Where will Mukesh Ambani spend his money in the next three years? Goldman Sachs shares insights

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Reliance Industries invested over $125 billion in the last ten years in a massive push for its hydrocarbon and telecom businesses, Goldman Sachs said, adding that the conglomerate’s investments in the next three years would be in relatively less capex-heavy retail and upstream new energy.

Reliance is coming out of a series of long and intensive capex cycles (hydrocarbons and telecom).

“The company has invested nearly USD 30 billion between FY13-18 to increase scale, integration and cost competitiveness of the O2C (oil to chemical) business, and close to USD 60 billion between FY13-24E in 4G/5G capabilities to create a high-growth telecom business,” Goldman Sachs said in a deep dive report on Reliance.

With the pan-India 5G rollout now likely completed and potential telecom tariff hikes ahead, it expected the telecom business to become a strong free-cash-flow (FCF) generation business alongside current cash cow O2C (which comprises its mega oil refinery and petrochemical complexes).

“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,” it said.

A refining or petchem facility would usually take at least five years to start up (construction and ramp-up time) versus about two years for an integrated poly-to-module solar facility and 6-12 months to ramp up a retail store.

“RIL has invested over USD 125 bn in capex in the last 10 years, mostly in hydrocarbon and telecom, which are more capex intensive and have a longer gestation period,” it said. “While the capex cycle for hydrocarbons and telecom 4G completed during FY17-19, we saw an accelerated telecom capex cycle in 5G, which is now completing in FY24.”

The report expected capex intensity to peak at USD 17.6 billion in FY23 (April 2022 to March 2023 fiscal), easing sequentially to USD 11.2 billion by FY26E. Stating that new business returns are likely higher and capex to EBITDA turn is faster, Goldman Sachs said. Besides being less capex intensive, RIL has frontloaded a large portion of the capex for the retail business.

“Overall, we estimate retail EBITDA to nearly double again between FY24-27 with the share of consolidated EBITDA increasing to 14.3 per cent in FY27 from 12.4 per cent in FY23, while capex intensity will decline sequentially,” it said. It saw RIL’s capex in new energy taking place in two phases – first on upstream manufacturing, where it has planned USD 10 billion for completing fully integrated solar and battery manufacturing plants (largely by FY27-end). It saw RIL’s capex in new energy taking place in two phases – first on upstream manufacturing, where it has planned USD 10 billion for completing fully integrated solar and battery manufacturing plants (largely by FY27-end).

“Much larger capex outlay, in our view, will be linked to the planned second phase of deployment, where RIL may potentially set up solar downstream, electrolyser and wind capacities for new energy production,” it added.



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