After spinning off its retail assets into Reliance Retail Ventures, a separate unit, and digital assets into another wholly-owned subsidiary Jio Platforms, the Mukesh Ambani-controlled Reliance Industries is now demerging its oil-to-chemicals business. The idea behind hiving off its key divisions was to get strategic investments into the individual business and then potentially list companies like Reliance Retail on the stock exchanges at a later stage.
Reliance Retail as well as Jio have raised huge investments from global investors. The O2C business could be next.
“RIL's unprecedented growth in the last decade has been driven by significant growth in O2C business and rapid scale-up of new consumer businesses—digital and retail. Strong underlying performance of each business has resulted in a strong and diversified growth and earnings profile. Each business will pursue its own independent growth opportunities and create value,” said Reliance.
Reliance has been in talks with Saudi Arabia’s oil giant Aramco for a stake sale in its oils-to-chemicals business for some time now. Plans to sell 20 per cent stake in the O2C business was announced back in 2019, but the deal has yet to be completed.
The decision to hive-off the O2C business into a separate unit can be seen as a precursor to this deal. But, that's just one part. Ambani has announced big plans to shift towards new energy and materials business and wants to build an optimal mix of reliable, clean and affordable energy and storage using solar, wind and batteries. It also wants to accelerate transition to a hydrogen economy and develop a portfolio of advanced and specialty materials. The company is likely to seek investments and partnerships for this.
“RIL’s demerger plan for O2C business is a step towards monetisation and acceleration of its new energy and material plans into batteries, hydrogen, renewables and carbon capture—all of which point to the next leg of multiple expansion and clarity on the next investment cycle, says investment bank Morgan Stanley.
The reorganisation will be beneficial to all stakeholders, said Reliance.
“Independent growth company enables focused pursuit of opportunities across the O2C value chain; enhanced efficiencies through self-sustaining capital structure and dedicated management team; facilitates value creation through strategic partnerships and attracts dedicated pools of investor capital,” it said.
With this reorganisation, RIL will have four growth engines—digital, retail, new energy and new materials. Morgan Stanley sees significant upside risk to earnings and multiples for O2C business as RIL invests in new energy and technology.
The investment bank also predicts RIL investing $50-$60 billion over the next decade, with $13-$15 billion in new energy, $12-$15 billion in digital, $12-14 billion in retail, $8.5-$10 billion in chemicals and up to $1.5 billion in plastic recycling.
Reliance already has a fuel retailing joint venture with Britain’s BP Plc, in which RIL holds 51 per cent stake and BP 49 per cent. It has over 1,400 fuel retail outlets, with plans to touch 5,500 outlets in the next five years.
RIL wants to be “India’s largest and most preferred provider of mobility, including EV charging and low-carbon solution,” its presentation states.
Apart from the fuel retail joint venture, the O2C subsidiary will further own Reliance Global Energy Services Singapore Pte Ltd, Reliance Global Energy Services Ltd UK, Reliance Ethane Pipeline and Reliance Sibur Elastomers Pvt Ltd, where RIL owns 74.9 per cent and Sibur 25.1 per cent.
While RIL has received approval from market regulator SEBI and stock exchanges for the O2C demerger, it will require approval from equity shareholders and creditors, income tax authorities, other regulators and the National Company Law Tribunals in Mumbai and Ahmedabad.
A shareholders and creditors meeting will be held in the April-June quarter and it also expects to receive approval from NCLT by the July-September quarter.
RIL shares were trading 1.3 per cent higher at Rs 2,033.90 on the BSE in afternoon trading on Monday.