Reliance Industries The Energy Elephant That Danced

can you explain just how large Reliance has become today first company in India to cross 10 lakh in Revenue market cap of 16.4 trillion rupees the 100 largest companies in the world it alone pays more than 3 and 1 half% of the overall corporate tax in the country 28% of India’s gas production 50% of India’s Telecom subscribers and don’t forget the mango exports that’s frankly the speed at which they move is simply unmatched and unmatched because it’s probably hard to match it they always thought in terms of creating world scale it has taken probably 30 years for people to catch up it’s it’s not like they have not had failures they did a very very ambitious set of Acquisitions in the US Shale didn’t work they had to write off around $7 billion plus they have at any point of time I think more than 1 lakh 1 lak 120,000 130,000 CR of cash in hand in this episode of the spotlight we’re going to discuss India’s largest listed company Reliance Industries to do this I have probal sen of icic Securities who’s going to explain the evolution of the company into what it is today we discuss a lot of aspects of the business and dive deep into the economics of the business focusing specifically on the engine that has driven a lot of the growth which is the o2c or oils to chemical business I hope you find the conversation useful thanks for watching so let’s set the scene to begin with can you explain just how large Reliance has become today uh just to put a few numbers obviously to get the perspective it’s the first company in India to cross 10 lakh CR in Revenue market cap of 16.4 trillion rupees which is obviously I mean it’s probably the Among The 100 largest companies in the world by far obviously it’s the largest company in India more importantly uh if you look at the contribution to the government which also puts its importance in terms of the Indian economy in perspective it alone pays more than 3 and a half% of the overall corporate tax in the country if I look at last year’s payment it was somewhere around 25 26,000 crores which is more than 3% of India’s corporate direct corporate tax and if I look at the the overall payments of Duties profit petroleum IND direct taxes 1.86 lakh crores is the amount that it pays to the exer which is I think somewhere around 14% of India’s total budget uh I think 16% of overall merchandise exports comes from this company uh 28% of India’s gas production 27% of India’s refining capacity uh almost 40% effectively of India’s petrochemical capacity I mean you can go on and on but I think of course the 50% of India Telecom subscribers and uh you know if I look at its retail revenue of more than 3 lakh crores uh that is about six times that of its nearest Pier which is dmart this is all last year’s numbers obviously this year is still going on right I mean that’s the kind of scale that you have in every business that they’ve set up in the last two decades and don’t forget the mango exports that’s yes and now probably you know you have the wildlife Reser preserve that he’s setting up God knows what scale he’s you know anaban is going to set up that at so that is vanara could also become something in the discussion and they have a financial subsidiary which is not strictly now part of Reliance Industries JFL that also is capitalized without any business at about 2 lakh crores right so you know that’s the scale where they are looking to set up mutual funds and you know other financial services so that itself could become something in the you know I mean obviously very very material in the Indian context so it’s it’s a massive company whichever metric apply in terms of profitability Revenue contribution to the ex Checker I mean some numbers are just mindboggling correct absolutely and so really the you know what I want what I want to focus on in our conversation is understanding what has enabled this kind of scale and growth and I know it’s it’s not a young company but like you said the scale even over 40 50 years is incredible to achieve this kind of scale sure so let’s let’s dive little deeper into the flywheel that they have managed to establish going back maybe 20 30 40 years from the point where they enter the energy business in a big way can you talk about how they manage that and what that has led to in terms of spawning additional businesses along the way so I think uh you know going back and obviously this is even before my time so you know there’s a lot of you know you have to rely on what’s written about them more than you know what I’ve seen I think uh dhiru Bai you know the his initial experience in the in Aiden you know initially obviously started out everybody knows the story he started out at a petrol pump but then he did work in one of the large trading houses to the east of sus I think it was called the house of Asis if I’m if I’m remembering correctly wasn’t that bessan company or was that sorry bessan company that’s right my bad and uh you know that sort of then enabled him to sort of look at a trading opportunity when he came back because the sus Canal sort of got sto I mean got blocked at that time because of all that was happening in the Middle East so they all came back but he had some funds lined up and he started a spice trading and textile Trading Company I think the fundamental uh you know idea that he had which was probably the unique was that he immediately realized that you you have to control the value chain if you have to basically capture margins at every stage of whatever industry you’re into and and it’s amazing that you know someone with that background in the early 60s when he has started just polyester trading sees an opportunity and looks at basically you know at that point of time and says okay I’m setting up a polyester Factory now but you know the in the idea is basically to then backward integrate the whole way because I don’t want to be at the mercy of somebody else when it comes to controlling my raw material cost you know my efficiencies across the chain and I want to capture the margins at every stage of the value chain right if you look at how the petrochemical industry works I think the fundamental difference between what Reliance has done between versus what anybody else has done even till date in India is that nobody really captures