Is Reliance heading towards becoming the Next ITC?

 26^th June 2021

Is Reliance heading towards becoming the Next ITC?

Dear Fellow Travelers,

Namaste! The way investors world over attends the Annual Meeting of Buffett and feel enlightened each year, attending the Reliance AGM is giving me the same kind of feelings. It’s really worth investing 2-3 hours every year to get glimpses of the mind of the Richest Asian. Reliance has two core beliefs – Growth is Life and There is no Monopoly on Idea. They have kept on repeating these two habits year after year in the last 44 years.

What was the surprise in the last meeting?

On 24^th June – Reliance announced plans to go GREEN in a major way. They are going towards Solar Energy and planning to add massive capacities by the end of 2030.

This was a surprise element in the meeting. This showed that Reliance is not 44 years old – they are 24 years old. They are thinking out of the box, planning major investments year after year, and taking a massive risk.

The common habit of the people who started small and made it to the TOP is that once they know – WHAT is RIGHT or where to Invest? – they take massive RISK, Invest and hold it with patience. The most normal guys follow DIVERSIFICATION while these guys follow CONCENTRATION of their Powers. When Powers or Money is concentrated on the Few Good Ideas and held with Patience – Compounded Rate acts as a LIFT to take you to the TOP without you climbing the ladder. Reliance is a practical example in business investments. If you are running a business – this is a good learning lesson.

How many Division Reliance is having now?

There are mainly 4 verticals now - Petroleum / Jio / Retail – online and offline and Green Energy. If I have missed something – add it to this list. They are not RELATED businesses. We have a separate company in each area – say AIRTEL in Mobile / Amazon in Online retail / Dmart in offline and online retail and things like that.

ITC is also having these kinds of segments – Cigarettes / Hotels / FMCG and IT.

Today there is one owner of the company – Mukesh Bhai and he is able to guide and control all the divisions with his skill sets and vision. As per his silent announcements – the coming generation – Esha / Akash and Anant along with the respective team will take the company to new heights. (It means - he is retiring soon). I see that he is handing over the Baton to the next generation. In fact, we have already predicted the same in our past posts.

I am sure he would have planned a Family Trust clause in such a way that Mukesh and Anil Ambani's story is not repeated. But the Human mind is more creative than any agreement. 

What kind of Demerger can happen now?

The way he is planning a mega-investment he can’t list all the companies as separate entities in a short time. Because if he does that – the power of the Reliance Balance Sheet will reduce immediately.

As per our post on his Birthday this year on 19/4/2021 – We had expressed a possibility that he will list all the divisions with the new IPO while current Reliance will remain the holding company. So, all the VALUE UNLOCKING will happen to the PARENT Company Balance Sheet and not to the NORMAL investors' balance sheets who are holding Reliance Shares as of now.

Buffett also follows this model – Berkshire holds the control and the company is listed separately. This allows Buffett to add valuations to the Berkshire company and the shareholders over there also holds only Berkshire shares.

What Investors can expect?

Those who are buying Reliance or holding Reliance for getting FREE shares of each company when a new listing is done – Retail or Jio or O2C or Solar will not gain out of this move of the company. This is my educated guess and I reserve the right to go 100% wrong. At the most, they will allow retail investors a quota of Rs.2 lakhs to invest in Share Holder’s quota as and when a new IPO is announced. It means Reliance will take NEW MONEY from you when they list their new companies.

How market gives the Valuations to the holding companies?

Look at Godrej Industry / Tata Investments / BBTC and many such holding companies. They have not given good returns to the shareholders compared to their respective companies. In the case of Godrej – Godrej Consumer and Godrej Property have generated much faster wealth compared to the Godrej Ind shareholders. Look at the Valuations of TCS and Tata Investments. Look at Britannia and BBTC valuations.

The market likes CLARITY. The market doesn’t like KHICHIDI - ITC and going forwards – Reliance. The market is not moving the shares of Reliance since last October - 2020 – when we asked to sell. It was our bold call to sell reliance and it made around Rs.1830 or so after our call from the high of Rs.2300.

The market is waiting for clarity. When Nifty was around 11000, Reliance shares were trading around Rs,2300. Today Nifty is at 16000 and Reliance is around Rs.2100. The underperformance of the shares indicates that the market knows the hidden moves of the management of adding newer divisions and keeping the holding company intact.

What NEXT?

I am planning to write an open letter to the Shri Mukesh Bhai in my blog on behalf of Small investors. My research is going on. I will share my post as and when I write. If you also have any suggestions backed up by Balance Sheet Figures or market data – you can send me personally. Please don’t send me general ideas which are not supported by Data.

Keep reading and growing.

Have a happy weekend.

Follow me on Twitter @hiteshmparikh Or on Whatsapp - +91-9869425399.

 

Live With Passion…Invest With Passion.

 

Hitesh Parikh.