In this article, we will be discussing some of the key business events or developments which happened in the recent past that an Investor should have a close watch of.
4 Capex Cycles of Reliance Industries:
Reliance Industries, one of the biggest private companies in the country has been on an acquisitions spree in its New Energy business in the recent past. The company had an aggressive pace of Capex in all their segments which they have ventured in the past. Here are the key Capex cycles of Reliance Industries:
- Petrochemical Project (1999-2000)
- Oil Refining
- Value Creation for Shareholders
- New Energy: Made 9 acquisitions under this segment across the globe
Acquisitions under New Energy Segment are as follows:
1) Chart Industries (US):
- Firstly, Reliance Industries started its acquisitions spree by acquiring US-based Chart Industries on 6th April 2021.
- The aim behind this acquisition is to create the India H2 Alliance to commercialize hydrogen technology and develop a supply chain in the collaboration with other private-sector partners and the Indian government.
2) Ambri (US):
- Then on 10th August 2021, Reliance Industries invested US $50 million to acquire a 42.3 million share of preferred stock in Ambri.
- This acquisition was with the purpose to help the company to commercialize and grow its long-duration energy storage systems business globally.
3) REC Solar (Norway):
- Reliance Industries acquired 100% shareholding of REC Solar Holdings (REC Group) from China National Bluestar (Group) Co. Ltd. For an enterprise value of US$ 771 million on 10th October 2021.
- REC Solar is one of the world’s leading solar cells/panels and polysilicon manufacturing companies.
4) Sterling & Wilson (India):
- On 10th October 2021 itself, Reliance Industries announced the acquisition of a 40% stake for Rs. 2,845 Cr. in Sterling & Wilson which is an Olar Engineering, Procurement, Construction (EPC) firm. This acquisition was completed in February 2022.
5) NexWafe (Germany):
- Further, in 12th October 2021, the company invested $29 million as a strategic lead investor acquiring 86,887 series C Preferred Shares of NexWafe for providing joint technology development and commercialization, at scale, of high-efficiency monocrystalline green solar wafers.
6) Stiesdal A/S (Denmark):
- Reliance Industries partnered with Stiesda A/S on 13th October 2021 to combine their strengths and capabilities and collaborate to further advance the technology development of hydrogen electrolyzers.
7) Faradion (UK):
- On 31st December 2021, the company acquired 100% shareholding in Faradion for an enterprise value of Euro 100 million and further invested Euro 25 million as growth capital to accelerate the commercial roll-out.
- Faradion is the world’s leading global sodium-ion battery technology company.
8) Lithium Werks (Netherlands):
- Moving ahead to the first investment by Reliance Industries for its New Energy business was on 14th March 2022 where the company via its subsidiary Reliance New Energy will hold 85.8% of the company deal which was valued at $61 million.
- With this investment, the company will acquire the assets of cobalt-free lithium battery technology and manufacturing company.
9) SenseHawk (US):
- Recently, on 5th September 2022, Reliance Industries acquired a majority stake in the company valuing it at US$ 32 million.
- The Solar Digitization Platform (SDP) will help the company to accelerate solar projects from planning to production by helping companies streamline processes and use automation.
Concern for the Company:
- Funding for the Capex of the company across the new business is highly dependent on its Oil business which is a Cash Cow business of Reliance Industries.
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L&T Expansion in the Middle East:
- Larsen & Toubro (L&T) which is an infrastructure company is likely to benefit from the oil export countries or commonly known as the Gulf Countries which are on the way to diversifying their dependency on the crude oil sector and venturing into another field which will require infrastructure development in the country. L&T is one of the key infrastructure players in the Middle East countries.
- Gulf Countries include the nations like Saudi Arabia, UAE, Oman, Iran, Qatar, etc.
- These Gulf Countries whose economies are largely dependent on the export of crude oil have now realized that case of disruption in this business like a pandemic, etc will massively impact the economy.
- Hence to diversify the risk, the countries have been venturing into 2 key areas i.e., Tourism and Clean Energy. Now, to emphasize these 2 sectors the countries will need infrastructure development in which the play of infrastructure companies like L&T comes into play.
- The Infrastructure segment of L&T focuses on projects like Buildings & Factories, Heavy Civil, Water, Power Transmission & Distribution, Transportation Infrastructure, and Minerals & Metals.
- Also, L&T is having a subsidiary named L&T Saudi Arabia LLC which carries on all such functions in Saudi Arabia.
- L&T is already having a decent presence in the Gulf countries, but in the recent past, the projects have taken a good pace.
- To support the growth of the projects with figures we can see that the company received an order inflow of around 9% from the Middle East in FY21 which significantly rose to 25% in FY22. As of Q1FY23, the order inflow from the Middle East stands at 21%.
- Talking about Order Book, L&T had an order book of around 13% from the Middle East as of FY21, which grew to 20% in FY22 and 22% in Q1FY23. The company has been consistently recording an upward trend in the order book from the Middle East countries.
- In terms of Revenue, L&T generated revenue worth Rs. 16,317 Cr. in FY21 from the Middle East Region which grew to Rs. 17,217 Cr. in FY22. The revenue from the Middle East as of Q1FY23 stands at Rs. 3,227 Cr.
- Cause of Growth of L&T in the Middle East:
- Mega order in Power Transmission & Distribution- L&T completed 26 sub-stations and 190 KM overhead and underground transmission corridors. The company also set up 400 KW of Sub-Stations in UAE. Further, the company also set up one of the longest 380 KM overhead lines in the Gulf Corporation Council (GCC) region.
- Favorable Foreign Economic Policy- In November 2021, nations like USA, India, UAE, and Israel signed a pact named Quadrilateral Economic Forum which mainly focused on the infrastructure development in the Middle East
- Fundamental changes within the economy of the Gulf region: Diversification of the Middle East countries in the other sector rather than Oil
- Focus on Clean & Green Energy
- Water Infrastructure
- Increase in demand for Minerals & Metals
What Should Investors Do?
All the above-discussed discussions are the key developments happening in the particular companies which could prove beneficial for the company in the coming period and hence an investor should keep these stocks on their radar. Do follow due diligence before making investment decisions.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.