Reliance Industries Limited (RIL), the pioneer in petrochemical industry shall further resume new major projects over the span of 4-5 years. While these huge projectsdemand a colossal amount of capital expenditure, RIL has plans to innovate and expand further. All these projects are seen as long- term ones and may keep the cash reserves of the company occupied.
The refining and petrochemical segment of RIL will have an investment of $ 12 billion in the forthcoming years. The operating cash inflows will be sufficient to support this investment and will not have any impacts on its debt levels.
Its petroleum coke gasification project will introduce syngas that will come as asuitable replacement to LNG (Liquefied Natural Gas) that is highly expensive. With an investment of $ 4 billion,RIL will produce syngas that is a combination of hydrogen and nitrogen.
According to Credit Suisse’spost earnings report on this, the Mukesh Ambani led conglomerates operational gasifiers can reckon up the $3 per barrel to the refinery GRM (Gross Refining Margin) entailing $1.3 billion to gross refining earnings.
With the petrochemical and the polymer industry in the country appearing to be optimistic at present, RIL augments its potentials in these sectors including polyester, PFY, PET and its other channels. It also plans to infix new product lines such as rubber and carbon black.
The polymer demand in India has tremendousgrowth potential and is equivalent to 1.2 to 1.4 times the GDP growth rate. The 7.8 MMTPA of the country’s polymer market has potentials to get biggerin the next five years with over 12 MMTPA. Owing to the increase in the income level and its consequence on our lifestyle and that we are witnessing, there are high chances of it assisting this growth scale.
The declining level of present supply ofkey petrochemicals in the country will lead to increase in the import levels further in years to come. Similarly, the world average per consumption of polymer is significantly higher than Indian per capita consumption of the same. Thus, there is a need to work on these sectors considering these factors and fix it up.
Bank of America and Merrill Lynch in their reports have mapped the timeline for the implementation of these projectsindicating the operational works on PET in 2013 andPFY to be carried in the latter half of FY 13. RIL will astir the working on PTA in two stages where the first stage will commence from July until around July 2014 subsequent to Paraxylene that may continue from 2014 to around 2015.Thus, all these projects can be clearly claimed as long term projects entailing a period of around 4-5 years. In the long run, these expansion projects can turn out to be highly promising strengthening the bottom- line of RIL and can even benefit the value of the shares in a period of time for the shareholders.
There are chances that RIL’s EBITDA may increase two fold by 2016-2017, with all these expansion projects without any significant increase in its net debt levels based on the Credit Suisse Report.