the margins at each stage of the value chain right from you know using ethylene going on to let’s say you know manufacturing parylene then producing PTA and then using PTA then to of course produce you know the polyesters what happens there in in the petrochemical industry is your cycle for each individual Subs segment can sometimes move in very very different directions what I mean to say is that you know you can have polymer margins at one place you can have polyester margins in another place and you can have raw material pricing moving in a different direction the so I think the vertical integration that they did or the idea that they had when they even started out that is one particular reason the second important thing was that they always thought in terms of creating world scale relative of course to the time that they were in but I think the ideas you know that the that dehuai had even when he was starting out the scale of the ambition that he had even in the early’ 70s was always to create something that was comparable with worldclass standards not just in terms of the scale of operations but also in terms of the quality bringing into it the the kind of uh you know operational processes that he would set up and that automatically sort of really you know elevated them as you as they went along because you know at that point of time to have an ambition to set up a global scale operation sitting in India I mean that was unheard of really you know third Point obviously is that he had you know an innate charm from what I what one understands and and that enabled him to raise money for projects at a scale again that was not something that had been seen uh you know if if I recall from uh the reason for actually going public and literally setting up the equity cult in the in the mid ’70s was that Bank financing to the extent that he was looking for to set up his first polyester Factory and sort of expanding it it was just not really easy to raise that kind of money there was so many controls on Capital controls there were so many restrictions in terms of importing of equipment the duty structure was you know sort of adverse particularly with respect to uh PTA which he was uh you know going to use in his Factory versus DMT which was sort of the prevalent raw material at that time which is what the viers were using so there were a whole lot of things but you know again what he did okay I’m going to raise Equity from people and to the point you know after listing he had to host his agms in football stadiums right I mean these are famous stories that you would have heard but these all contribute to to you know the putting together an organization that was not limited by the constraints of the operating environment if one can really you know summarize in a nutshell he never sort of let the constraints of the operating environment hold him back he said okay this are the constraints what can I do within the boundaries of what is possible and legal and ethical what can I do to basically push it a little bit more get things going and you know get my way in that sense so I I would say those three or four things uh probably were the Genesis of the of the thought process that they have I don’t think it’s changed much if you look even over the last two decades in every business they enter I want to double click on something you said which I think is really interesting which is the difference the key difference being that they control more of the value chain than the than the competitors Are there specific data points that we can look at that show the value that has aced as a result of controlling more of the value Chain versus competitors so let me put it this way uh we we refer to something called an integrated margin in the petrochemical segment right what that integrated margin means is that start starting from the basic raw material or basic uh you know input which could be ethane in reliance’s case for example today they manufacture petrochemicals using three methods one is the NAFTA produced from their refining process you know that is one input Napa can be used obviously to make ethane and then onto ethylene then they import ethane directly from the US and then they have something called a Refinery off gas cracker which is the rogc that they set up a few years ago sorry I’m just going to stop here can you explain what cracking is okay cracking is essentially the process of breaking down uh you know a basic molecule like an ethane or a propane or a butane into basically uh something you know sort of cracking it uh I mean it’s a H carbon process right you basically apply heat use some Catalyst or some chemical process where you can then convert it into ethylene or other chemicals like propylene oradine and those that ethylene then can be further processed into what we call hdp which is your high density or low density polyethylene what we normal n clature would call Plastics so that is how the value chain really works so cracking essentially is the process of conversion you can say uh you know of of a basic input into into sort of further raw materials for the petam chain right sorry please can yeah so what they do essentially then from starting from that raw material then you obviously then you process your further intermediates which is essentially the likes of PTA PVC Meg uh you know and then you basically go on to produce your final products that you that you and me essentially consume in the form of polyester fibers in the form of Plastics in the form of direct chemicals for the industrial applications and so on and so forth so when we talk about integrated margins at each stage of this process as you can imagine there is obviously a margin being attached to each stage when you’re going from raw materials to intermediate the intermediate obviously has a spread because if you were to purchase it from somewhere else obviously you would have to you know sort of pay that margin because that person has spent money converting the input into intermediates and then of course the intermediates again on to final products when you are integrated when you are present in each of these chains you are capturing that margin at each stage in the final selling price that you’re doing so now imagine the contrast between a player who has to actually purchase that