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Reliance Industries – to be debt free in 18 months!

Amidst the gloom and lack of enthusiasm for mega growth, Reliance Industries continues to provide room for optimism. Chairman Mukesh Ambani, in his address to shareholders at the AGM, outlined plans for re-structuring the company and for strident growth in several directions. The most interesting one relates to massive investments in its operations by the energy giant Saudi Aramco and British Petroleum. Ambani pointed to a clear roadmap for his company to become a zero-net-debt company in the next 18 months and to the consolidated operating income growth of 15 per cent annually for the next five years. He assured rewarding investors of higher dividend and periodic bonus issues once the company hit zero-net-debt.

Reliance Industries is the biggest Indian corporate ranked 106 among global companies for 2018 with a revenue of $ 82.33 billion and has been the most profitable Indian company as per the Fortune 500 list. All the three major growth engines of petroleum and petrochemicals, retail and telecom, have been performing well and have significant plans to increase their market share. Ambani said the consumer business that contributes to nearly a third of RIL’s consolidated EBITDA would add to 50 per cent of the company’s operating income and profit. Reliance Retail is four times larger than the second-largest retailer, it was stated.

Reliance Jio has invested Rs 3.5 crore for creating the optic fibre infrastructure. Reaching half a billion-customer mark is within Jio’s reach. Reliance Jio Infocom will complete the rollout of a fibre-to-home network within the next 12 months. Already it has received the registration of over 50 million. The company expects to reach 20 million residences and 15 million businesses soon, stated the press release.

Just like the blitzkrieg of Jio Telecom’s introductory offers that had won big custom in quick time, one can expect Jio Fiber, the company’s fibre internet service, would be priced low and offer internet of things, home broadband, enterprise broadband and broadband for SMEs: “will start offering premium movies on first day, first show basis from middle of next year. Customers with annual subscriptions will get an HD/4K LED TV and set-top box absolutely free,” says the press release.

In the petrochemical business, the company expects the flow of massive investments: Saudi Aramco will take a 20 per cent stake in the oil to chemical division with an enterprise value of $ 75 billion. BP Plc will be investing Rs 7000 crore for a stake in RIL’s fuel retail network. RIL and Microsoft will tie-up to set up cloud centres.

L&T – Exploring geographies…

Engineering and construction giant, L&T, reported a 21.2 per cent increase in consolidated profits to Rs 1473 crore (Rs 1215 crore) during the first quarter of FY20. Revenues for the April-June 2019 were at Rs 30,020 crore (Rs 27,232 crore, +10.2 per cent). New orders booked continued to be healthy – worth Rs 38,700 crore with international orders at Rs 9004 crore constituting 23 per cent.

Managing Director S N Subrahmanyam (SNS) pointed to handsome growth in the infra and power sectors.

For FY 2019 L&T clocked revenues of Rs 141,007 crore (+ 18 per cent). PAT touched an all-time high of Rs 8905 crore (+21 per cent). Procurement of new orders was at Rs 176,834 crore and orders on hand, unexecuted, stood at Rs 293,427 crore.

Increase in the share of the business has been flowing from L&T’s foreign operations. Chairman, A M Naik, mentioned in his speech at the AGM efforts to expand its traditional focus on the oil-rich Middle-East region to new geographies in Africa, Bangladesh and Sri Lanka. I remember the stress of A Ramakrishna, former Deputy Chairman, on skill development, offering training facilities for construction workers over vast areas. A forte of L&T has been its focus on nurturing, retaining, and developing talent. In line with the policy of phasing out manufacturing segments that have not been core to the engineering conglomerate that has interests from infrastructure to software service, the company is slated to sell its electrical and automation businesses to Schneider Electric. SNS mentioned the clearance obtained from the Competition Commission of India. The sale is to be completed in twelve months.

