Monday, March 26, 2012

And if that wasn't enough..RGTIL is also for sale

It was in 2005 that Reliance Industries made big news with the discovery of the largest gas deposits in that year. The gas deposits are found off-shore near the Eastern Coast of India. While the gas discovery was made, there were/are no major pipelines connecting the eastern coast of India with rest of the country. Hence there was a need to setup a major gas pipeline from Eastern Coast to the Western Coast and beyond (~1500 kms). So Reliance Industries with no prior experience in either of these two areas floated two companies: Reliance Industries Ltd (RIL) owns the gas well. Reliance Gas Transportation Infrastructure Ltd. (RGTIL).
Every one was gungho about the discovery of gas and the progress of the gas pipeline because the gas production was estimated to reach 80mmscmd by FY2013 and the pipeline also planned to extend by another 1500 kms towards South & North Eastern India. Investments by various players also ensured that RIL got a decent return on equity.
Alas, as was the case with his younger brother (Mr. Anil Ambani owns power, telecom verticals of the conglomerate), the big brother Mr. Mukhesh Ambani who owns both Reliance Industries and RGTIL fell short of the expectations. The gas well started producing less and less with the present output at 20 mmscmd way below the estimates. With such low amount of gas, the RGTIL no longer made any money.
So, what does Mr. Mukhesh Ambai decide to do. He decides to sell RGTIL.
While traditionally the Reliance group continued to invest and scale up the businesses, the recent trend has been that the group promoters are deciding to setup businesses and shelve them before they shape up. In the process they have ensured that some of the major investments into those sector are stopped.
Now, RIL has also ventured into 4G telecom. With these forays into areas where the promoters have minimum exposure the options in the future remain to only quit from those businesses. I just hope they give up all the businesses so as to ensure better competition.