intermediate from somewhere else he only has the final manufacturing capability he cannot really control the cost at at which he’s you know sort of purchasing that intermediate that’s driven by market forces whatever efficiency he has he has to only sort of put that in place in the final manufacturing unlike a Reliance which can start sort of optimizing the cost directly of the raw material itself when it did about four to 5 years ago when it entered into this deal to purchase ethane directly for example from us it invested in what are called VC’s very large ethane carriers okay because ethane is something that has a very large volume to mass ratio similar to what liquefy natural gases so you have to sort of liquefy it and you know sort of transport it but when you start doing it at scale and given that us obviously at that time if you go back 5 six years that was the time us gas production was really taking off and you could see that they would probably have a surplus coming through in terms of you know uh uh uh ethane and Henry Henry H prizes were at a low and they captured that opportunity they said okay you know we have NAFTA that we produce in house but can we diversify and have some of our expanded capacity operating on manufacturing it directly from ethane right the third stage they did Refinery a Refinery typically does produce a lot of gases with as part of the refining process which are called off flu gases technically speaking and that gas they figured out a way to actually capture it and then manufacture petrochemicals so I mean you know and that is the benefit you get when you have a when you have a complex this large you know as the jam nagar Refinery 1.4 million barrels of oil per day of of processing capacity at one site even today there is no other complex like it in the world and that then gives you the opportunity to do all of these things they set up something called a Petco gasifier for example petcoke is one of the lower quality products that you manufacture in a refining process what you do essentially is refining is nothing but essentially a distillation process if you think about it you put in a barrel of crude and then you basically uh distillate distill it at different temperatures and at different temperatures different quality of hydrocarbons actually come out at the higher end which are called the light distillates which are some of the highest quality in terms of energy content you would have the likes of LPG ATF gasoline in the middle you would have something you would have your Diesel and a couple of other products at the heavier end essentially is where you would have the residue and some of the lower products like pet cook uh coming through or a bitumin that you can sort of manufacture use for road construction these products typically actually sell at a a discount to crude in the sense that you know for on a per barrel basis the price that pet cook makes is negative relative to crude prices therefore it makes sense therefore to you know sort of process it or use it in a different way which is what they did so these are the sort of things that they keep sort of doing to optimize and squeeze out every last bit of value that they can the other part of it is you know what kind of crudes can you actually process how dirty in a sense or how inferior is the quality of crude you can find because inferior quality crude obviously will sell at a lower price compared to your benchmark crude and why that is important is that final product prices are a function of meas being measured against a benchmark groute for example a a gasoline globally a barrel of gasoline will sell at this is The Benchmark crude which is typically Brent or a WTI or a Dubai crude all the major crude Blends in the world and that plus a certain number of uh dollars a barrel is what your gasoline price that price you can’t do anything about even Reliance can’t do anything because that’s a globally traded commodity what you can do is if my crude cost is actually even a couple of dollars less than this mench B that is value I’m capturing yeah and therefore can I have my Refinery uh you know in a situation where it can process these kinds of crude where I have the ability to process crude which are maybe high in Sulfur content which are heavier crude which need to be heated up for example or which need to be cleaned or purified before I can put it in the system and yet if can produce the same quality of product that everybody else is producing then I capture that value which is what they did I mean you be I mean just an amazing data point uh the refining complex at Jam nagar has still date uh processed some 216 different kinds of crude from Global Sources it’s every I mean you can take valeros of the world the largest other refineries in the world nobody has processed probably more than 50 60 kinds of varieties of crw nobody tries to do that because there is a challenge involv in introducing every new variety of crude into your crude slate these guys are just insane in terms of the kind of crudes that they’re willing to take up and you know blend into their system and still produce uh products which are you know comparable to uh because obviously they export a large part of the refined product Pro you know I’m trying to I’m trying to understand this so if you and I know the advantages of controlling the entire value chain I’m sure all the competitors know the advantages so what is it that has allowed them to do it but not anyone else or more specifically why do you think the others have chosen not to do it so I don’t think that uh you know others have chosen not to do it I think one of the things that worked for them was the first mover Advantage was clearly a massive massive deal I nobody else has really an access to a location as attractive as Jam nagar if you really look at it their ability to get more than 4 I think 4,000 Acres or insane number of amount of land it’s literally the size of a city the jam nagar complex to be able to get a location like that with access to a worldclass port you know which has access to all the input and to basically you know have the ability to synchronize uh you know processing units of such different kinds straight from you know basically input of crude and all as I said blending NAFTA ethane and r c three different Technologies