Reliance Industries

As I don't have any ETFs in my portfolio and have always only invested in individual shares, I really like having holdings in my portfolio. In view of the tense geopolitical situation, increasing deglobalization and general uncertainty, I feel all the more comfortable with this.

My holdings are:

Berkshire Hathaway 🇺🇲 $BRK.B (-2,23%)

Itochu 🇯🇵 $8001 (-5,8%)

Investor AB 🇸🇪 $IVSB

Brookfield Corporation 🇨🇦 $BN (-5,89%)

Reliance Industries 🇮🇳 $RELIANCE

Do you have any holdings in your portfolio and what are your favorites?

I would like to add another emerging market stock to my portfolio. Having already bought Baidu ($9888 (-3,13%) ), Reliance Industries ($RELIANCE ), Infosys ($INFY ), Kaspi kz ($KSPI (-4,36%) ) and Ambev ($ABEV3 ), I would like to add a stock from Indonesia to my basket. I see growth opportunities here in particular due to the forecast population growth.

My eye has fallen on the conglomerate Astra International ($ASII (-5,09%) ), in which the Jardine Matheson ($J36 (-3,44%) ) group is also a shareholder. Their businesses would be a good addition to my portfolio. However, I can hardly find any info on the company online.

Has anyone looked into the company in more detail?

#emerging
#em

QUESTION TO COMMUNITY

How did you like the last 2 short articles on $RELIANCE & India as a market? Do you want more India or more Intel?

https://youtu.be/C9Gf6JhDtPY

🇮🇳 - More India

💻 - More Intel

🇯🇵 - More Hentai Industry

Glad to hear your comments. These will determine which of the series will continue. Your vote counts!

Your BASS-T

RELIANCE INDUSTRIES LTD (RELIANCE) as India's largest private company

Part 2: Stock analysis on $RELIANCE

Hello everyone,

as you requested, today comes the analysis on RELIANCE with focus on the stock. Before we start as always but my disclaimer first.

DISCLAIMER: This is not investment advice. It is also not an invitation to buy / sell financial products. I only describe my opinion here and you have your own responsibility towards your investments. So I also assume no liability.

Before you read this, you should read the first part of RELIANCE. Otherwise you might not follow this. Here is the link to part 1 and another company with an "interesting" dividend policy:

https://youtu.be/nucPgk-_Mb0

https://app.getquin.com/activity/oBHNOmzrZY?lang=de&utm_source=sharing

Let's start with a simple look at sales. It is expected that sales in 2023 will be 105 billion euros. In 2024, according to analysts, we will be at 109 billion euros. This results in growth of (see (3)):

1-(€109 billion / €105 billion) = 3.8%.

On the sales side, therefore, revenues are increasing, but sales are not defined as profit, only as a summary of volumes sold with their prices. No statement is made about the real net margins, profits etc. (see (2)).

Therefore, let's compare sales and net margin of 2023. Lt. (3) we see sales of 9,284.940 billion Indian rupees (105.15 billion euros) and recognize a net margin of 7.67%. What does this mean?

From the 9,284.940 billion Indian rupees, we expect net income to be IR 712.052 billion, so when we divide net income by revenue, we see a net margin of IR 712 billion / IR 9,284 billion = 7.67%, rounded. Thus, we know that RELIANCE will have 7.67% of sales left as net income in 2023. This is a very important parameter because it assesses the profitability of sales (see (1), (3)).

Unfortunately, a closer look reveals a rather negative assessment of 2023, as the net margin is at the mentioned 7.67% and represents the relative minimum in the period 2021-2025. From this, I conclude less productivity. Of course, questions now arise as to why I do not pay further attention to the return on sales.

After all, in contrast to the net margin, the return on sales is stable at 11.4% and is only minimally 0.1% below the prior-year figure. This is certainly not an uninteresting indicator, but as an investor I am primarily interested in the bottom line result after deducting ALL major cost factors. The net profit factor gives me more information on this than a mere EBT (Earnings Before Taxation).

So we see so far that 2023 is expected to go down in the books as tending to be a less productive year. Now, of course, it is important to look at maintaining the financial security of the company. A first indication of this is provided by the free cash flow conversion rate (cf. (4)), because this puts the proportion of freely available money (for dividends, investments, salary increases, etc.) in relation to EBITDA. This gives an indication of how much money from EBITDA is really freely available to the company (cf. ibid.).

Why is this important?

Essentially, it is crucial because an increase in current liabilities can make it mandatory to settle the debt, or in the case of non-current liabilities, the resulting interest burden can be reduced by paying it off early.

