RELIANCE INDUSTRIES: New Projects Unlikely to Fire Up Co in Short Term

Reliance Industries has announced several new large projects for the next 4-5 years in the refining and petrochemical segment, which shows the company has kick-started its next big capital expenditure cycle. This should put to rest the uncertainties relating to how the company plans to deal with its growing pile of cash. However, all the projects are long term in nature, and unless business environment improves, the company’s stock price may not see much of an upside in the near term.
RIL will be investing over $12 billion over the next few years in the refining and petrochemical industries, which may go up due to its investments in retail, exploration and production or telecom segments. Still this will not call for any significant increase in the company’s debt level, since its operating cash flows will be adequate.
RIL’s presentation to analysts mentions the setting up a $4-billion petroleum coke gasification project that will produce syngas — a combination of hydrogen and nitrogen — that will replace expensive LNG as fuel. “RIL believes the gasifiers can add around $3 per barrel to the refinery GRM, which at the current run rates would imply a $1.3 billion to gross refining earnings,” says a Credit Suisse’s post-earnings report on the company.
The company is also bullish on India’s growing demand for polymers and petrochemicals and has announced a $8-billion capital expenditure plan to expand its capacities of polyester, PET, PFY and intermediates, besides adding new product lines such as carbon black and rubber. 
According to RIL, the growth rate in India’s polymer demand has been close to 1.2 to 1.4 times the GDP growth rate. India’s polymer market, currently at 7.8 MMTPA is set to grow to over 12 MMTPA in the next five years, supported by demographics, changing lifestyles and growing income levels. Indian per capita consumption of polymers remains substantially below the world average, which will go up gradually.
The company projects a scenario in the Indian market marked by a shortage in supply of primary petrochemicals, which will lead to wide scale imports in the near future.
All these expansion projects will be commissioned in phases over the next 4-5 years. A post-result report by Bank of America Merrill Lynch gives the broad timeline saying that RIL is implementing projects to enhance polyester (PFY and PET) and raw materials and intermediates (PTA and PX) capacity. 
The commissioning would be as follows: PFY capacity in the second half of FY13, PET in 2013, PTA in two phases between July 2013 and June 2014, followed by paraxylene in 2014-15, according to this report.
These projects are big and do hold the potential to boost RIL’s bottom line in a marked manner when commissioned. However, they entail long gestation and won’t do much to assuage current investor worries.
The Credit Suisse report goes on to say if things go according to plan, and with higher gas prices (in India and in the US), “we estimate all the E&P, petrochemical projects can almost double RIL’s EBITDA by 2016–17, without much net debt increase. Given the lead time and the early stage (risk) of these projects, the market may not get excited about this growth now, but should begin to see value over time.”