for manufacturing petrochemicals all in the same complex I mean it’s it’s something that frankly nobody else has managed to do I would not say that nobody else has tried to do it just to give you an example OMC uh you know was trying to set up a petrochemical plant which was going to run on imported LG and ethane okay called opal onc petrochemical additives limited uh and that project I think first kicked off I think in 2004 or 2005 okay it got completed with a delay of around 5 7 years uh I think in 200 uh early 200 late 200 10 I think and then what happened was because there was so much of cost overrun that happened uh you know the economics just did not work uh there have been other refiners like you know the MC’s for example they have also tried to do it but what happens in oil marketing companies for example when I mentioned about crude sourcing you can set up the units but but then you have to have the operational flexibility to to leverage those units now the oil marketing companies have a tendering process when it comes to procuring crude uh as opposed to let’s say Reliance if you know what happens in the crude industry is you can have stranded caros in the sense that there’s a cargo that is you know sort of set off for a destination okay some problem happened in the contract that contract that you know cargo gets stranded okay if that crude is actually of a specification that is good and attractive to Reliance Reliance can actually turn around and basically put an order for thate and divert it to their ports and OMC can’t do that because he will have a very set process by which uh you know the the uh crude pricing is done the crude contract is done and so on and so forth that is changing I I’m I mean I’m happy to say that you know the government has worked on giving more autonomy to the omcs to be more flexible but for a very long time nobody other than Reliance were was able to do it third thing is that you’re right that it’s a mystery that why nobody else had probably the vision or the ability uh you know whatever magic potion they have in terms of working and and and being able to do refining all the way through to petrochemical production in one complex it has taken probably 30 years for people to catch up hpcl for example Hindustan petroleum is setting up a state-of-the-art 9 million ton it’s it’s at a still at a smaller scale than Reliance but it is setting up a 9 million ton refiner in vac which will be the first of its kind among the omcs where it will straight convert 30% of that 9 million ton into petrochemicals at the same site so that’s how far ahead of its time probably in many ways you can say Reliance is or was uh you know as I said the ambition and the aspiration when you go back to’ 60s ’70s even ’ 80s for that matter to actually have that conception that you know I will control all parts of the value chain I I don’t think that was there and then by the time ’90s came along or 2000 came along you had a certain setup that you had done it’s very difficult to then introduce and go back and say that you know I have ioc 60 million tons 70 million tons of refining capacity but that is spread over seven sites you were you are a government company you were asked to set up refineries in the Northeast because nobody else will do it you have landlock refineries in Punjab because you know government decided then you know it was needed correct For Better or Worse that that has a very important strategic value correct right but Reliance obviously did not have that constraint it did not need to set up a refinery in place X it did not need to have capacity the other thing that’s interesting is that when it comes to product yield what I mean by product yield obviously is how much of gasoline diesel ATF NAFTA you will produce from a Refinery now for example you always have a set product slate or a typical name plate capacity when you sort of get a refiner certified you say that or you know you have a capacity designed to produce let’s say x percentage of gasoline X percentage of diesel and so on but within that again if you have the you know sort of flexibility if you have the ability you can sort of Swing between let’s say a gasoline and a diesel to the extent of 2 to 3% now think about a situation where uh you know the demand Dynamics dictate that gasoline spreads are very strong but diesel spreads are weakened if you have the ability to swing it by about 3 % and capture that higher gasoline spread you would do it now here also Reliance probably can do it better than let’s say an uh you know state owned company to a certain extent because the state-owned company’s yield is determined by what domestic demand is okay because the government has a role as a promoter and as a regulator so and and the hat it wears with respect to omcs can change depending on the business environment if the country demands an x amount of diesel to be supplied it doesn’t matter what the spread is that amount of diesel will be produced you make some important points right one is that their competitors have constraints that they simply don’t have right but two the bigger takeaway for me from your answer was that it appears that reliance’s execution capability and frankly the speed at which they move is simply unmatched and and unmatch because it’s probably hard to match it right it’s just it’s it’s I mean they just and simply the willingness with which they take on risk it’s it’s very difficult especially for a government entity to just say yeah yeah let’s just go ahead we’ll figure it out as we go along right that they need to know beforehand what is the real risk they’re taking on cuz then they have people to answer to absolutely I actually want to again focus a little more on this specifically which is the speed and execution capability of reliance as a as a company as a group as an organization using Jam nagar as an example the jam nagar Refinery as an example can you can you talk about that entire process where between putting the first stake in the ground and actually starting operations at the refinery how long that took and how does that compare to the typical Refinery that most other companies put up sure so I think uh yeah it’s remarkable that you know even the first refiner I believe 99 is when it was uh commissioned it took about 3 to four years from