If we look at RELIANCE, the enormous importance of this thought process becomes apparent. The FCF conversion rate is assumed to be negative. Specifically, according to Marketscreener, we are at -17.9%. Since EBITDA is assumed to be positive at IR1,423.412 billion, only free cash flow can be negative. A look at (1) reveals just that - FCF is negative at IR - 254.411 billion. This means that RELIANCE is expected to have no new free cash in FCF in 2023. This tends to be critical against the background of a stated dividend of IR 8.76. Even if this is only 0.10€, it cannot be paid out of the FCF.

If we are interested in the total burden from this dividend, multiplying the shares issued by this dividend per share is a good way to do this. For simplification, we assume that each share is really entitled to a dividend. This results in a dividend burden of:

• 6,352,660,000 shares * 0.1 = €635,266,000

The dividend burden could therefore be €0.635 billion. If we again hold the sales against this, the result is a burden of:

• €0.635 billion / €10.53 billion = 6.03% charge on sales

In general, this seems to me to be bearable. What is less nice is the additional burden of net debt, which has been constant for years without being reduced and has been around IR 2,179,595 million to IR 2,301,270 million. So we can't really observe that the absolute number of liability is really reducing. Also the leverage as a result of debt / EBITDA indicates less debt compared to EBITDA, but still the absolute liability does not fall and instead even increases moderately (see (1)).

In this context, RELIANCE is expected to be able to generate a positive FCF again from 2024. RoE is also expected to increase from 7.82% (2022) to up to 9.24% (2024). Fundamentally desirable and certainly a conceivable path against the background of the massive increase in equity. However, a lot of goodwill is priced in here, and research via CAPEX spending, which is so important for the oil and gas industry, is unfortunately decreasing significantly in both absolute and relative terms (see (1), (3)):

• IR 1,001,450 million (2022) with CAPEX / SALES 14.3%.

Vs.

• 1,022,598 million IR (2025) with CAPEX / SALES 9.94%.

I deliberately pay attention to these research expenses, because as described in the first part, the RETAIL pillar of RELIANCE unfortunately cannot rely on fixed sales structures. Please also read this article again.

What remains of all this analysis?

As many know, I mainly do content on Getquin and YouTube around dividends, REITs, value stocks, etc. that may become interesting candidates for dividend payouts now or in the foreseeable future. For this, the following points are particularly important to me:

• Predictable revenue business (i.e. cyclical impact if any then only predictable).
• High barriers to entry (i.e., brand power, broad diversification of the company into sub-brands)
• The company pursues an UNDERSTANDABLE dividend strategy that matches the brand product (HUST Looking at you Intel HUST)

If we take note of that and look at cash flow per share and book value per share, we get useful input on what we're buying there in the stock market. While book value per share is up, cash flow per share is down from IR 238 to IR 202. This results in a reduction of potential dividend mass of:

1 - 202/238 = 15,12 %

If we calculate the value of the RELIANCE share via Graham formulas out of sheer niceness, the following theoretical growth results from a growth of IR 10,292,424 million in 2025 starting from IR 9,284,940 million in 2023:

((10292424/9284940)^(1/3))-1 = 3,49%

A comparison with the broad Indian oil market indicates a general growth of 17.2% per year on average - BUT this is a general estimate. RELIANCE has several sub-sectors within it, so both refining and oil/gas exploration must be included in the valuation.

What's the point of the detail?

The projected growth of these sectors is 22% growth for Refining in India and -12% for Exploration. For this reason, I would like to estimate the growth at the 3.49% (see (6), (7)). We get:

EPS * (8.5 + 2 * growth factor) = 105 * (8.5+2*3.49) = IR 1,625.40.

For the maximum purchase price, I arrive at:

=(22.5*105*1251])^(1/2) = 1719.15 IR

The share should cost: IR 2,378.90

This gives me a slight overvaluation of:

1-(2.378,90 / 1.625,40) = 46,36%

Or rather.

1-(2.378,90 / 1.719,15) = 38,38%

This tends not to speak for the value or dividend character of the share.

Furthermore, the P/B ratio indicates that we are currently still pricing in around 2 times the book value per share - with what qualitative justification?

We can therefore already foresee that the company may not have the most stable future prospects. Sales, EBITDA and net income may increase, but I currently see no reason for me to compulsively buy into the company. The following points in particular are unclear to me:

• What measures are being taken to counter the drop in productivity?
• How are the RELIANCE stores supposed to become competitive with the Kiran stores in the future?
• Where is the dividend heading? It is currently below 0.36
• What is the main alternative to the collapsing oil business?

...

As long as the expansion course is driven in such an unbalanced way, RELIANCE is not interesting for my dividend portfolio.

