Source: Reliance Industries
When Mukesh Ambani got up to address shareholders at the Reliance Industries AGM on Wednesday, the mood was upbeat. For, hadn’t India’s richest man got his fledgling digital venture valued at a mind-boggling $58 billion? And yet, as the meeting progressed, the RIL stock tanked, suggesting that the announcements hadn’t met expectations.
The irony couldn’t be missed as the rest of the world, including this author, believed that the meeting pretty much laid out the company’s plan to almost become “everything to everybody”, having a finger in the pie of India’s fuel economy and digital economy – the two segments that is unlikely to face any recessionary trends even when the world moves south.
Why do I say so? Even when the global oil prices had scraped the bottom, Indian oil marketers were raking it in, thanks to the government’s insatiable hunger for taxes to narrow their growing fiscal profligacy, as seen by the burgeoning fiscal deficit. And, then there is the spurt in online sales once the eCommerce companies were allowed to home deliver phones and other gadgets.
So, what could really be the factors that left the stock markets feel underwhelmed? Or was it just some smart elements booking profits at the expense of those buying RIL share for a much longer term? Could be so, though it makes sense to quickly analyse whether there is afterall something that the markets know that we don’t.
Let’s Look at the Positives
One needn’t look beyond Google’s investment of $4.5 billion in Jio Platforms, which took the total to a whopping $20.6 billion that accounts for 33% stake in the company. From a market perspective, this means that Mukesh Ambani still has enough gas in the tank (stake) to be able to mop up funds from the market, possibly global bourses. What more could investors want?
And it’s not as if the company has just raised money and is wondering what to do with it. The Reliance head honcho promised to rollout its own 5G solutions without any Chinese support, shared plans to induct investors into their retail and oil to chemicals business and even came up with the surprise announcement of manufacturing smartphones.
But that wasn’t all. There was a VR-type headset that the company had developed in-house and allows users to experience holographic content. This means it could be used in schools where all students and teachers could function out of 3D virtual rooms and conduct a holographic class.
Besides education, which is an ever-growing segment, Mukesh Ambani also announced the expansion of their healthcare services platform, which over four weeks delivered 15,000 or more consultations that included both Covid-19 and other patients. The system integrates with other Jio services that allows users to book appointments, maintain health records etc.
We did say that now Reliance is almost everything to everybody!
What Didn’t Work for the Market?
Market analysts believe that if there was one big dampener for the day, it was the delay in the $15 billion Saudi Aramco deal. The RIL shares, which had more than doubled since its lows from March, could be up for some correction, they say. Ambani had said that the deal hadn’t made the sort of progress that the company had expected as per agreed timelines.
“Nevertheless, we at Reliance value our over two-decade-long relationship with Saudi Aramco and are committed to a long-term partnership,” Ambani said. “We will approach NCLT with our proposal to spin off our O2C business into a separate subsidiary to facilitate this partnership opportunity. We expect to complete this process by early 2021,” he said.
Another factor that some analysts pointed out related to the 5G launch from Jio. This had the potential to start another capex cycle which could strain the subsidiary’s balance sheets in the short-term as the markets expected these investments to start much later for a launch some time during the 2024-25 timeframe.
Also, there is a view doing the rounds that though Jio Mart’s deals with both Facebook and Google had the potential to create a paradigm shift in India’s digital landscape, the market was not really convinced of how things would shape up and could be adopting a wait and watch approach on these select use cases.
Finally, though the stakeholders got a ringside view of what these partnerships and strategies behind them could mean to the company’s long-term digital roadmap, the fact that markets do not see an immediate free cash flow out of these investments could be another reason for the sudden sluggishness in sentiment.
All that Mukesh Ambani needs to do is launch one or the other of these services on December 28 (his father Dhirubhai Ambani’s birth anniversary) for the market to give Reliance Industries yet another big thumbs-up.