Posted by: qmaxim | October 10, 2009

Recession – “reset in the way world functions”

Recently, Reliance Industries (RIL) in India commissioned one of the world’s largest refineries and productionised the oil and gas field (off the east coast) simultaneously involving the investment of Rs 100,000 crores. This is a great achievement by any criteria.
Excerpts from the recent interview with the chairman Mukesh Ambani appears below.

What I would like to point out is that he feels the change world has seen is not just cyclic but is a reset. And it won’t go back to old way of doing business… He also mentioned that it is not just commodities alone…
And we have to reorient our way of thinking completely & there will be huge opportunities available.
Another small point one should notice is that size of US deficit is 1 trillion dollars which is almost size of India’s GDP!

Read on…

The rules of the game will change in all aspects of economy and business, says Mukesh Ambani.

Edited excerpts:

The bonus came as a surprise to your investors. What was it meant to be—a signal?

It was a Reliance tradition, a commitment that whenever we finish a value creation cycle, we make sure that everybody is rewarded and in this value creation cycle—this was the biggest in our history—we had nearly Rs1,00,000 crore of assets coming on line. And it has improved India’s exports; the natural gas has really helped the fertilizer and the power economy. And so, after all the stakeholders, it was the shareholders’ turn. This was a commitment that we have made and this is something we are committed to.

Is it a project completion cycle or a value creation cycle as you defined it?

It’s a value creation cycle. In any project, ultimately the end objective is to create value and the value creation is for the whole economy.

At our last India Business Leader Awards conference, you said globally asset prices have to go through a reset. What did you mean by that and do you think prices have been reset?

What I really meant is not only asset prices. Fundamentally, what I mean by reset is that the rules of the game in the future will no longer be the same as the rules of the game in the past. And they will apply to virtually all the aspects in terms of economy and business as we know it.

You were not referring purely to commodity prices globally?

I really was saying that what we have been used to for the last 20-30 years and what we are going to see in the next 20-30 years—that’s a reset. You can apply it to many different things, but a reset is a reset. It’s a new way of adjusting to a new reality.

Do you think that reset has played out, things have globally bottomed out?

I think that what has happened is that there is much more recognition that it is a reset. When I first said this, people thought we are going through a cycle, and the cycle’s come back. In my view, (a) reset changes the rules of the game completely.

So we are at a stage where, yes, we are out of the ICU (intensive care unit), but we are still in the hospital?

Globally, I still think that we need to see a clear recovery path in terms of how we repair balance sheets and how do we repair balance sheets of countries, balance sheets of consumers in the developed world. Within that, India is still a very small part of that world and the good news is that our balance sheets are strong. The country is strong, our consumers are not leveraged, our corporates are good and our economy has a lot of potential.

But our balance sheet still has some question marks as a country?

Relative to everybody else, we certainly look good. So, relative to the $1 trillion-plus (Rs46 trillion) deficit in the US, relative to what is happening, I still think that. And everything is relative. Surely, we have to strengthen our balance sheet. But that really is our opportunity. That is why I think that India has to seize this opportunity.

Do you think global demand-supply conditions will improve and these globally focused companies continue to do better going into next year?

I think that as the world readjusts, understands the resets and charts out a path to repair and renew, there will be opportunities. The challenge really is that one has to recognize that on the back of debt there is overcapacity, and that overcapacity has to rationalize.

For Indian companies, in virtually all sectors, the challenge really is to be the most productive, to be the most competitive, to be the most efficient, so that in every sector they have the opportunity to come out in the top quartile. I think if we do that, we will not only adjust with the external world, but I think we will also create more value for our domestic markets.

Globally too, commodity cycles have overcapacities.

My view is that with the debt pinch that the world has gone through, you would be surprised as to what kind of capacity readjustments there will be virtually in all sectors.

You spoke about an asset cycle. Are you ready for the next value creation cycle at Reliance as well?

Yes, we are. We have laid that down pretty well. We laid down from AGM (annual general meeting) to AGM over the three- to five-year period.

So you will have to wait for the next AGM to get specifics of that. But the direction is not changing at all.

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