feat.
RIL closed the last financial year with net debt of Rs 1,54,478 crore. The burgeoning debt pile was beginning to make investors jittery and analysts cautious on the course of the company's balance sheet. RIL fighting a debt pile wasn't a tolerable idea for anyone.
How does RIL plan to cut debt drastically in just another year and a half? Before coming to that, let's look at a rough break-up of RIL's debt pile.
Reliance's gross debt as on 31 March 2019 was at Rs 2,87,505 crore. This included standalone gross debt of Rs 1,61,720 crore and balance in key subsidiaries, including Reliance Jio (Rs 67,018 crore), Reliance Holding USA (Rs 34,848 crore), Reliance Retail Group (Rs 12,832 crore), Independent Media Trust Group (Rs 3,045 crore), Hathway Cable and Datacom Limited (Rs 1,973 crore), Reliance Gas Pipelines Limited (Rs 1,379 crore) and Recron Malaysia (Rs 1,170 crore), according to the company's annual report for 2018-19.
Cash and Marketable Securities were at Rs 1,33,027 crore ($19.2 billion) resulting in net debt at Rs 1,54,478 crore ($22.3 billion).
At the AGM, Ambani spoke about the following plans that would help the firm significantly cut liabilities. The major ones were business deals with Saudi Arabia's Aramco and a retail petroleum deal with BP. Under the long-term partnership deal with Saudi's Aramco, the petroleum and natural gas company will pick a 20 percent stake in RIL's oil-to-chemicals division at an enterprise value of $75 billion. Together with the BP deal, RIL will get at least Rs 1.15 lakh crore into the company. Next phase is to bring in investors into consumer business.
RIL already has received strong interests for the stake buy in Reliance Jio and Reliance Retail which will help the firm generate fresh cash flow. Third, Ambani also spoke about RIL's premium real estate holdings where value could be unlocked to reduce debt levels. Besides, the group had transferred telecom infrastructure assets last year to two separate trusts with a view to generating Rs 1.25 lakh crore from investors.
Reducing the liabilities is key for RIL as this has been cited as a major concern by many analysts on the expansion path. Once the firm achieves zero net-debt as it promised at the AGM, investors will have further reasons to turn bullish on the RIL stock which has surged at least 20 percent since the last year. At the AGM, Ambani said enough to make every single RIL shareholder happy.
"As we achieve our zero net-debt target this financial year, I assure you, my dear shareholders, that we will reward you abundantly through higher dividends, periodic bonus issues and other means, and at a more accelerated pace than any time in our history," Ambani said. That, coupled with the guidance of 15 percent EBITDA growth annually over the next five years, is sure good news for both retail and institutional investors in RIL.
(Data support by Kishor Kadam)
(Disclosure - Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd)