India’s richest man Mukesh Ambani recently announced plans to sell stakes in his flagship company Reliance Industries to Saudi oil major Aramco and in the fuel retail network to BP Plc of UK for a combined Rs 1.15 lakh crore as he aims to make his company a zero-net debt firm in 18 months.
He began this journey with a marginal reduction in liabilities in Q2. According to RIL’s Q2FY20 media statement, the capital expenditure for the quarter ended 30th September, 2019 was Rs 19,095 crore ($ 2.7 billion) including exchange rate difference.
LiveMint has reported that, on that front, there is some relief, point out analysts from Jefferies India Pvt. Ltd. “Strong standalone cashflow helped by a release in working capital from high contract liabilities left consolidated net liabilities ₹1,600 crore lower quarter-on-quarter on a like-for-like basis to US$36.1 billion," said Jefferies in a report on 20 October.
What’s more, there is good news on the capital expenditure (capex), too. RIL’s Q2FY20 press statement said, its capex for the quarter ending September was ₹19,075 crore (or $2.7 billion). For perspective, this measure stood at ₹22,627 crore for the quarter ending June.
“Indeed, consolidated capex fell to near six-year lows of $2.7 billion and an even lower $2.3 billion adjusted for about ₹3,000 crore in forex losses," added Jefferies in its report.
It is encouraging that Reliance Jio Infocomm Ltd, RIL’s telecom subsidiary, has seen a moderation in its capex. The company has said Jio capex has dropped to ₹5,000 crore for the September quarter. For comparison, Jio capex was ₹8,500 crore for the June quarter.
After the post-results meeting with analysts, Centrum Broking, wrote, “The overall capex will sustain at this run rate of ₹17,500-19,000 crore per quarter for the second half of this financial year." This is sharply lower than quarterly averages of ₹25,000-26,000 crore over FY18-19, added Centrum in a report on 19 October.
Separately, RIL’s September quarter performance doesn’t disappoint with its consumer businesses, retail and telecom, firing strongly, boosting overall earnings. Consumer business contribution in overall consolidated Ebitda stood at 33% for the September quarter, up from 23% in the same period last year.
That said, investor focus will be on debt reduction by March 2021. “Our capex forecasts are even lower on average in FY20-22E (barring spectrum renewal) but find limited scope of meaningful organic free cash flow keeping net liabilities flattish in this period contrary to Reliance's guidance of a ~US$25bn fall by March 2021 (including Aramco)," said Jefferies.