start to finish there there are two complexes right you had you set up your first Refinery and then they set up the second the first one one was around 33 million tons okay and then the second one was 29 million tons both of them were actually set up in almost a record time in fact the second one was probably set up within 36 months which is unheard of even now if you look at Green Field refineries that have been set up after that in India none of them has come up in less than 5 years you know I was reading something from one of their service providers betil which is one of the leading Global sort of third party I mean uh contractors who are used to set up refineries I mean they were speaking about in the tone that we’ve we’ve never employed the kind of Manpower and the kind of resources they in fact set of 19 dedicated offices globally to service just this one Refinery which they themselves stated that we’ve never done it but that was the kind of intensity that was put in you know they they I mean they had set up an infrastructure the size of a small City in that place just to commission a contract so I think what Reliance does in terms of working with contractors its third parties its Consultants it also demands that kind of you know efficiency and expertise and when they see that from the other side that is the kind of commitment that is there I think that sort of that pulls it together I think there is a lot of autonomy probably or you can say that there’s a lot of attention to detail right down to the last node when they actually set out to do a project I mean Jam nagar is an example if I can digress a bit look at what they did with with Telecom okay the first 4A was a bit of a hit and miss but then there was a very different time both the brothers uh you know had some issues going forward and so on but the second foray I mean they went from nothing in 2015 for 14 to 480 million subscribers in less than a decade I mean that is just it’s it’s it defies logic in terms of how fast you can do it at and all the while also making data cheaper than probably at anywhere else in the world so retail uh 2006 I think was the official start when they entered the organized retail business it took them 4 years to reach the first th000 stores you know probably a couple of million square feet at that point of time 20101 today they’re sitting at close to N almost 19,000 stores 79 million square ft and as I said their revenue 6X that of the nearest Pier and you know you you’ve had the likes of Shoppers and all pretty much on a stand still right so I mean you know I I would love to tell you that I know how they do it but you know the fact of the matter is that they they manag to get that done they managed to do things on a scale you know I’m familiar with a few people that do a little bit of work with them in their real estate and you know in their properties and all I mean the kind of timelines they put the kind of you know speed at which you’re expected to sort of finish stuff with the quality standards not being compromised nobody else demands that nobody else works on those hours nobody works on those timelines or scales now obviously they must have and they do have the benefit of incredible amount of people particularly at the top I mean the likes of Manoj Modi the likes of PMS Prasad people who have been with them from probably the initial stages some of them have been there for two decades plus some of have you know have been there for probably since Inception but I think what it tells you is that some of these people are there for a reason they probably are instrumental in putting it together it’s not just huai or mukes Amman is do it you know some of the trusted people that are there he you know his his his I think Brothers Sons the nikil and H mwani you know they are they were actually instrumental in uh sort of looking after and completion of the jam Naga Refinery PMS Prasad was instrumental in setting up their oil and gas business you know which did very well faltered and is again sort of doing very well now so it has it’s it’s not like they have not had failures right you know that is I think important to remember obviously there have been missteps but given the approach that they take I think what happens is that you know there are more successes than failures they did a very very ambitious set of Acquisitions in the US Shale uh space for example didn’t work they had to write off around $7 billion plus yeah you know Telecom as I said was probably one of the famous missteps earlier in their history but I think on an overall basis that the risk taking that you I think mentioned I think that is very important the kind of calls that they take when they got into Telecom I think nobody believed frankly that it would reach the scale it did I mean I’m to very small person obviously we were very skeptical but I think even industry experts were scoffing at the kind of ambition that they were talking about at that point of time they made it work in less than a decade yeah retail nobody believed you could set up 8 million squ ft a year consistently you know when everybody else is struggling to do a few thousand square F feet yeah in terms of store editions and areas and everything else they’ve done it now they’ve set up 80 million square ft in again probably if I really set aside the first few years they really really started to ramp up post 20101 so again it’s been a decade or so so that’s I think that’s that’s I mean that’s the DNA and and it’s world like you said right it’s world class you enter for example you enter a mall you enter the GE Mall in bkc it is as good if not better than any place you can go anywhere in the world right it’s absolutely world class and you know so I I want to understand the economics of specifically the energy business within Reliance right you know we leave aside goo and everything else just focusing just on the energy business can you walk me through the economics of that business where is it that they actually really make money within that business and what kind of you know just some headline numbers in terms of margins or return metrics or anything else that’s there sure so just to you know again one of the remarkable things is that refining and petrochemical both are extremely cyclical businesses you will have 3 to four years