This large engineering conglomerate has identified segments that hold promise in infrastructure. L&T has been at the forefront of developing urban infrastructure, smart cities, roads, railways, particularly metro rail… The company also foresaw tremendous opportunities in water infrastructure. Power transmission and distribution, hydrocarbons, heavy engineering, defence, thermal power generation, real estate, IT, digital initiatives and financial services continue to receive attention. The acquisition of Mindtree will help expand IT services across the globe. Remember SNS spending over a year in the US to equip himself with digitalisation and other nuances of software in assuming charge as MD? How effectively he has digitalised the operations in quick time!

Looking at the opportunities unfolding L&T’s Lakshya five year strategic plan from FY 2022 could be expected to target revenues exceeding $ 50 billion.

Murugappa Group: Iconic Pudukkottai Sugar mill closed

Recently the Murugappa Group announced the permanent closure of its modern Pudukkottai sugar mills.

EID Parry set up India’s oldest sugar mill at Nellikuppam in 1842 and operations commenced in 1845. White sugar production started in 1903. The Indian sugar industry has evolved along with EID Parry. The company built capacity for crushing daily about 42,500 tonnes of cane in its mill in Tamil Nadu, Puducherry, Karnataka and Andhra Pradesh. The operations had been profitable for long. But the controls imposed by the government like state-advised prices for sugarcane over and above the rates fixed by the Centre, erratic monsoons and the cyclical nature of the industry have severely impacted sugar production in Tamil Nadu. A measure of this should be evident from the state’s sugar production falling steeply from a peak of 24 lakh tonnes to around seven lakh tonnes.

I remember my visit to the EID Parry sugar units in 2004. I found the Pudukkottai unit as among the most modern and efficient sugar mills. The 2500 tcd mill was built in just 10 months. It had the lowest manpower among sugar mills, outsourced maintenance; just 60 young men and women, handled the highly automated mill in three eight hour shifts. The total workforce was around 320, and all employees were of supervisory grade. The company taught farmers in organic farming, vermicompost, cloning of varieties for higher yields tailored for planting around the year…

The company laboured hard to develop the cane area around the plant and introduced modern techniques in raising cane and processing it. Then Managing Director P Ram Babu pointed to the scope for processing imported raw sugar to keep the sophisticated equipment working through the lean season also.
How sad this modern unit should be closed!

Use agri infrastructure for other crops…

During April-May 1987, IE cover story mentioned: “it is a luxury to grow rice, sugarcane in Tamil Nadu” and suggested the state switching to water-efficient crops like corn and groundnut. In a subsequent lecture at the Madras Institute of Development Studies (MIDS) presided by Dr Malcolm Adiseshiah, I expanded on the theme. I suggested that each region should select crops suited to its agro-climatic endowments and pointed to the successful record of the United States.

In a water-stressed state like Tamil Nadu, with no perennial rivers, a new policy change is urgently needed. The excellent infrastructure created by the sugar companies in developing scientific methods of raising sugarcane, nurturing these, harvesting and transporting these with rich technological and managerial inputs should be utilised in building alternate crops including fruits and vegetables.

Politics tilted slowly in favour of farmers has led to the decline of the sugar industry. The alternative model of contract farming should be attempted. In this, long term leasing of land without alienating ownership would help. This will also help agglomerate the small landholdings into viable sizes.
Such a policy change will still help effectively utilise the large acreage under sugarcane assiduously built over decades to continue to generate incomes to the thousands of dependant farmers.

Hindustan Unilever – Resilient

A barometer for the economic slowdown is revealed by the performance of fast-moving consumer goods (FMCG) companies. Look at the most popular of these: Hindustan Unilever, registered a mere 7 per cent growth in net sales to Rs 9984 crore for the quarter ended 30 June. However, there was a healthier growth in net profits by 15 per cent to Rs 1755 crore.

Home care products like fabric wash, household care and water purifiers are reported to have recorded double-digit growth. The company mentioned the performance of personal products was steady, the personal roll was muted and skincare registering a broad-based increase. Foods and refreshments reported having delivered a stable performance. With summer at its peak, ice cream and frozen desserts delivered a robust double-digit growth. Chairman and Managing Director, Sanjeev Mehta, said that against the backdrop of moderate market growth, HUL has delivered a resilient performance.

 

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