RIL Finally Up For Huge Capex

Reliance Industries (RIL) is finally ready to deploy its long pending capex plans. As per the Deutsche Bank research report, India's most valued company is finally going ahead with its capex plan of USD 27 billion (Rs 1,48,000 crore) by the beginning of the next fiscal i.e. FY14. The company had announced this plan in 2011 and the market was awaiting the execution of the same. The capex will be spread across the next four fiscals ending by FY17, which means that the company will spend about Rs 37,000 crore every year.

The plan includes 85% of the total capex to be spent on projects in Oil, gas and petrochemical sector while 15% in retail and telecom sector. The company is looking to increase its gas production from KG-D6 basin which has been a major concern for the investors. Recently, the production from the region has fallen to a record low.

The company has partnered with British Petroleum to resolve the technical issues in the region. Last year, RIL had said that it hopes to produce an additional 60 million cubic meters per day (MMSCMD) of gas in the next three years. The capex plans will help it to ramp up the production which will throw a much required lifeline in to its power projects in South India where many gas based power projects are being run on lower utilisation.

As per media reports, RIL has planned to invest Rs 13,500 crore in the telecom segment and Rs 19,500 crore in the retail segment. In the telecom segment, the company is looking to offer data services and voice telephony across the country. Last month, Telecom Commission announced that the firms having broadband wireless access can offer voice services by paying a fee. RIL's subsidiary in telecom business, Reliance Infotel already has a license for data service across the country and has emerged as the biggest beneficiary of this.

The markets are expecting Telecom to be the next growth driver for the company. In the retail segment, the company is expecting to break even by the next fiscal and hence that will also add to the revenues of the company. The capex plans for retail are not yet announced but we believe that they are mainly about increasing the number of retail stores.

Due to the strong Q3FY12 results as well as the huge capex plans, many brokerage houses have changed the ratings on the stock. The stock has shown a handsome recovery in the current fiscal year and with the execution of these capex plans, the recovery may continue well ahead as well.