Indus Equity Advisors’ MD says Mukesh Ambani’s speech at the AGM could evolve more towards a vision for the next five years.
13 cheques already in, the buzz is going strong about the 14th and a big one this time around. What do you think the REliance AGM commentary is going to focus on and in terms of new data points, do you think it will have something on the Aramco deal, a possible Future Group deal as well or do you think it largely be around 5G and Jio itself?
Reliance Industries and Mukesh Ambani’s speech will evolve more towards a vision for next five years, what the business plans are post the infusion of money which has come on the Jio platform. He has already indicated in next five years how the separate verticals that is retail, Jio and oil to chemical would be listed separately — that is what kind of a vision he has on each segment of businesses, does the partnership fructify in oil to chemical with Saudi as it was indicated it is in advanced stage, what are the enablers now for Jio and Jio led business is fibre to home customers that is mobile customers and what kind of other product offerings and services would they like to add like Jio Chat.
From a global perspective, it is an India play and so called Atmanirbhar Bharat which is the vision of India and may be Reliance is going to succeed on all parameters where they are concerned on all the divisions and looks like the vision for listing for next five years is a clear roadmap, it will be a part of a story tomorrow and how they expand on a telecom network.
At 1920 thereabouts, how much of all these data points are already in the price? How much more can the stock push forward from these levels because already Rs 2000-2100 levels are doing the rounds?
It is better to be conservative because the global markets are led by liquidity. The infusion of funds by marquee names from global market including Facebook has rerated the Reliance stock. Whether it is a rights issue partly paid and listed from day one has already doubled or if the stock price by itself has more than doubled.
In the earnings seasons it may consolidate on a lower side. We need to see if there are any surprises on the speech where fresh investment in any other businesses are concerned or something bigger and with greater potential because these already indicate a newer technology in hydrogen or otherwise. We need to see what kind of spaces they look at.
I would urge most of the retail investors who might have been left out in the currently rally in Reliance, to use the opportunity as the market takes a little pause. But if there is a correction led by global markets or domestic reasons with a view for two to three years, definitely Jio and Retail would add a consumer PE to the stock and a rerating on the story would happen. If there is a separate listing for all three by that time, then the shareholders would definitely benefit depending on what valuations going to ascribe to each part of Reliance story.
So looking at current numbers, Jio platform valuation is approximately Rs 800 a share, oil to chemical is another Rs 800, retail is Rs 400 to 600 less the debt, but debt as per Reliance net debt is nil based following the infusion. But if you take 75% ownership, it amounts to Rs 600 but taking current ARPU of 131-135 range to a vision of 200 which other telecom players are indicating and may be after the telecom regulatory and the Supreme Court judgment is out, I estimate 35% to 40% price hike in the telecom tariff. That would take Reliance to a much higher ARPU and fibre to home and all other value added services supported by Microsoft and retail format supported by Whatsapp and Facebook.
It may have a rerating as far as a commercial aspect is concerned. Reliance’s annual report and the research reports in the market also indicate that Reliance wants to get into the reach of third party distribution between insurance to broking service may be banking related because they have a licence along with SBI. One does not know what kind of services they will bundle along with it but if you are thinking from a global play whether it is Spotify or Zoom or various other things can be a story from Jio’s stable.
Apart from Jio, retail analysts are also keenly going to watch out for any developments when it comes to Aramco because this deal, if culminated, will be a big game changer for the company. Do you think some more clarity on the timelines for consummating this deal is going to be very crucial?
It would be a crucial input from the deal perspective but keep in mind that once you emerge as a global leader in various businesses and a good partner like Saudi Aramco with the balance sheet size that they have in Reliance, the synergy can work towards sourcing and global output requirement.
At the same time, Reliance’s capability on the technical side can be an enabler for long term because it seems Reliance refineries is already working on Nelson complexity of 21 and where oil to chemical is concerned, they have added so many value added products that Reliance would like to be capitalised and the 2.5% of the market share on crude is likely to increase.
At the same time they have also enabled their partnership with BP as far as petroleum retailing is concerned and this petroleum retailing may be connected to various other things. They have a possibility upgrade and consolidation in the domestic market to increase their market share.
One needs to watch out because now there is no stress on the balance sheet, shareholders would not be worried if they have to increase $10-$20 billion of debt. But I would definitely look for his vision from a capex cycle on each vertical. Besides it is a partnership and that is a clear indicator where Reliance is headed in the next three to five years. Anybody who is investing in today’s market should look at Reliance from a 2022, 2023, 2025 perspective and what is going to happen in the next two quarters.
Gone are the days when you could get Reliance at even Rs 1200. If indeed there is some global market correction which rubs off on Indian market, what will be a good buying price for Reliance?
If Reliance corrects by 10% from here, that should be a good entry point. People who have a cash flow available from a perspective on a similar time zone may look at partly paid because they would be able to buy a higher quantity because they have cash flow they have the balance money payable in the company.
