Random thoughts on RIL

Mukesh Dhirubhai Ambani becoming the sixth richest person on the planet earth has been adequately highlighted in Indian media, much more than his younger sibling Anil Dhirubhai Ambani pleading state of total penury in a UK court few weeks ago.
Twenty years ago, Wipro Chairman Azim Hasham Premji was rated as the fifth richest person on Earth and the Richest in India. At that time, he could have exchanged his 75% holding in Wipro worth US$47bn, for 100% ownership each in Reliance Industry, Hindustan lever and Infosys Technologies, and still keep enough change to survive for two generations. Having committed most of his wealth to charity, today Prem Ji is known for his generosity and philanthropic pursuits and not for his wealth.
This is however not the point of discussion here. Many readers have asked for my views on Reliance Industries, especially in light of the impressive growth agenda presented in a grand digital show, watched by millions. I would like to share my thoughts on Reliance Industries with the readers. It is however pertinent to note that these thoughts are of a tiny investor, who has plenty of investment options and unlike the fund managers benchmarked to Nifty, is under no compulsion to invest in an Index  heavyweight stock.
At the outset, I may say that RIL does not fit into my investment strategy; hence I would continue to avoid it even after the impressive futuristic business plan.
Insofar as the grand AGM show is concerned, my views are as follows:
(a)   Section 96 of the Companies Act 2013 requires every company, other than a One Person Company, to convene a general meeting of its member every year, and specifically call it Annual General Meeting in the notices calling such meeting.
As per circular of Ministry of Corporate Affairs, vide F. No. 21412020-CL-V dated 5 May 2020, this year the companies could be permitted to hold their AGM in digital mode, e.g., through video conferencing. However, “In such meetings, other than ordinary business, only those items of special business, which are considered to be unavoidable by the Board, may be transacted.”
As per section 102 (2), the following business is specified to be ordinary business of AGM –
(i)     the consideration of financial statements and the reports of the Board of Directors and auditors;
(ii)    the declaration of any dividend;
(iii)   the appointment of directors in place of those retiring;
(iv)   the appointment of, and the fixing of the remuneration of, the auditors.
This essentially means that (1) An AGM must conduct the ordinary business specified under section 102(1); and (2) digitally held AGM should not conduct any special business unless it is considered unavoidable by the board.
I am no legal expert, and Reliance Management has access to the best legal resources in the country. Therefore, it would be ridiculous for me to challenge the legal validity of the grand digital show hosted by the Ambani family. But within my heart I refuse to accept this as AGM.
The point here being that, the promoters of the company find the law of the land “manageable”, an attitude which as an Investor I do not like.
(b)   Reliance Industries is now one of the largest 60 firms in the world. But the AGM of the company appeared like a Mom and Pop show with the four family members presenting the products and strategies. Personally I would have liked an array of top class professionals holding the fort.
(c)    The Chairman proudly presented Sundar Pichai, CEO of Alphabet and Google, as strategic partner. He however demonstrated no inclination to introduce the leadership roadmap for the employees of the company. Like the Congress Party, Reliance Industry is also presented as a dynasty.
That is however not the point. The point is that Reliance Industries has decided to follow the model adopted by the erstwhile global giant General Electric and not the current global leader Google and Facebook. They want to do all the businesses themselves, rather than becoming investor in new businesses and let the best professional brains run that business independently.
In the process, India may be missing a tremendous opportunity. An article by Vibhu Arya published in Business Word titled “The Sale-And-Leaseback Of India’s Internet Economy”, is an interesting read in this context. This article aptly highlights my concerns.
(d)   I find the business growth plan presented by the Ambani family frightening. If successful, Reliance Industries will own almost all the personal data about more than 50% Indians. This should have worried most people, especially those who opposed UIDAI (Adhaar) being made mandatory. But so far I have not heard any voice raising any concern. This business plan is in total contempt of the core principles of Anti Trust regulations. This makes RIL a misfit in my investment strategy.
(e)    Notwithstanding the unsubstantiated claims of 37% CAGR since 1977, the stock of RIL has underperformed the value creators like Asian Paints, Dr Reddy, HUL, etc by huge margin. If we factor in the losses made by the investors in RPL-1, RPL-2, stocks hived to ADAG etc., the return will be dismal.
(f)    There is no clarity as to how the value being created in digital, retail and renewable businesses will be assigned to the shareholders of RIL. If instead of demerging these businesses (mirroring the shareholding) the management decides to list these businesses as subsidiaries of RIL, the RIL shareholders will realize little value, like it was in the case of L&T.
(g)    Last but not the least, I believe that for few more years, the new age businesses will continue to be cross subsidized by the cash generating Pethem and Refining businesses. If the current down cycle gets elongated structurally due changes in the way people travel & work and consumption patterns, the current level of profitability may not be sustained in the medium term.
I may reiterate that these views are strictly from my personal investment strategy standpoint. Given that I am a tiny investor, it is natural that larger investors may not be in agreement with these views. Therefore, I would not like to indulge in any argument over these views.
To the question “whether RIL share price can rise further?, my categorical answer is yes it can certainly rise higher from the current levels.

Author: Midas Finserve

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