where margins are extremely high you will have then 3 to four years where margins are low and you know then and and and sort of keeps going every 3 four years you have a cycle uh if I look at the margin Trends in terms of AA margins from this business uh they have varied from as low as I think 9 10% in the initial years to as high as 20% plus to probably somewhere around 14 to 15% currently you know within that uh I think one key thing that has changed is when they were really ramping up uh the overall complex uh I think petrochemical was an extremely profitable uh business for a very long period of time what has changed I think petrochemical probably was making 20 plus% margins and therefore the ROC of the business was also I think well ahead of 20 25% for the overall oil to chemicals business if you want to sort of Club it together what has changed unfortunately in the last 3 four years is uh the petrochemical business is is probably seeing the most prolonged period of cyclical weakness that we have seen in the last two decades it’s a function of several factors one is uh China Middle East uh sort of Saw capacity expansions the likes of which we had not seen for a very long time uh post pandemic demand pickup specifically for petrochemicals because when you talk about petrochemicals petrochemical demand is very very uh closely tied into demand from Real Estate demand from the consuming sectors because even a toothpaste tube that you use obviously is a function of the petrochemical that is being produced because that is derived from pet cam uh materials that you’re using in the building industry for example in Furnitures you know in finishing everything sort of has a plastic element to it so if you think about what has happened in China in the last 3 4 years the way that the real estate sector has slowed down plus the kind of excess capacity that was anyways being added that has had a spillover effect on petm margins so if you look at the overall margin and you know one has to sort of make a clarification since fi21 middle of 21 they stopped reporting data for their refining and pet cam business separately okay they clubbed it together into something what they call the oil to chemical segment I mean we try and sort of estimate based on previous data and our experience in terms of what they’re doing but on a overall basis the OTC business margins have obviously seen a downturn to about 13 14% Ro and roc’s would probably still be among the highest in the industry because again it goes back to the fact that they set up a bulk of their infrastructure you know probably 40 years ago or 30 years ago and costs for everything obviously have escalated extremely high they have had capacity expansions that they’ve done over 2014 15 16 17 they doubled their PX capacity they almost doubled their PTA capacity they set up you know additional the rogc that I spoke about the Petco gasifier but on an overall basis this is still by far the highest Roe R generating business if you look at at their Consolidated Ro which is probably still somewhere around 7 8% today because of all the kex that’s happened in retail and Geo one would expect that the OTC business probably still makes 20% plus returns and obviously that business has to generate a meaningful amount of free cash because in order to spawn these other businesses the cash had to come from somewhere sure so what kind of what kind of cash flow um you know what are the kind of cash flows that come out of that OTC um oils to chemical uh sorry otot oil to chemical yeah oil to chemical business what kind of cash flows does that see and the real question that comes out of that is what exactly has enabled them to spawn these other businesses that have come along the way so two things yes uh the oil to chemical business accounts for more than 40 to 45% of the ABA and I would say that in terms of cash profits also it would be somewhere in that range if not it probably would be closer to 55 to 60% of the overall operating cash flow that is generated uh but that’s only one reason the other more important reason is as they have gone along and the balance sheet size has grown their credit rating has never wavered below probably some of the highest that any Indian corporate gets so their ability there for to raise debt at extremely competitive rates because one is the credit rating one is the size of the debt they’re raising I me this is a that’s on an average over the last decade invested close to 90 to 95,000 annually in terms of overall capex in this country last threee average would be closer to 1.4 trillion 1 lak 140,000 CR on an average so and and and the philosophy that they have is that if I can raise this money at a cost of capital which is probably 3 400 basis point lower if not more than the cost of equity then you know I have I have no problem you know you can keep on arguing that my Roc probably doesn’t look great because you know I have I’m doing kex and I’m raising debt but the fact is I’m doing it at a cost which is so much competitive compared to my cost of equity you know and and I think that philosophy is also something that sort of I think flows through to the way that their Capital allocation works that you know people and you know people like me have also asked them why don’t you return a little bit more money why don’t you have a more aggressive dividend they’re like we trust that you know we are investing money better uh than you know uh returning uh the money to the shareholders we are creating more value by putting it in businesses that will eventually deliver much better return so that is how you know how the philosophy works yeah and Reliance has a gigantic treasury operation as well doesn’t it and how has that so is is that is that another really important competitive advantage that I mean set aside all the technical abilities and scale and all that they have an incredible Financial engine within that that’s powering all of this absolutely and I think again it it comes down to sort of the I mean they have at any point of time I think more than 1 lakh 1 lak 120,000 1 lakh 30,000 CR of cash in hand you know not net cash because obviously there’s debt but that that kind of liquidity is there in the system and that obviously creates another income stream as well which in itself would be a large business