Reliance is the biggest private sector player in India. It has proved itself successful even during economic downturn. Lets take a brief look at major businesses of the company, which are spread across oil and gas exploration, refining of crude, petrochemicals, and also into chemicals.
Reliance is the largest player in petrochemicals segment. With the acquisition of IPCL, the company has almost an 80% share in the pie. Currently, it has a capacity of about 11.8 m tonnes and also 4.4 m tonnes from IPCL. It has plans to increase the capacity by 2 m tonnes in the next 3-5 years. This is more than 10% increase in total capacity. With the current upturn in the petrochemicals cycle, the company is expected to benefit further.
In case of exploration, Reliance is a new player. Despite this, the company successfully discovered the largest natural gas reserves globally in FY03 (Krishna Godavari basin with reserves estimated to about 14 trillion cubic feet). Thus, the company became the largest private sector player in the domestic exploration front. Reliance has around 32 blocks for exploration and plans to invest around Rs 12 bn over the next two years in this business. Once the commercial production starts (expected by 2006), it will add significantly to the revenues of the company.
Reliance set up the largest refinery in Jamnagar with a capacity of about 27 mtpa (fifth largest in the world). This helped it derive the benefits for its petrochemicals unit, where naptha is a major feedstock. This was, thus, a backward integration move for its petrochemical business. This apart, the company plans to set up about 6,000 retail outlets, some of which would commence operations by the end of FY04. With the entry of Reliance and other players, competition is expected to increase manifold in this business.
Reliance has a presence in the business of chemicals and textiles also. In case of chemicals, it is the largest producer of Linear Alkyl Benzene and Paraffin in the country. It has also acquired management control of BSES, marking its entry in the power utility segment. Apart from this, Reliance has launched nationwide WiLL services recently, thus entering into the telecom segment. All-in-all, Reliance is on its way to becoming a mammoth diversified conglomerate.
At Rs 319, the company is trading at a P/E multiple of 11x FY03 earnings. Historically, the company trades at a P/E band of 8x-15x. The only concern for the company is that all its new initiatives are capital intensive and hence subject to execution risk. Also, the shareholding structure between various new initiatives is complex.
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