Investment expert SP Tulsian of sptulsian.com sees the retail business as being the next key area of growth for Reliance Industries. He expects also sees the Reliance Industries stock being re-rated.
"The focus will now be on the Reliance Retail whether the valuation will be in the range of Rs 4 lakh crore to Rs 5 lakh crore, I don’t know but the broader range can be taken between Rs 4 lakh crore and Rs 5 lakh crore," he said in an interview to CNBC-TV18.com.
Edited excerpts from the interview:
Q: They are saying that they are done for now, for Reliance Jio and they are saying that next five years they will look for strategic players in both Jio and Reliance Retail and talking about listing for both in next five years, do you think the market’s focus now shifts to retail from Jio for now?
A: Now, the press release which has been released by the company, we have to pierce it and we have to scan it very thoroughly because this gives a lot of details. First coming on the making debt-free, the company has raised about Rs 1,75,000 crore including the paid amount on the rights issue, that one goal has been achieved.
Number two – I don’t think that Jio Platforms will be going for further dilutions by anymore maybe 25 percent to be precise--24.7 percent seems to be cap and now probably no stake sale or no stake reduction by RIL will be seen in that. I think the next growth area or the next growth driver will be on the Reliance Retail.
Reliance Retail if you take a call comparable play is D-Mart having a marketcap of Rs 1,50,000 crore with a topline of Rs 25,000 crore. If you take a Reliance Retail they have a topline of closer to about Rs 2 lakh crore, maybe Rs 30,000 crore for D-Mart so 7 times in the size on the top line. I think margin is a function of the financial structuring of a company. So Reliance Retail will be able to – though they have been having the lower margin as compared to D-Mart but that can catch up once the rate reduction happens.
So yes, the focus will now be on the Reliance Retail whether the valuation will be in the range of Rs 4 lakh crore to Rs 5 lakh crore, I don’t know but the broader range can be taken between Rs 4 lakh crore and Rs 5 lakh crore. Probably the process of the induction of financial investors in Reliance Retail, will start the way we have seen in Jio Platforms.
Coming on the fourth point which says that if financial investors – I am sometimes wondering why Facebook should be a financial investor but since they are calling it financial investor, we have to respect that. So maybe the induction of the strategic investor will be a key trigger for both the verticals that is Jio Platforms as well as Retail. But I don’t know, as I said in Retail probably we may see the financial investors coming in first maybe to the extent of 10 percent to 25 percent then thereafter strategic investor.
Only little delay or little disappointment could be that listing of both have been hinted in the next five years. But yes, Jio Platforms may not see the Indian listing, Jio Platforms may see the overseas listing maybe in the next couple of years to derive or to give the maximum value to the RIL shareholder because if you are listing the Jio Platforms in the Indian bourses then that discounting of the holding company, which is again a misnomer in case of such companies that will start and the RIL may not capture the true value but if the Jio Platforms gets listed overseas then the holding company can capture full value.
So I think this is the blueprint of the press release is giving the blueprint of the company at least for next 2-5 years or maybe at least for next couple of years and this is going to be a big rerating for the stock of RIL.
Q: The debt-free status was achieved way before their indicated deadline, so even these five years maybe an outer limit, you would expect it earlier you think?
A: That is what I said that I am expecting Jio Platforms overseas listing to happen in next couple of years or maybe even in fact I am hopeful of happening that in 12 months and even coming on the debt-free status one may argue that the back-ended amount of the rights issue of closer to about Rs 40,000 crore will come in the month of May 2021 and November 2021 but even if you take the Rs 1,16,000 crore as the Jio Platforms money, Rs 7,000 crore BP money, Rs 13,500 crore the rights issue money having coming and Rs 30,000 crore cashflow of FY21, so that makes about Rs 1,70,000 crore.
So even if you delay or defer the receipt of Rs 40,000 crore rights issue of amount which you may not include in this then also Rs 30,000 crore cashflow will amply take care of company becoming net of cash debt-free on or before December 31, 2020. In fact, the timeline of the March 2021 was preponed in the company correspondence or maybe to the analysts and all that by December 2020. So even that is seen as feasible and achievable.
Q: The stock has had a very strong run, it is sitting at a fresh high. From this price of Rs 1,670 how does the risk reward looks like for long-term investors?
A: I have been giving the price target of Rs 1,800 all along these part-part monetisation which we have been seeing in the Jio Platforms but as I said that I am seeing this press release by the company, which is crystal-clear, the blueprint for the next couple of years and taking that into account, I am revising my target upwards to about Rs 1,900 as of now because unless until you see that clarity on the Jio Platforms listing, which can be a big trigger and I don’t think that now they will be in a hurry to hive off the O2C at the lower valuations. So the two triggers which I have been looking for got added with one more trigger of the Reliance Retail valuation. So taking all this into consideration and I am giving lot of credence to this press release as the blueprint for the next couple of years, I am revising my target upwards to Rs 1,900 by March 2021, that is in the next eight-ten months.
Disclosure: RIL, the promoter of Reliance Jio, also controls Network18, the parent company of CNBCTV18.com.
First Published: Jun 19, 2020 4:54 PM IST
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