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Reliance disappoints at shareholder meet, shares fall

business Updated: Jun 03, 2011 16:33 IST

Reliance Industries will work with BP Plc to address production issues at its key gas block in India, its chairman said at the firm's annual meeting on Friday, but its shares fell as investors were disappointed by a lack of specifics.

Reliance, India's largest listed firm, is controlled by Mukesh Ambani, the world's ninth richest man with a net worth estimated at $27 billion, according to Forbes.

The company, which has focused on energy as its core business, is now expanding in other industries.

Ambani told shareholders Reliance planned to invest aggressively in retail and would launch a 'cash-and-carry,' or wholesale business.

But sluggish gas production has been an overhang on the company's stock, valued at $69 billion.

The shares have fallen more than 10% this year, contributing significantly to the comparative 9.8% fall in the main Mumbai index, in which the stock has the heaviest weight.

On Friday, the shares fell more than 2% following Ambani's remarks.

"There was no clarity on many things. There were lot of areas, which were unaddressed in the speech, be it banking, be it gas," said Jagannadham Thunuguntla, head of research at SMC Global Securities.

The company is also looking to expand in sectors such as telecom, retail, financial services and hospitality.

"Reliance is endowed with a strong balance sheet and depth of talent," Ambani said, adding that the company was "uniquely placed to pursue multiple growth opportunities."

But energy is still the company's mainstay.

Its D6 block in the Krishna Godavari basin off India's east coast is its biggest gas producer, but output has slipped due to technical problems to about 52 million cubic metres a day (mcmd) from 60 mcmd in 2010 and short of a target of 80 mcmd.

In February, Reliance agreed to sell a stake in 23 of its oil and gas blocks, including some in the KG basin, to BP in a $7.2 billion deal, and is expected to benefit from BP's deepwater exploration expertise.

"After the government approvals for BP-Reliance partnership, KG-D6 reservoir will be jointly assessed to address technical issues in ramping up production," Ambani said, adding later that he expects the deal to be approved in the next few weeks.

Reliance shares provisionally closed at 936 rupees, down 1.6%, after being up 1.7% before Ambani's remarks. The stock was the second-biggest loser in the 30-share benchmark index.

The Mumbai market was down 0.5%.

"People were expecting him (Mukesh Ambani) to make major comments on future plans," said Arun Kejriwal, director at research firm KRIS.

"Nothing significant has been spoken."

Retail, telecom, shale gas growth
"Our core business now is energy and materials. The next core business we want to build is consumers," Ambani said.

"Retail and broadband really enhance quality of life and these are two businesses we want to focus on."

Retail demand is booming in Asia's third-largest economy, where a population of 1.2 billion people fuels annual sales of $450 billion.

But even as India's retail sector is among the fastest growing in the world, it remains heavily regulated, with strict limits on foreign investment.

Just 6% of retail trade is organised. Nearly 80% of the market is controlled by "kirana" stores -- small mom-and-pop shops.

Ambani said the format for the new retail business would offer regional, national and international brands to small traders and shop owners.

"Retail is a long gestation period business," Ambani said.

"This will be one of our biggest value creators in years to come."

Ambani also said the company planned to build broadband infrastructure across India over the next three to five years, spanning education, healthcare and financial services.

Last year, Reliance made a dramatic return to the telecom business with a $1 billion acquisition of Infotel Broadband, the only company to win a nationwide licence for broadband wireless spectrum in a government auction.

Ambani also said the company would be free of net debt by the end of this fiscal year.

As of March 31, its long-term debt stood at $12.4 billion, and its cash and cash equivalents were $9.5 billion.