Nitin Jain | Aug 14, 2019 09:44
Reliance delivered a highly impactful AGM on August 12, 2019. As I am writing this post, Reliance Industries (NS:RELI) Limited (RIL) is up almost 12% since yesterday at very high volumes. The positive move was widely expected post-AGM (Annual General Meeting). However, of this magnitude, not by many…
Analysts and investors both loved what they heard from the Chairman, Mr Mukesh Ambani. He spoke and laid the roadmap for every key point affecting RIL’s future fortunes.
There is tons of news flow around the positives. So in the interest of not being repetitive to the readers, I will be only listing down the positives. I will follow it with the purpose of this post, i.e., the points that one should be much conscious of and needs to watch closely.
Key positive takeaways
Points to be watched closely
1. Details of the Aramco deal
It’s important to note here that the announcement made is 20% at USD 75 billion Enterprise Value. The key is "Enterprise Value", which also includes debt in the target business.
Most news sources, however, are simply mentioning the Aramco’s expected investment to be USD 15 billion, i.e., 20% of USD 75 billion.
I do understand that in the O2C standalone business, the net debt would ideally be a small part of RIL’s total net debt of about USD 23 billion. However, given the complexities normally involved at the group debt level, I would be keenly looking at more details of the deal before committing towards a number.
Please think, if it was so easy, why the Chairman himself could not have given a concrete number instead of mentioning about Enterprise Value?
2. Lot of battlefields have been thrown open
Mr. Ambani is a visionary and all of us are aware what he has achieved with Jio by his sheer grit, determination and financial muscle.
Since AGM, I am still counting the names of businesses (large and small, national and international) that will get impacted by various announcements. So far, the direct impact was mainly limited to the telecom players (Airtel, Vodafone-Idea). However, now it’s also Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOGL), Netflix (NASDAQ:NFLX), Dmart, Samsung (KS:005930), Sony, Future Group, Tata Sky, PVR, Inox, Banks and so on.
Agreed, that with some of these he might co-brand or co-partner but then most will also be wary of the long term implications of the same. Besides, some of these are behemoths, who themselves have significant ambitions and also financial muscle to make the game interesting.
3. Consumer experience is the key
It’s been more than 2 years since Jio mobile services were launched, followed by Jio broadband last year. Basic services seem to have been well stabilised by now.
However, based on AGM, I personally feel that going forward there would be a higher focus on integration and promotion of value added services (for higher customer acquisition, stickiness and revenues).
This is all good and in the right direction. However, it would also mean increased expectations of the consumer demanding consistently better content, interface, speed and quick grievance redressals.
4. Capex plans should be continuosly monitored
The Chairman clearly mentioned that most of the significant capital expenditure requirements are already over and the laid out infrastructure has the capability to provide speeds upto 1GBPS.
I agree that 1GBPS is significant by any standards. However, I would still believe that the way world is moving it is difficult to say what lies next. There are continuous breakthroughs in modes of delivery and the efficiency. Besides, the way Jio plans to intergate vaue added services, only the time will tell the efficacy and the sufficiency of the laid out infrastructure.
5. Revenues vs expenses
Jio mobile has been charging the customers for sometime now and Jio broadband will start charging from September 2019. Mr Ambani further detailed about various other revenue streams to start over the next few months.
However, at the same time, he also mentioned about freebies that would be provided to the customers e.g., hardware including Led TVs, OTT apps, games, First-day first show movies, etc. All these inclusions would entail a cost for the Company and how Jio structures it’s revenues to compensate for these expenses would be critical.
The purpose of this post is not to underplay AGM announcements. As an investor it ticks all the right boxes for me and I am surely excited. However, amid all the excitement I continue to keep my guards open !
"Be fearful when others are greedy and greedy when others are fearful" - Warren Buffett
Disclaimer: These are my personal views and not any recommendation to the reader. The reader should do his own independent research before taking any investment related decision.
Written By: Nitin Jain
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