Reliance Industries Should Consider Split To Unlock Value

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Reliance Industries, owned by Mukesh Ambani, rubs shoulders with the world’s largest private equity players, who have invested in India in recent years. With its latest investment of nearly $ 100 million in the Mandarin Oriental luxury hotel in New York City and the purchase of a $ 200 million stake in hyperlocal delivery platform Dunzo, RIL has spent 5.7 billion dollars in acquisitions and investments in various sectors over the past four years. Its investments would have reached $ 9 billion had its deal to acquire the retail operations of Future Group, which is mired in a legal battle for control with Amazon, been cleared. Nonetheless, Reliance’s investments stand out from Softbank’s $ 14 billion, invested over a decade, and Prosus’ $ 6 billion since 2005. RIL invested $ 1.8 billion in a multitude of companies in 2021, either by taking stakes or by making outright acquisitions. She ventures into the fashion world and invests in companies run by designers Ritu Kumar, Manish Malhotra and Anamika Khanna. In addition, he also bought Amante and Zivame. It also acquired the online milk delivery platform Milk basket for an undisclosed sum. That said, the telecommunications, internet and new energy segments represent RIL’s most significant sector investments.

While the first two sectors have seen investments worth $ 2.5 billion since 2018; Ambani has so far spent $ 1.3 billion in the new energy sector. Analysts say Reliance’s investments and acquisitions are part of a larger plan to fill technology gaps and believe the company is looking to grow its business faster with partners wherever possible. AK Prabhakar, head of research at IDBI Capital, deciphers the investment logic for us. Given this, Prabhakar believes that RIL’s diversification only serves to fill the gaps within its core verticals. And since these investments are available at attractive valuations due to the Covid-induced depression, especially in the hospitality industry, now is a good time to buy shares, he says. But, these investments should be taken with a pinch of salt. Ambareesh Baliga, an independent market analyst, for example, believes that too much geographic dispersion may not be the right strategy. So how should RIL go about investing? While Baliga expects the Telecom, Retail and New Energy divisions to be RIL’s growth engines over the next decade, Prabhakar As far as investors are concerned, incumbent shareholders can hold the shares for the long term while new investors can enter the counter on the downside. In the short term, however, Reliance Industries’ stock is expected to remain at a range until it hits the Rs 2,500 mark. A break above this level may cause a 10% jump to the levels of Rs 2,750. Turning to today, the flow of stock-specific information, Covid-19 workload, FII activity and global indices will be the main triggers for the markets. Yesterday the ESB Sensex zoomed 651 points to finish at level 60,396 while the Nifty50 finished above the 18,000 mark at 18,003.

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