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Reliance to hive off EPC division - Views on News from Equitymaster
 
 
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  • Feb 21, 2000

    Reliance to hive off EPC division

    Reliance has backward integrated further by setting up its own engineering company. The new outfit is likely to be called Reliance Engineering and Construction.

    Reliance Industries (RIL) is India’s largest producer of fibre intermediates (polyester terephthalate and mono–ethylene glycol) and downstream petrochemicals (polypropylene, high density polyethylene, linear low density polyethylene). Its sister company Reliance Petroleum has put in place a 27 million tonnes per annum (540,000 barrels per day) refinery which is the world’s largest grassroots refinery at Jamnagar (Gujarat). The refinery accounts for 25% of India’s refinery capacity.

    The setting up of RIL’s facilities at Hazira was mostly planned within the company with subcontracting done from outside contractors. For setting up the refinery it was the Reliance engineers who worked closely with the contractor Bechtel.

    The group’s in house engineering division has in the last year implemented almost the same amount of contracts as Larsen & Toubro (L & T), which got almost 70% if its Rs 74 bn revenues from its engineering division. Interestingly, the Reliance group owns 10% of L & T’s equity.

    It is quite possible that with the government likely to involve the private sector in the building of infrastructure and a lot of benefits for the setting up of physical infrastructure expected in the budget, the group may have consolidated its engineering activities so that it can bid for these projects. A separate company would also enable the group to tap both the debt and the equity market for funds as and when required.

    Market View:
    Due to the complexity of its refinery as well as the fact that the company is poised to benefit from the impending deregulation of the Administered Pricing Mechanism, RPL has been rated as a buy by most analysts.

    Reliance Industries has also been rated as a buy primarily due to the rise in petrochemical prices (tracking international prices) and its holding in blue chips such as L & T and BSES.

     

     

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