correct if it was held outside the lines I think it’s similar to let’s say for example Apple if I can give an absolutely crazy example but Apple’s Financial arm is today probably as big if not more than their core business because that’s the size of their cash reserves okay they have a free cash flow unlike what Reliance does but with the kind of liquidity they have to play around with the treasury operations also you know are extremely significant in terms of creating income streams the other income itself that they get I think is is a very very big number uh compared to let’s say any other corporate because they can afford to have that still have net debt at manageable level and still meet all of their investment requirements while having that treasury leverage uh you know in the markets and do we know exactly how much they’ve invested in if I take the two bigger new businesses which is go and Retail do we know exactly how much they’ve invested so far in those two businesses yes I think Gio would probably be uh you know and it’s a little bit I mean there is some investment in spectrum and this thing but close to I think 10 12 billion easily has gone into Gio about $5 billion is something that theyve invested in retail till date yeah and so again coming back to the energy business so there’s everything that they’ve built so far but there’s obviously a lot of discussion about where this business goes in the future especially if as a lot of people say there’s going to be some sort of Dem merger where there’s going to be Standalone entities and this sort of energy business is going to be separate as far as the listed enti entities concerned from go retail Etc where where does this business go in the future what does it look like 5 10 15 20 years from now wow I wish I can give a coherent answer but you know I think two things uh again here one is what happens to the traditional business and two what happens to the additional new energy businesses that eventually obviously it part becomes part of your overall energy portfolio so what they’re attempting to do is one uh you know the chairman mentioned this in his AGM a couple years ago is move away from traditional refined fuel uh you know Focus to move more and more into speciality chemicals okay the way that the world is moving in terms of consumption patterns demand for hydrocarbons is not going away what is happening is demand for traditional Transportation fuel is what is being challenged by the likes of EV and you know alternate fuels so what I think Mr Amani is trying to do is to essentially say okay we’re going to reduce inter terms of if you look at every barrel of crude that goes into my system if today around 30 or 40% is still uh you know being sold in the form of refined products I am going to ensure that even that sort of gets processed further into petrochemicals and speciality chemicals which has a much more uh I think sticky demand even going forward because you don’t have an alternate uh manufacturing option for a toothpaste you don’t have an alternate for a for a for a tin for for a can for a packet for a packaging you have environment friendly none of them have have the scale to sort of compete with traditional petrochemicals right so the more you can actually move your facility towards chemicals from just a I mean if you think about what a barrel of crude does a barrel of crude gets refined produces petrol diesel LPG NAFTA you take NAFTA LPG you then further take it in and use this as input for your petrochemical process that is very simply how a sort of oil chemical process works if you can therefore reduce what petrol and Diesel you produce if you can figure out a way where you can stream a barrel and directly converted into chemicals that is literally what oil to chemicals essentially you know sort of means and in the Middle East there are some refineries where they have managed to sort of deliver petrochemicals directly without producing the refined products is this sabic and companies like that yes absolutely savic is doing it and in fact what I was talking about hpcl they are in fact trying to do that itself in vac where they’re saying we’re not going to produce anything 30% of every barrel of crude directly goes to petrochemicals you know so I think Reliance because obviously now for for Reliance now because they have a set system they are very very big player in refining that graduation that that sort of transition will probably take a little bit of time but that is the aim to do for the traditional business the second thing that they’re trying to do of course is with this whole new energy initiatives in terms of solar cells in terms of new green hydrogen in terms of fuel cell they also they want to do two things one they want to produce Round the Clock Renewable Power to again uh reduce the energy cost in the traditional fuel business or the traditional OTC business and then the rest of it of course when they scale up to really the 100 gwatt that is the long-term aspiration obviously then that business itself becomes several times larger than the current OTC business I think that is where I’m so sorry I think I think that is where the sort of direction is yeah uh in terms of the overall OTC business specifically on this hydrogen business so there’s a lot of talk about hydrogen there’s green hydrogen blue hydrogen and all sorts of different types do you think that based on what we know today that this is actually a viable business okay this is separate from Reliance this is just generally speaking for whoever sort of decides to go down this path what are what what do you think the economics of that business look like like are they materially different from the economics of sort of more traditional energy businesses do you think there’s going to be a real first mover Advantage what are your thoughts on hydrogen as an energy business in general the the economics is very simple today with all the stuff that is going on green hydrogen costs are still at somewhere I think around 5 to 6 rupees a kg if you look at the production cost for green hydrogen compared to that a gray hydrogen which is essentially hydrogen produced from your refine process that costs a fraction of that what green hydrogen needs to get to in order to be competing against every other you know comparable