Reliance Industries Limited (RIL) will hold its 45th Annual General Meeting on Monday. Among other things, investors expect the company to shed light on the timeline for Jio’s 5G plans and possible listing of key businesses. More significantly, the focus will be on the company’s stance on its net debt position. RIL’s net debt as on June 30 was 57,655 crore, up from 34,815 crore till March 31. Recall that the company had achieved net-debt-free status in FY2011.
An important finding from RIL’s FY22 annual report is that capital expenditure (capex) has grown by 82% year-on-year. 1.45 trillion. A large part of this was for digital services, which included the purchase of spectrum, followed by the retail segment.
According to analysts at ICICI Securities, the free cash flow yield remained muted at 0.5% in FY22. This was despite strong operating cash flow in the last fiscal.
In addition, total investments will continue to rise, which is likely to increase the company’s debt. RIL is focused on expanding its footprint in the green energy value chain. As per the company’s FY22 Annual Report, RIL has made acquisitions and investments worth more 5,500 crore in the new energy segment in the last financial year. RIL believes this vertical will outperform all current growth engines in five to seven years, helping the oil-to-telecom conglomerate achieve net zero carbon emissions status by 2035.
To meet this goal, RIL plans to provide electric vehicle charging infrastructure and build a compressed natural gas network.
In the telecom business, Jio plans to launch JioPhone Next in collaboration with Google to address the handset affordability issue and convert all 2G users to 4G.
Separately, RIL’s disclosures regarding Related Party Transactions (RPTs) are encouraging. “The key details on RPT among various subsidiaries of RIL (Jio, Retail, Reliance Property & Management Services) are positive. While it is too early to say if increased disclosure on large transactions between subsidiaries is a step on the path of listing of these businesses, it will be seen as a positive,” analysts at JP Morgan India said in a report.
While investment in new energy will start another engine of growth, it requires investment in the interim period. On the retail front, e-commerce is still gaining momentum, but has yet to achieve meaningful scale as physical stores still drive most of the company’s growth, analysts at HSBC Global Research said in a report on Aug. Told.
“The burden of revenue growth will be on customer growth and in the interim, the company will have to spend on 5G capex,” he added. All of the above factors are likely to weigh on the stock’s performance in the near to medium term, said analysts at HSBC.
Hence, RIL’s shares have been very resilient. While the stock is down about 8% from the 52-week high seen in April, it is up 17% over the past year, indicating that investors are holding enough of the optimism.
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