While I have been bullish on Reliance for a very long time, considering that Reliance is making continuous daily highs, it is worth looking at the things that could pull down the stock. And when you start looking at the other side, there’s a few things to be concerned about.
The exposure from Retail - As the largest player in Organized retail, with over 11,000 stores, and most of them in malls, Reliance has massive exposure to mall closures during Corona. And their online business isn’t big enough to offset these protracted lockdowns. This could be source of huge pain. Other retail players like Future and Shopper’s Stop have come crashing to the ground.
Oil and Gas weakness - The primary business, that accounted for almost two-thirds of profit till last quarter, is still in doldrums. And in current circumstances unlikely Aramco will pay $15B for 20% of Oil and Gas, based on last years good times valuations. Corona related demand reductions likely to continue for a while longer.
Fund Raising negative beyond a point - Yes, Reliance has raised a ton of money on Jio, that’s impressive. But Mukesh Ambani is not a fool. The more of Jio he sells today, the less he benefits from a blockbuster IPO. And now, Reliance has been selling more of Jio than is needed to repay debt, and more of Jio than is needed for Spectrum auctions.
Are we reading this wrong? Is Reliance selling the Crown Jewels from strength, or is it desperation? How big is the impact on Reliance Retail and the Oil and Gas business from Corona? Could these be big enough to push Reliance into a dramatic loss? The first ever in the company’s history ever since it went public?
Postponement of the results - This is also a worrying sign. Large companies don’t do these things, unless there is bad news. Reliance execution has been flawless during Corona - so it’s difficult to believe that they were unable to complete formalities in time.
The Valuation Conundrum - Reliance is happy to sell stakes in Jio, so we know exactly what the value of Jio is - $66B. And now, we know that they are debt free. And while we don’t know how much of Jio is owned by ESOPs given to employees, or other shareholders, let’s assume Reliance owns the entire 67% of Jio Platforms that hasn’t been sold so far. That means Jio Platforms holdings of Reliance are worth 67% of $66B - or $44B.
Even if we go by street talk, of a potential $100B valuation in a Jio IPO, the stake owned by Reliance is valued at 67% of $100B - or $67B.
That means, the Oil and Gas business, and the Retail Business, both of which are in the worst imaginable environment, are valued at $120B!! These businesses didn’t have such valuations even at the best of times!! Would you pay ₹1300 per share, for Reliance, without Jio? Well, that’s exactly what is happening today!!
I think the market is seeing only one side of the story in Reliance - and it is going to face a shock shortly. Even the best business has a price beyond which it doesn’t make sense. And Reliance no longer makes sense at this price.
The exposure from Retail - As the largest player in Organized retail, with over 11,000 stores, and most of them in malls, Reliance has massive exposure to mall closures during Corona. And their online business isn’t big enough to offset these protracted lockdowns. This could be source of huge pain. Other retail players like Future and Shopper’s Stop have come crashing to the ground.
Oil and Gas weakness - The primary business, that accounted for almost two-thirds of profit till last quarter, is still in doldrums. And in current circumstances unlikely Aramco will pay $15B for 20% of Oil and Gas, based on last years good times valuations. Corona related demand reductions likely to continue for a while longer.
Fund Raising negative beyond a point - Yes, Reliance has raised a ton of money on Jio, that’s impressive. But Mukesh Ambani is not a fool. The more of Jio he sells today, the less he benefits from a blockbuster IPO. And now, Reliance has been selling more of Jio than is needed to repay debt, and more of Jio than is needed for Spectrum auctions.
Are we reading this wrong? Is Reliance selling the Crown Jewels from strength, or is it desperation? How big is the impact on Reliance Retail and the Oil and Gas business from Corona? Could these be big enough to push Reliance into a dramatic loss? The first ever in the company’s history ever since it went public?
Postponement of the results - This is also a worrying sign. Large companies don’t do these things, unless there is bad news. Reliance execution has been flawless during Corona - so it’s difficult to believe that they were unable to complete formalities in time.
The Valuation Conundrum - Reliance is happy to sell stakes in Jio, so we know exactly what the value of Jio is - $66B. And now, we know that they are debt free. And while we don’t know how much of Jio is owned by ESOPs given to employees, or other shareholders, let’s assume Reliance owns the entire 67% of Jio Platforms that hasn’t been sold so far. That means Jio Platforms holdings of Reliance are worth 67% of $66B - or $44B.
Even if we go by street talk, of a potential $100B valuation in a Jio IPO, the stake owned by Reliance is valued at 67% of $100B - or $67B.
That means, the Oil and Gas business, and the Retail Business, both of which are in the worst imaginable environment, are valued at $120B!! These businesses didn’t have such valuations even at the best of times!! Would you pay ₹1300 per share, for Reliance, without Jio? Well, that’s exactly what is happening today!!
I think the market is seeing only one side of the story in Reliance - and it is going to face a shock shortly. Even the best business has a price beyond which it doesn’t make sense. And Reliance no longer makes sense at this price.
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