traditional energies essentially get down to below 2 rupees a kg that journey is basically what needs to happen for which one Renewable Power needs to continue to sort of really really get cheaper there need to be effective Storage Solutions so that you know you can have that Round the Clock power generation to fuel your green hydrogen production and you know the green Hydro production technology itself you know there are the pem technology is probably the most used uh today but I think that is the stated aim of reliance as well when they got into it I think they obviously had very clear aims of getting below one one and a half you know rupees a kg or dollars a kg sorry uh for their green hydrogen business but you know frankly what we have seen over the last couple of years is that the momentum in green hydrogen seems to have you know slowed down a little bit little bit at least globally what we see the plans of you know uh sort of scaling up green hyrogen production the kind of ambitious targets that people had that seems to have been tempered a little bit so my sense is probably you probably need more of an inflection point the way the solar has gone where today obviously solar energy costs are a fraction of traditional power costs yes storage is still still a challenge yes Round the Clock power is still a challenge but on the basic cost per unit solar is probably comparable and better than you know on a like for like basis than traditional energy sources hydrogen probably still needs a few years to get there from what little I can understand proad I I just I want to know I have to ask this in the most blunt way possible do you think anyone will ever catch Reliance um I think it depends I think the now there are there’s not one Reliance so depends which Reliance you want to catch uh I certainly think that you know in terms of Telecom bharti has done a good job again with the apology to San sh star Telecom Analyst at ISAC uh you know I don’t want to tread on his toes but from what we understand you know after the initial shock where Reliance just came in and frankly bloned everyone with the pricing and data and roll out and everything else the last couple of years if you see you know the subscriber growth the movement in rpu the kind of you know uh momentum that is there I think vti has probably done held its own retail I think you know frankly I don’t know if anybody has the Capac capacity frankly to take on that kind of roll out of physical assets because what happens is that you know one of the things that probably I didn’t speak enough about is their ability to front end their kex and then sit back and say okay this is going to take me 6 years to monetize that’s fine I’m going to wait it out I have no problems I’ll front end my kex which is exactly what they’ve done with retail I mean retail they rolled out the infrastructure it took time but then what happened was q1 F fi2 two if I can get more specific they at 30,000 CR of Revenue today they’re at 90,000 CR plus and the infrastructure for that was probably created over 2021 and 22 yeah you know and that front ending is something that people have to sort of really contend with and that requires a balance sheet strength that requires a is taking attitude that requires that execution capability that they’re known from It’s a combination of a whole lot of things that I don’t know how many people can replicate in energy I think again energy I think probably there are other players that have the similar Ambitions even the OMC is to their credit I think are really really getting aggressive in terms of their Capital allocation to new energy to uh you know increasing the complexity of their refineries to do better in you know more petrochemical conversion and so on but whether they can sort of catch up and because relance is also not going to stand still so I think that advantage that they have will probably still be there but I would say that the likes of adani for example in renewable have even more ambition ious plans than Reliance does in some ways so I think it’s it’s in energy I would say probably there are players but in terms of retail in Telecom and you know in terms of the overall package that is there at least I don’t know if 10 15 years I have the wherewithal to make a forecast but at least in the next 5 to seven years it’s very difficult to see anybody coming close to their size and scale yeah absolutely it’s it’s I mean it is remarkable what they’ve achieved and I I mean I don’t know it’s it’s sometimes I think about just the role Reliance plays in India’s economy as a whole forget forget Which business all of that it’s just they’ve become so integral to just day-to-day life for all of us so I think I I I sorry to interrup you I I saw a chart where we you know there was this there was this wheel where alliances how how many people Reliance is competing with at the same point of time right so they’re competing with PTM they’re competing with star they’re competing with Z they’re competing with aramco they’re competing with OMC they’re competing with bti they’re competing with banks now and so on every SE you talk about you know you will have an example of somebody using a Reliance product correct or using a Reliance service or something else so I think that is that is truly remarkable to be able to create an and as I said at the beginning of the talk uh you know 15% of merchandise exports of a country as big as India comes from one entity I mean that is a phenomenal startat in itself if you think about it absolutely but proile thank you so much for taking the time this was really fantastic and thank you so much for talking so in depth and actually explaining all of this and I think my biggest takeaway is how little I know actually of these businesses and and that’s really the purpose of this that to sort of dive deep into each of these individual businesses I’m an analyst my job is to essentially either convince you or confuse you so I don’t know which one you are but you know maybe maybe a bit of both no but but but but but really genuin it was it was really fantastic and really interesting and thank you so much for taking the time pleas thank you for giving me the opportunity thank you for having me over this was a very unique experience so very very interesting thank you so much this thanks