In principle, however, it is an interesting emerging market stock - however, it is irrelevant for my investment strategies of the dividend/value or tech portfolio. The positive analyst estimates, however, include other investment strategies and evaluate RELIANCE in the long term according to other aspects than I do. However, a look at 2021 clearly shows that the market sentiment of analysts was already much less positive then than it is today (see (1), (7)).

It is therefore more of a speculative EM bet that does not match my interests as stated. Neither am I offered an appealing dividend, nor do I recognize a transparent transformation process.

What do you think about RELIANCE? Are you invested? Am I seeing it right or too harshly? Feel free to write it to me in the comments.

If you are interested in another company with a dubious dividend policy from my point of view, feel free to check out my Intel update on my stock analysis!

P.S. : IQ 5.000 who understands the choice of the GIF.

Your Bass-T

#indien
#reliance
#etfs
#dividende
#aktienanalyse

Sources

(1) https://de.marketscreener.com/kurs/aktie/RELIANCE-INDUSTRIES-LTD-9058833/

(2) https://wirtschaftslexikon.gabler.de/definition/umsatz-48634

(3) https://de.marketscreener.com/kurs/aktie/RELIANCE-INDUSTRIES-LTD-9058833/fundamentals/

(4) https://www.wallstreetprep.com/knowledge/free-cash-flow-conversion-rate-fcf/

(5) https://exporo.de/wiki/return-on-equity/

(6) https://simplywall.st/markets/in/energy/oil-gas

(7) https://de.marketscreener.com/kurs/aktie/RELIANCE-INDUSTRIES-LTD-9058833/analystenerwartungen/

India as a market Part 2: The top 3 Indian companies

Hello folks,

according to voting, today we have the topic of India's topperformers before us. Before we start, however, as always, my disclaimer.

Disclaimer: This is not an investment advice. It is also not an invitation to buy / sell financial products. I only describe my own opinion here. You have your own responsibility towards your investments. So I also assume no liability.

So that we all start from the same point, I suggest the following part 1:

RELIANCE INDUSTRIES LTD ($RELIANCE) as the largest private company in India

Part 1: Introducing RELIANCE in facts, figures and data.

RELIANCE in figures, data and facts

Making Reliance Industries Limited tangible as a company is relatively complex in this case - in my opinion, RELIANCE can best be compared to a flying retailer with 6 core product themes. In addition to consumer goods and digital services, RELIANCE also provides commercial support around financial topics and is also active in the telecommunications sector. The group thus relies on several pillars individually strong and tries to diversify, which is also tangible in the everyday life of almost every Indian: The Reliance market (see (1), (2)).

In my opinion, the Reliance market follows the same strategy as the RELIANCE group itself. This supermarket is supposed to provide high accessibility via a densely populated network of supermarkets, but at the same time be low-priced and diversified in terms of assortment. No easy task, because Reliance Retail operates 15,196 supermarkets in India and is present in 7,000 cities. If the total sales area of all RELIANCE stores were combined, this would amount to 3.86 million square meters (see (1), (2), (3)). But here's the trick: In India, it's not even that common to go shopping in these stores. Instead, so-called kirana stores are used to stock up on what is needed. Consequently, this leads to a migration of capital towards smaller retailers away from the RELIANCE stores.

So let the small retailers have their money.

You have to quickly get away from the idea of huge corporations that dominate the market and can have virtually everything for themselves. India is a completely different world in terms of urban development, logistics, and culture (as noted in my first article on India), and may not meet the expectations of what one would think of what will be the youngest emerging market in the world.

Yes - India has a school system. Yes - India has significant industries.

The food sector is not one of them.

Specifically, 92% go - Yes, read correctly: TWENTY-NINE PERCENT - to the kirana stores, while the giant chains are allowed to fight over the 8%. What sounds like the dream of an anti-capitalist, unfortunately has a somewhat sad reason: There is no other way (see (4), (5)).

What is a kirana store anyway?

I would most likely choose the comparison to a corner store, that is:

• Little sales area
• Limited assortment
• Focus on regional products
• Haggling and minute-long negotiations are part of the good tone
• Taxes have been rather a decorative accessory for a long time and most of them have not been paid.
• Theoretically, it is possible to write off the purchase. So to pay the purchase later.
• Without credit card

So we understand that in Germany such stores have been almost completely suppressed in the 50s until today. But why not in the emerging market of India?

India is usually not characterized by a functioning or attractive public transport. Often there are no connections between several places, so that one cannot travel without a car. Considering that only about 1% of Indians own a car, this task is not exactly made easier. In addition, power outages often make it pointless to store goods that need to be refrigerated.

