Shares of Mukesh Ambani-led Reliance Industries Limited (RIL), which have nearly 13% weightage in benchmark indices, are in focus as India’s largest private-sector enterprise is all set to report its results for the quarter ended December 31, 2022, on Friday evening. For the uninitiated, RIL stock was in a decade-long consolidation since the great financial crisis of 2007 but ever since 2017, the stock rose a staggering five times within a relatively shorter span of five years.
The ultra large-cap stock remained range-bound in the Rs 450-Rs 700 range from mid-2007 to mid-2017. However, it rose over five times from 2017 to 2022. It is now trading well over Rs 2,400. Shares of RIL hit their all-time high of Rs 2,855 on April 29, 2022.
In March 2020, the shares of RIL hit a low of Rs 875 amid a brutal market crash caused by the coronavirus. However, the stock managed to recover in no time and is on an upward march since then. The stock ended at Rs 2,471.10 on BSE on January 19, 2023.
Largest wealth creator
According to a study done by Motilal Oswal Financial Services, Reliance Industries emerged as the largest wealth creator between 2017 and 2022.
The company saw an increase in market capitalisation (m-cap) by a whopping Rs 13 lakh crore during the same period.
Reliance Industries has not split the face value of the share since Jan 1, 2000. However, the company offered 1:1 bonus shares in 2009 and 2017. Bonus shares are additional shares given to the current shareholders. When the share price of a company is too high, it becomes difficult for new investors to buy shares of that particular company. Companies issue bonus shares to encourage retail participation.
For the quarter ended September 2022, RIL reported a 0.18 per cent year-on-year (YoY) drop in consolidated net profit at Rs 13,656 crore compared with Rs 13,680 crore in the same quarter last year.
The oil-to-telecom major said its revenues for the quarter rose 33.74 per cent to Rs 2,32,863 crore from Rs 1,74,104 crore in the same quarter last year.
Reliance Industries Limited (RIL) is a Fortune 500 company and the largest private sector corporation in India. From textiles to plastics to oil and gas exploration to refining, the conglomerate has been looking at new businesses relevant to the times, such as retail, renewable energy, and telecom.
From Reliance Jio to METRO Cash & Carry
The conglomerate first ventured into telecom through Reliance Infocomm in 2002, but that went to Mukesh Ambani’s younger brother, Anil, three years later when the group’s businesses were demerged.
In September 2016, the Reliance Jio launch at the Reliance Industries AGM caused a storm in the telco industry. The new telecom company claimed 16 million new subscribers within a month of the launch.
Also, for the calendar year 2020, the conglomerate raised funds to the tune of $20 billion for Jio Platforms, followed by another $6 billion for Reliance Retail Ventures. There were impressive names among the investors, including Facebook, Google, TPG, Silver Lake, KKR, Abu Dhabi Investment Authority (ADIA), and Saudi Arabia’s sovereign Public Investment Fund (PIF).
Jio has a subscriber base of over 410 million now. As per the telecom major, Jio plans to launch its True 5G services in every town, taluka of India by the end of December 2023.
Recently, Reliance Retail Ventures, a subsidiary of the Mukesh Ambani-led Reliance Industries (RIL), acquired the food wholesaler METRO Cash & Carry for a total of Rs 2,850 crore. The transaction, however, is subject to regulatory and other closing conditions and is likely to materialise by March 2023.
Reliance Industries has been on an acquisition spree for a while now. In April 2022, Reliance Brands Limited (RBL) signed an agreement to invest in Indian couturiers Abu Jani Sandeep Khosla (AJSK) for a 51 per cent majority stake. RBL is a subsidiary of Reliance Retail Ventures Ltd and began operations in 2007.
In the past few years, RBL has also invested in building and operating homegrown Indian designer brands. In July 2019, RBL completed the acquisition of British toy retailer Hamleys for about Rs 620 crore in an all-cash deal.
In October 2021, the retail unit of Indian conglomerate Reliance Industries acquired a 52% stake in the popular designer labels of Ritu Kumar.
Reliance Retail Ventures Limited also acquired a majority stake in online furniture startup Urban Ladder Home Decor Solutions Pvt Ltd in November 2020. The company bought 96% holding in Urban Ladder's equity share capital for a cash consideration of Rs 182.12 crore.
Despite a botched Rs 24,000-crore deal with Future Group last year, the RIL stock remained resilient.
Demerger on cards?
In February 2021, RIL also received approval from the Securities and Exchange Board of India (SEBI) and the stock exchanges to demerge its oil to chemical (O2C) business into an independent company. RIL now needs approval from equity shareholders, creditors, regulatory and I-T departments and the National Company Law Tribunals (NCLTs).
After the demerger, holding company RIL will have an upstream exploration and production business, financial services, treasury and textile business, while RIL O2C Ltd will have an oil-to-chemical business comprising refining and petrochemicals, fuel retail, and control over global subsidiaries of RIL.
RIL stock future outlook
“Reliance Industries has effectively used huge cash flows from its legacy petrochemicals business to build the telecom and retail forays over the past decade or so,” explained Gaurav Dua, Head (Capital Market Strategy), Sharekhan by BNP Paribas.
According to him, these two new business verticals have not only gained a position of leadership today but are highly profitable as well. “In the process, they are making a material contribution to the operating profits at a consolidated level.”
Foreign brokerage Jefferies expects a recovery in gross refining margins (GRMs) ahead of estimates; faster consolidation in telecom leading to tariff upside in Jio, possible public listing of Jio re-rating valuation multiples; Reliance Retail gaining market share faster than expected and Jiomart GMV coming in ahead of expectations.
It believes that EU and India's 2030 green hydrogen (H2) targets translate into a $74 billion total addressable market (TAM) for RIL's electrolyzer manufacturing business.
RIL's consumer business would be the growth driver, going ahead, said ICICI Direct. "Reliance Retail's recent acquisition of Metro would further strengthen its backend supply chain with accelerated growth in JioMart Kirana orders. Superior spectrum portfolio along with superior digital ecosystem offering lends Jio a competitive advantage even in 5G," it added.
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