Billionaire Mukesh Ambani's Reliance Industries is piling up cash even as its profits shrink, fuelling investor disquiet over a tumbling share price and lack of clear vision at a company that was once India's most valuable.

Reliance generates up to $1 billion in free cash every quarter and held $13.8 billion at end-March, far more than it can put to work under existing investment plans or through an ongoing share buyback programme.

"Earlier, investors gave them the benefit of doubt that cash was being deployed in high-margin businesses, but people are questioning that now," said Michiel van Voorst, a portfolio manager for Asia-Pacific Equities at Robeco Hong Kong.

Those questions are likely to get an airing at the company's annual shareholder's meeting on Thursday.

Reliance has cooled in its hunt for acquisitions in North American shale gas as U.S. natural gas prices have plunged.

At home, investment in its gas blocks has stalled as output slows and it battles the government over gas pricing.

The company has so far acquired less than a quarter of the $2.1 billion of shares it plans to buy back from investors, even as it raises debt to take advantage of low borrowing costs.

Reliance makes much of its plans to spend $12 billion over the next few years to boost capacity at its petrochemicals plant and refinery complex, the world's largest, in western India.

However, such projects are typically funded about 70 per cent from debt, which leaves plenty of low-yielding cash left over.

Last year, Ambani outlined a big drive into consumer-focused businesses, looking to take advantage of rising spending power in Asia's third-largest economy.

The problem for investors is that the retail business is loss-making even after six years and Reliance is spending billions to get into a fiercely competitive and unpredictable telecoms sector, with returns a distant and uncertain prospect.

"I think most investors feel Reliance should concentrate and not go everywhere, not diversify in every direction," said Taina Erajuuri, portfolio manager at FIM India in Helsinki.

"They've been burning cash on some investments, which I'm not happy (about)," added Erajuuri, who has sold her Reliance shares in the past year.

FALLING RETURNS

Reliance is widely credited with having one of the savviest treasury operations in corporate India. As returns have dwindled from core businesses, the proportion of profits from its treasury has surged, accounting for as much as 42 per cent in the March quarter, roughly triple the share until a year ago.

Return on capital slipped to 11.4 per cent in January-March from 13.8 percent two years ago. While the slowdown in its energy businesses contributed to that decline, treasury gains also weigh on returns.

Its cash pile is about three times what it was two years ago, following the $7.2 billion sale last year of 30 per cent in some of its oil and gas blocks to BP Plc.

The bulk of Reliance's cash, held in bank deposits, corporate debt and government securities, has an estimated return of 9-11 per cent.

The interest cost on its long-term borrowings is 6-8 percent, giving it treasury gains of around 3 percentage points.

The cash hoard has not deterred Reliance from raising more debt. Last month, it raised $2 billion in a 13-year loan, taking its debt raisings in the last four months to nearly $4 billion and increasing its gross debt to $15.4 billion.

It is seeking another $1 billion loan for capital spending, sources told Thomson Reuters publication Basis Point.

"They're generating more profit from cash than from exploration, and almost equal to gains from refining," said S.P. Tulsian, an independent market strategist in Mumbai. "Even if these returns are good, is it a comfortable situation?"

END OF GROWTH CYCLE?

At this week's AGM, Ambani could face questions on the gradually weakening performance in the company's core energy businesses, and on the lack of profits from its push into consumer-focused businesses.

Its retail business continues to lose money and, despite 1,300 stores, the company is nowhere close to the scale it aimed for at the time of its launch. Reliance is also spending heavily on telecoms and in January invested in TV18 media group.

Investors complain Reliance is looking to bet its future, and its cash, on newer businesses that have long gestation periods, and may see returns flow only after 4-5 years.

They are voting with their feet. Reliance shares fell by a third last year. The stock trades near a 3-year low and its market value has sunk to below $41 billion, dumping Ambani from the top of Asia's rich-list.

Tata Consultancy Services, part of arch-rival Tata Group, has unseated it as India's most valuable listed company.

Sluggish global growth and a tough regulatory and investment climate at home mean many Indian firms such as Coal India, Oil and Natural Gas Corp and Infosys have shunned deals and now sit on mounting cash.

Reliance's cash-pile is not far short of much larger global energy majors such as Shell with $15 billion, Chevron with $18.8 billion and Exxon Mobil with $21.8 billion. Apple Inc has a record $110 billion in cash.

"Globally, you're seeing many oil and gas companies giving very high dividends. But that also means admitting they have come to the end of a high growth cycle," said Robeco's van Voorst. "I don't know if Reliance is willing to admit that."