Reliance Invests $125 Billion in Capex Over Past Decade

Reliance Industries Ltd has poured in excess of $125 billion into its operations over the past decade, spearheading expansions in both the hydrocarbon and telecom sectors, a recent report has revealed. The conglomerate's future investments, according to the report, will predominantly focus on relatively less capital-intensive ventures in retail and upstream new energy.

Goldman Sachs, in an in-depth analysis of Reliance, noted that between FY13-18, the company invested nearly $30 billion to enhance the scale, integration, and cost competitiveness of its O2C (oil to chemical) business. Additionally, it committed close to $60 billion between FY13-24E towards fortifying its 4G/5G capabilities, thereby establishing a robust telecom business.

With the imminent completion of the pan-India 5G rollout and potential telecom tariff adjustments on the horizon, Goldman Sachs anticipates that the telecom sector will evolve into a robust free-cash-flow generating entity alongside Reliance's existing cash cow O2C segment.

"We believe the businesses RIL is investing more in the next 3 years (retail and upstream new energy) are relatively less capex heavy, higher in returns and have a shorter gestation period," the report stated.

While hydrocarbons and telecom capex cycles were largely completed during FY17-19, an accelerated telecom capex cycle in 5G is now drawing to a close in FY24.

The report projects capex intensity to peak at $17.6 billion in FY23, before gradually easing to $11.2 billion by FY26E. It also highlights that new business returns are likely to be higher, and the capex to EBITDA turnover faster.

In addition to being less capex intensive, Reliance has frontloaded a substantial portion of the capex for its retail business. The offline square footage has more than doubled from FY21 to 3Q FY24, alongside aggressive store expansions and investments in omni-channel capabilities.

Looking ahead, the report predicts Reliance's capex in new energy to unfold in two phases. Initially, the focus will be on upstream manufacturing, with plans to invest $10 billion to complete fully integrated solar and battery manufacturing plants by FY27-end. Subsequently, a larger capex outlay is anticipated for the second phase, which may involve setting up solar downstream, electrolyser, and wind capacities for new energy production.

HBL