Reliance's partnership with Saudi Aramco not a retreat from energy business
New Delhi: Reliance Industries' partnership with Saudi Aramco for its $75 billion oil-to-chemicals business signals expansion rather than retreat as growth opportunities are expected to boost the petrochemical and refining vertical, market analyst firm Bernstein said.
Billionaire Mukesh Ambani had in August last year announced initial agreements to sell a 20 per cent stake in the oil-to-chemical business to the Saudi national oil company. Also, a 49 per cent interest in fuel retailing business was sold to UK's BP plc for Rs 7,000 crore.
"Reliance has pivoted away from energy to the new economy. But energy still accounts for 64 per cent of EBITDA. While RIL has divested stakes to BP and Aramco, we expect RIL to grow their petrochemical and refining business given the secular growth opportunities," it said in a report.
Stating that India has significant secular expansion (that is, unaffected by short-term trends) ahead in refined products and petrochemicals, it said with the lowest demand per capita of 1.3 barrels per person, demand for refined products will grow by 5 million barrels per day over the next two decades, more than any other major market.
Ethylene demand could grow ten-fold from 5kg per person per annum to 50-60kg pp/pa as consumer demand rises.
"Reliance partnership with Aramco and BP signals expansion ahead rather than retreat," Bernstein said. "Aramco's investment is to secure market access and growth. While refining is a cash cow for the business, we believe that there are significant opportunities for petrochemical expansion ahead given demand growth and synergies with refining."
Fuels marketing will be significantly expanded given the partnership with BP and plans for 5,500 stations, it said.
Ambani had in August last year announced that the deal with Aramco will close by March 2020 but it is now expected to close within the current calendar year.
Refining and petrochemicals are a cash cow for Reliance.
"But to think of this as an ex-growth part of the business would be a mistake. In India, there is strong secular demand growth ahead. India is estimated to be the fastest growing refined fuels market over the next 20 years (faster than China) and will also one of the fastest growing markets for petrochemicals given the per capita demand which will grow with the GDP," it said.