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Reliance Group Bets Big on Infrastructure and Defence

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The infrastructure and defence stocks of Anil Ambani-led Reliance Group were up on September 26, 2017, after ambitious plans for each of the group companies, including Reliance Infrastructure, Reliance Power, and Reliance Naval and Engineering, were announced by the Group Chairman.

RInfra plans to participate in the controversial ₹1-lakh crore bullet train project from Mumbai to Ahmedabad, for which it is in talks with Japanese companies, Ambani told shareholders at the 88th AGM of Reliance Infrastructure here.

The company is eyeing large engineering, procurement and construction (EPC) order inflow from projects like the Bandra-Versova Sea Link and Coastal Road, both in Mumbai, for which it has been shortlisted, Ambani said. The company has qualified for the ₹40,000-odd crore Mumbai-Nagpur Expressway project too, he added.

Debt remains one of the key concerns for RInfra, although it could reduce its debt to equity ratio from 1:5 in FY16 to 1:2 in FY17. RInfra’s debt on a consolidated basis was around ₹29,000 crore at the end of Q1.

According to Lalit Jalan, RInfra CEO, the debt is expected to come down to ₹20,000 crore as a result of various initiatives, including the divestment of power transmission business, deleveraging by ₹2,500 through an infrastructure investment trust and receiving at least 75 percent of arbitration awards from Delhi Metro Rail Corporation which, including interest, amounts to ₹4,725 crore.

However, Ambani’s biggest bet is on the defence sector. The group, which acquired Pipav Shipyard two year ago, is eyeing a contact for six submarines worth ₹50,000 crore among other orders.

Defence play

According to Ambani, with this acquisition, Reliance Naval (earlier known as Reliance Defence and Engineering Ltd and Pipavav Defence & Offshore Engineering) is one of the only two companies in India strategically positioned to participate in the Centre’s strategic partnership programme announced earlier this year. Reliance will have to compete with infrastructure and engineering major L&T for this order.

Power projects

Power is another major focus for the Reliance Group, despite the overall negative outlook towards this sector given the slow growth in industrial demand in India as well as overcapacity created in thermal power space over the past few years.

“The sector is undergoing a consolidation phase and is offering a number of inorganic growth opportunities. The company will continue to explore these to accelerate value-accretive growth and exploit synergies with the existing portfolio,” Ambani said at the Reliance Power AGM. He added that the company will look at the opportunities in commercial coal mining.

Reliance Power is looking to achieve the financial closure of a 750 MW LNG-based power project in Bangladesh with an estimated investment of $1 billion in the current financial year. The first phase of the project is expected to start commercial operations by March 2020.

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