RIL's $100-bn (Long) Shot

Carlos Slim Helu, Bill Gates and all the other billionaires with more money than they can count, had better watch out. Mukesh Dhirubhai Ambani is on the move and he may soon get the bragging rights as one of the world's top three or four richest men (Forbes' 2007 rich list puts him at a distant 14, with a net worth of $20.1 billion). Making that prediction in effect is a recent Morgan Stanley report on his flagship company Reliance Industries, which, the Wall Street firm believes, could touch $100 billion (Rs 4,10,000 crore) in market cap sometime soon. If it does, Reliance will be the first company in India to do so.

Reliance Industries' current market cap is around $63 billion, and Ambani owns more than half of the company. So what makes Morgan Stanley analysts believe its value will jump by 58 per cent? As the report says, the fact that from next year onwards, RIL will start pumping oil from its proven reserves of 1.4 billion barrels. It adds that given RIL's total proven and possible reserves currently of 5.4 billion barrels, the company's exploration and production (E&P) business will generate $3.5 billion (Rs 14,350 crore) in profits between 2010 and 2015.

While the Morgan Stanley report fails to specify how RIL will unlock its share value to touch $100 billion, an RIL spokesperson says that the company would have to opt for both organic and inorganic growth to achieve the target. Also, RIL would need to substantially raise its share of revenues from E&P-currently a measly 2 per cent of its $22-billion turnover. "Currently, 60 to 70 per cent of RIL's turnover of Rs 1,10,000 crore comes from the refining business," says the spokesperson.

However, Sanjiv Agrawal, Partner, Transaction Advisory Services, Ernst & Young, says that the report relies largely on E&P, though the issue of gas pricing remains unresolved. "If you look closely, one-third of the value is coming from gas and if the government-which has a profit sharing agreement-fixes a lower price, RIL could suffer."

Surprisingly, RIL's retail foray is given short shrift not just by Morgan Stanley but even by RIL, whose spokesperson says that it will contribute only to the topline-with an expected turnover of Rs 1,00,000 crore by 2010. But that's not a big cause of concern, according to Agrawal. "The report clearly bases its claim on a bull-run case. So, if the Sensex rises 30 per cent in the next one year, you could see RIL hitting the $100-billion mark sooner than expected," he says.

In other words, RIL joining the $100-billion market cap club is not a matter of if, but when.