As a result, most citizens cannot even get from their village to the larger metropolises or transport larger purchases. In this respect, RELIANCE's award as the largest retail company (in terms of store network) in 2013 is of no use (see (5), (6)).

Yes - hardly any infrastructure. Yes - hardly any affordable mobility. Yes - power outages.

Gallant comments on the (night)dream of e-mobility in emerging markets. Since that is not going to be the topic of this post, I refer you to my posts on BMW and e-mobility.

But as part of the 4 sectors, what does the Retail sector of RELIANCE have in common with them?

Correct - they are not RELIANCE's main business and if you add up their share of sales, you get 41.3% share of sales. Correct: 58.7% is accounted for in total by the remaining 2 sectors (cf. (1)). Which are these?

The main category is the processing of petroleum products. In particular, liquefied petroleum gas, propylene, gasoline, kerosene, etc. are involved, with petrochemicals also playing an important role. These products also have in common that their sale is legitimized by the example of gasoline (car transport, etc.) as well as kerosene (aircraft fuel). However, it is precisely these products that will lose volume in the foreseeable future. Therefore, from my point of view, a profound analysis of the present share is appropriate (cf. (1), (2)).

Can the company, which has been listed in the FORTUNE 500 since 2004, convince here?

A glance at the website already reveals a colorful package of awards, such as membership of the FORTUNE 500.

However, if we look at the sales (and especially their development), significant problems arise. On the one hand, RELIANCE is expanding strongly due to sales growth.

That's fine.

However, in my opinion, the core areas are strongly aligned with the oil and gas sector, as evidenced in particular by the direct naming of the "Oil to Chemicals" and "Oil and Gas" activity. All other categories are very broadly titled and listen to stylistically clear labels such as "Retail", "Other" and the digital and financial services addressed. This demonstrates almost perfectly the focus of this group.

It's not so pretty.

Can we already draw an interim conclusion before the actual quantitative share valuation?

It is possible - and quite clearly so. The existing sales structure looks simplified as follows (cf. (1)):

• Growth from 2021 to 2022
• Oil and chemicals: +58.85
• Retail: +27.63%
• Others: +56.41%
• Digital services: -12.05%
• Oil and gas: 210.58%
• Financial services: -30.55%

Theoretically, I could leave these revenue numbers here without comment. What we clearly see here is that RELIANCE's expansion trajectory is being driven most by the oil segment. The retail segment recorded a rather moderate growth of 27.63%.

Why is this problematic?

I see the dependence on fossil fuels or oil as tending to be archaic. It's not going to be one of the high performers in the foreseeable future in my opinion. The prospect of hydrogen buses and trucks, bio-diesel from either algae or used chip fat (and yes, these less complex e-motors) alone put the future of these business areas to the test. It is therefore interesting for me in the short to medium term.

But I have spent a lot of time on the retail sector for a reason. It must be clear that this pillar of RELIANCE is based on structural disadvantages for me and that the current Indian culture will make it difficult for this diversification to spread before this business can reduce its heavy dependence on oil and gas.

The bottom line is that RELIANCE is an interesting company. Praise from the management, as contained in (7), is nevertheless out of place for me. The long-term perspective is currently not secure enough for me. Therefore, I consider a stock analysis to be useful, but I would not put this company in my portfolio in the long term (see (7)).

I hope you enjoyed my first article on RELIANCE! Do you want to see the stock analysis? Or would you rather go directly to the next company?

Feel free to write me in the comments!

If you are interested instead of oil after cigarettes, feel free to check out my BAT update!

https://youtu.be/6dVYwKBbr3Q

#indien
#india
#etfs
#stockanalysis
#aktienanalyse
#marktanalyse

Sources

(1) https://de.marketscreener.com/kurs/aktie/RELIANCE-INDUSTRIES-LTD-9058833/unternehmen/

(2) https://www.wallstreet-online.de/nachricht/15416381-aktien-blick-oel-raffinerien-knappes-angebot-starke-margen-morgan-stanleys-top-picks

(3) https://relianceretail.com/reliance-market.html

(4) https://www.ril.com/TheRelianceStory.aspx

(5) https://www.vallee-partner.de/blog/unorganisierter-handel

(6) https://de.statista.com/statistik/daten/studie/321303/umfrage/filialen-der-fuehrenden-unternehmen-im-lebensmittelhandel-in-indien/

(7) https://www.livemint.com/market/stock-market-news/reliance-industries-shares-firing-on-all-cylinders-brokerage-sees-strong-upside-on-ril-stock-11676945612370.html