Nothing beats an old fashion conglomerate. Last week, we talked about the social media conglomerate we have all come to know on Facebook. However, the business we’re going to be talking about today dips its fingers into many industries. Reliance Industries Limited is an Indian multinational conglomerate with assets in Energy, petrochemicals, textiles, natural resources, retail, and telecommunications. They generated over $92 Billion in the past year, with their diversified investments into 5G and technology flourishing as their hard investments in oil and retail take a hit.
At the helm of the conglomerate is CEO, Mukesh Ambani, who owns almost 48% of the company. He is one of two sons of the founder of Reliance Industries, Dhirubhai Ambani. Mukesh has been CEO since 2003.
Reliance has been taking full advantage of depressed prices due to the pandemic to shore up their balance sheet, raise capital, and invest in businesses. Amid the pandemic, Reliance turned net debt negative (cash on hand is more than debt needed to be serviced), raised $20 Billion from the likes of Google and Facebook by selling stakes in Jio, their telecommunications arm and has plans to use all that capital to invest into acquiring online retailers. Their telecommunications investments are starting to flourish, and with their healthy balance, excellent leadership, and further investments, they are poised to generate high returns for their shareholders in the future.
They may be investing in tech-oriented businesses – however, this distracts from the fact that the other parts of the conglomerates are struggling. A $15 Billion oil deal with Saudi Aramco was put on hold after oil prices took a massive hit, alongside their retail and financial services segments also taking a beating due to the Coronavirus. Their tech assets may be flourishing. However, their other investments are not. Yet, the market has seen to discount the struggling parts of the businesses, with the stock price up 40% for the year. For reference, Facebook is up 25% year to date alongside beating earnings expectations. The market has put a premium on the excellent leadership and healthy balance sheet. However, we may see this reverse if the other parts of the conglomerate continue to show declining profits. The stock currently trades at around a 31 times earnings premium – something akin to a tech stock, which this is not.
An excellent example of a conglomerate adapting to the change in times (ahem. General Electric), Reliance Industries is an excellent company with exceptional leadership. What’s not so good is the price, which is quite expensive for a business with significant investments in non-performing sectors such as oil and financials. Investors may want to wait for a pullback before considering investing in the company.