Mukesh Ambani is second-richest Asian as debt fuels Reliance Industries’ growth
Mumbai, India - Mukesh Ambani has elbowed past Li Ka-shing to become Asia’s second-richest man as investors rallied behind his efforts to arm India’s poor with cheap data-loaded phones. Some analysts are beginning to focus on the costs of his ambition.
The chairman of Reliance Industries Ltd (RIL) has added US$12.5bn to his wealth this year, according to the Bloomberg Billionaires Index, as shares of his refining-to-telecom company surged to a record. Spurring the rally on is optimism that a new US$23 phone launched last month will expand the market for Ambani’s fourth-generation mobile network into India’s hinterland. The whistles and applause that greeted the JioPhone obscured the fact that by one measure the company’s debt has climbed to at least a 15-year high.
The telecom business, Ambani’s seven year labour of love, has sucked in more than US$31bn in investments and is yet to earn him and his shareholders any profits. It’s contributed to a near tripling of the group’s total debt since March 2012 and sparked a vicious price war in the world’s secondlargest mobile phone market. About 90 per cent of Reliance’s revenues continue to come from its legacy refining and petrochemicals units, with retail, media and energy exploration contributing the rest.
Local brokerage Kotak Securities Ltd struck a note of caution on July 23 when it downgraded Reliance’s stock to reduce. ‘We remain wary of high capex run rate and rising net debt levels’, wrote Mumbai-based analysts Tarun Lakhotia and Akshay Bhor.
The company’s net debt-toEBITDA ratio has quadrupled in the five years to March 2017 and is at the highest level since 2002, when Bloomberg began tracking the data. Analysts consider EBITDA a gauge of a company’s operating profit, or the money it makes before paying taxes, interest on loans and accounting for depreciation and amortisation.
Ambani described Jio as ‘a jewel’ among Reliance assets during the company’s annual general meeting on July 21. “Its business and societal value will grow immensely over the next decade,” he said. “Jio will become India’s largest provider of data service, products and appli- cation platforms.”
To be sure, Kotak Securities is among a minority of four brokerages with a sell rating on Reliance, compared with 13 hold and 21 buy recommendations among firms Bloomberg tracks. The company’s stock, which has climbed 48 per cent this year, closed 0.7 per cent lower at R1,603.55 in Mumbai on Tuesday.
Since carrier Reliance Jio Infocomm Ltd is a new business, it will have to account for ‘significant’ depreciation and amortisation charges, which will result in losses till the year ending March 2021, Macquarie Research analyst Aditya Suresh wrote in a July 25 report.
To justify its share price ‘in addition to the growth from RIL’s new refining and petchem projects and a constructive refining margin view, we need to ascribe US$12bn option value for Jio’, Suresh wrote. ‘With not a single dollar of revenue booked we consider this optionality premature’.
For Ambani, the gains have swelled his net worth to US$35.2bn, taking him to number 19 in the Bloomberg Billionaires Index from 29 at the end of 2016. He passed Li Ka-shing - whose empire spans telecommunications, retail and ports - for a few days in April and again on July 7.