Reliance Industries: A primer on the stock

“Implementation of our New Energy giga factories at Jamnagar is making significant progress. This puts us on track to achieve our goals of transitioning to cleaner energy and enabling sustainable growth”

Mr. Mukesh D. Ambani, Chairman

Stock data

Ticker	RELIANCE
Exchange	BSE and NSE
Industry	Refineries

Price Performance:

Last 5 days	+3.55%
YTD	+2.2%
Last 1 year	+10.3%

Company description:

Established in 1966 as Reliance Commercial Corporation by Shri Dhirubhai Ambani as a polyester firm, Reliance Industries today stands as the largest listed firm by market capitalization in India. Dhirubhai took a loan and started the Reliance Commercial Corp, a trading firm, with a capital of Rs 15,000, operating out of a corner in a borrowed office in Bhaat Bazaar. The firm was renamed as Reliance Industries in 1973. In 1975, the company expanded its business into textiles, with “Vimal” becoming its major brand in later years. 

It has evolved from being a textiles and polyester company to an integrated player across energy, materials, retail, entertainment and digital services. Reliance’s products and services portfolio touches almost all Indians on a daily basis, across economic and social spectrums.

Business Segments:

1. Oil to Chemicals Segment:

Under the segment, the company primarily refines crude oil to manufacture/ extract transportation fuels, polymers and elastomers, intermediates and polyesters. It has plants and manufacturing assets located across India in Jamnagar, Hazira, Dahej, Nagothane, Vadodara and others. It has a crude refining capacity of 1.4 million barrels per day. It also has the largest single site refinery complex globally. It had a total throughput of ~77 million metric tonnes in FY22 out of which ~89% was meant for sale.

2. Retail Segment:

The company is the largest retailer in India with various store concepts selling consumer electronics, fashion & lifestyle, groceries, pharma and connectivity. It operates ~15,200 retail stores and has a customer base of ~19 crore customers. Its store brands include Reliance fresh, digital, smart, Hamleys, Jio Outlets, netmeds, resQ, etc. It also operates various digital commerce platforms including JioMart, milkbasket, Reliance Digital, Ajio, zivame, urban ladder, netmeds and others. Some of its acquisitions under the segment include Justdial, 7-Eleven, milkbasket, Manish Malhotra, Clovia, Dunzo, etc.

Expansion – Reliance Retail undertook significant expansion in FY22 adding on avg. 7 stores every day and crossed the milestone of 15,000 stores.

3. Digital Services Business (Jio):

Jio Digital is India’s largest digital services platform with a total subscriber base of ~41 crore subscribers and a market share of 36% in India. It offers wireless connectivity, home broadband and enterprise and SMB broadband under its digital connectivity business. It carried ~10% of the global mobile data traffic in 2021

Broadband Expansion – The company became the largest broadband provider in India with a market share of 50% within just 2 years of launch.

Shareholders of Jio – The company holds ~67% stake in Jio Platforms while the rest was sold by Reliance to major multinational corporations such as Meta (Facebook), Google, KKR, Vista Equity and others.

4. Oil and Gas E&P Business:

RIL as an integrated E&P Operator is India’s leading Deepwater Operator. Its domestic portfolio comprises conventional oil and gas blocks in Krishna Godavari and Mahanadi basins and two Coal Bed Methane (CBM) blocks, Sohagpur (East) and Sohagpur (West) in Madhya Pradesh. The business saw a significant increase in gas production due to ramp-up of production from KGD6 block located in the Krishna-Godavari Basin. It went from producing 2% of India’s total gas in Q3FY21 to ~20% in FY22.

5. Media & Entertainment Business:

The company owns Network 18 Media which has a presence across a full spectrum of content genres such as news, entertainment, sports, movies and live entertainment. Its portfolio includes CNBC TV, Colors, MTV, nick, History tv and others. It also owns digital platforms such as moneycontrol, News 18, CNBC, firstpost, voot and bookmyshow.

Financials:

What we like:  

1. 5G Network services to strengthen Jio platform:

Reliance Jio acquired the 5G spectrum in the 700MHz, 800MHz, 1800MHz, 3300MHz and 26GHz bands in the auctions conducted by the Department of Telecommunications,Government of India. The acquisition of the right to use this spectrum will enable Jio to build the World’s most advanced 5G network and further strengthen India’s global leadership in wireless broadband connectivity. Jio’s 5G network will enable the next generation of digital solutions that will accelerate India’s AI-driven march towards becoming a USD 5+ trillion economy. Jio has already successfully launched the beta trial of 5G services for Jio users in 4 cities including Mumbai, Delhi, Kolkata and Varanasi. Company is expecting Pan India rollout of 5G services by December 2023. Jio’s mission with 5G is to speed up India’s transformation into a Digital Society. Expansion of broadband to 100 million homes and MSMEs could mean a much faster rise in ARPU between FY23 & FY25.

2. Aggressive expansion in the retail sector:

Reliance Retail during Q4FY23 has been able to deliver all-time high revenues amid a normalized demand scenario aided by wedding and festive season. The company is broadly looking at scaling up its various businesses through focused initiatives across consumption categories. On the future strategy front, the company is planning to focus on enhancing consumer touch-points to capture the larger India opportunity. Reliance Retail is expected to continue with its aggressive store network expansion and strengthen its digital commerce and Omni-channel capabilities. Its warehouse and fulfillment center space increased 3x over Q4FY20 to Q4FY23. The company has started creating an array of consumer products and brands and moved ahead on its ambition of building a significant presence in the FMCG business. After the company had launched its FMCG brand ‘Independence’ in Gujarat, the company further strengthened its presence in the FMCG segment with the launch of cold beverages under the brand Campa. The company is further planning to enter the value-added dairy products segment with focus on products like frozen desserts and curd, flavored yogurt, etc. The company is concentrating on building a strong portfolio of products catering to regional tastes and preferences. Expansion of the Independence brand on a pan India basis would further strengthen the presence of the company in the Indian FMCG products business.

3. Diversified business portfolio: 

Reliance Industries operates in multiple sectors, which can provide diversification benefits to investors. This diversification helps mitigate risks associated with individual sectors, as poor performance in one sector may be offset by better performance in another.

4. Strong market position:

 Reliance Industries has established itself as a market leader in several sectors, including refining, petrochemicals, and organized retail. It has a significant market presence and brand recognition in India, which can contribute to its long-term growth prospects.

Factors to consider:

1. Any global slowdown could have a negative bearing on gas consumption which could affect the overall growth of Reliance Industries.  
2. Lower than anticipated tariff hikes in Jio, elevated cash burn in e-commerce, lower refining and/or Petrochemical margins are the risks to earring growth.
3. Mediocre ROCE over the past decade (around 10%-12%).
4. Crude oil is a highly volatile commodity. Any downside price fluctuation might affect the company’s profitability,