Mukesh Am­bani is sec­ond-rich­est Asian as debt fuels Reliance In­dus­tries’ growth

Muscat Daily - - BUSINESS -

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.


Mukesh Am­bani

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