Reliance Industries (RIL) announced the next big phase of growth and expansion plans at its 45th annual general meeting (AGM) on Monday.
The planned new investment in its telecommunications, oil-to-chemicals (O2C), and green energy business will consolidate RIL’s market dominance and industry, but the company’s mega investment plan has raised fears of further decline in its already low return on networth (RoNW) and return on capital employed (RoCE), stated a report by Business Standard. This, in turn, will weigh on RIL share price and market capitalisation, it added.
The company reported RoNW or return on equity of 9.17 percent on a consolidated basis in 2021-22 (FY22), up from 8.42 percent in 2020-21, but down from 12 percent in 2016-17 (FY17), informed the report.
Similarly, the company’s RoCE improved to 9.36 percent in the last financial year on a consolidated basis, from 7.8 percent a year ago, noted the report.
Historically, the company’s balance sheet continues to grow at a faster pace than its earnings, pointed out BS. RIL’s networth on a consolidated basis has trebled in five years, from ₹2.63 lakh crore at the end of FY17 to ₹7.8 lakh crore at the end of March this year. In contrast, RIL’s annual consolidated net profit doubled during the period, from ₹29,091 crore in FY17 to ₹60,705 crore in FY22, it informed.
The report noted that many analysts fear a reversal in this trend as the company makes fresh investments in its existing businesses and makes aggressive pushes into new sources of energy, such as solar power and hydrogen.
“Over the next two/three years, this could create the next engine of growth with large technological advancement and ambitious growth targets. But it could dent the existing single-digit return ratios in the near term,” said Motilal Oswal.
Meanwhile, Edelweiss Securities noted that a slowdown in global demand or larger-than-expected capacity additions could impact RIL’s refining and chemical margins.
They expect RIL to face headwinds from a global rise in the cost of capital as central banks raise interest rates to tame inflation, added the BS report.