Stock Analysis: Is Reliance Industries Ltd Worth Buying?

Published: December 2, 2020 at 10:05 am

Last Updated on December 29, 2021 at 5:53 pm

Reliance has been the ‘market engine’ ever since it came out with IPO during 1977; this is what many market veterans would like to remember it as. The company has been in the news recently when it completed the sale of about 10 per cent stake in its retail unit to a clutch of foreign investors for Rs 47,265 crore, taking the valuation of the conglomerate beyond 13 Lakh crores. Also, Antitrust body Competition Commission of India (CCI) last week cleared the conglomerate Reliance Industries’ $3.4 billion (or Rs. 24,713 crores) deal to buy Future Group’s retail assets, thwarting Amazon.com’s efforts to block the deal.

About the author:  Ravi Kumar has a degree in Computer Engineering. He is interested in Behavioural Finance, Stock market, reading Indian History and Mythology. Disclaimer: No part of this article should be construed as investment advice. Also by the same author: (1) Is Tata Motors share a good buy? (2) Is IDFC First Bank share worth buying? (3) ITC Dividend Analysis (4) Should you sell ITC and book losses? (5) Stock analysis: Is Tata Consumer Products share worth a buy?

Given the strong news flow around the retail venture and the success of the Telecom venture [Jio] of the company, is RIL stock still a ‘value’ buy? Let’s take a look at the businesses of the company and dig into the financials before we arrive at any conclusion.

RIL Business Profile
RIL Business Profile. Source: www.ril.com

The company is engaged in the following businesses:


Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
  • Refining
  • Petrochem
  • Oil& Gas
  • Retail
  • Telecom

Let’s take a glance at how each business of the company is performing.

R&M [Refining & Marketing]

RIL Refining & Marketing EBITDA and GRM
RIL Refining & Marketing EBITDA and GRM. Source: www.ril.com
  • Macro Trend: Global demand, economic activity impacted by Covid-19
  • Crude Situation: High compliance to OPEC+ cuts reduced excess supply

Global peak demand for oil crashed by >30% during March/April 2020. Overall performance impacted by demand shock leading to weak margins.

EBIDTA declined from 5896 Crores during Q2 FY2020 to 3002 Crores during Q2 FY2021 whereas the GRMs [Gross Refining Margins] declined from 9.4$/bbl to 5.7$/bbl.

Growth in Global Oil Demand
Growth in Global Oil Demand. Source: www.ril.com

Petrochemicals

RIL Petrochemicals EBITDA and EBITDA Margin
RIL Petrochemicals EBITDA and EBITDA Margin. Source: www.ril.com
  • Macro Trend: Global demand, economic activity impacted by Covid-19 though Consumer durables and FMCG led growth visible in Q2 FY2021 due to increased housing spends in the US and China.
  • Strong QoQ growth experienced in this particular business based on a recovery in continued demand from essential sectors like health & hygiene, FMCG, Automobile and Agriculture.
  • EBIDTA declined from 8496 Crores during Q2 FY2020 to 5964 Crores during Q2 FY2021 whereas the EBIDTA margins declined from 23.2% to 20.1% for the same period.

Oil & Gas

RIL OIl and Gas EBITDA
RIL OIl and Gas EBITDA. Source: www.ril.com
  • Macro Trend: QoQ, as well as YoY performance, reflects weak US Shale profitability in the Apr-Jun quarter due to sharp (-34%) fall in realisations.
  • Global peak demand for oil crashed by >30% during March/April 2020, which is visible in the financial key performance indicators across businesses of the company.
  • EBIDTA declined from 128 Crores during Q2 FY2020 to -194 Crores during Q2 FY2021

Reliance Jio Infocomm Ltd

Reliance Jio Infocomm operating revenue and EBITDA
Reliance Jio Infocomm operating revenue and EBITDA. Source: www.ril.com

Key observations:

  • The first operator outside China to cross 400 million subscribers in a single country market.
  • The total customer base of 405.6 million as of September 2020; net addition of 7.3 million in Q2FY21
  • The business has gained market share as well as profitability taking the company’s position in telecom business from new entrant to market leader.
  • Revenue and EBIDTA both show healthy growth along with gains in market position.

What lies ahead in this sector

Overview of Indian wireless market market share from 2013 to 2020
Overview of Indian wireless market share from 2013 to 2020. Source: www.vodafoneidea.com

Key Observations:

  • The Indian telecom market has been through a prolonged period of consolidation in the past decade where some of the players had just to shut the shop.
  • Few key players now dominate the market, and the market has gone from being a scattered presence of a few locally strong players, e.g. Hutch/Orange/Vodafone in Mumbai & NCR, and Aircel in TN to nationally present & dominant players.
  • Market share of the key dominant players is now consolidating, and subscriber poaching [Mobile Number Portability] war is slowly subsiding.
  • Key players of the market to decide the ARPU [Average Revenue per User] trend.
  • Tariff hikes in the offing as key players focus on profitability going ahead. Source: Tariff hike needed as current rates unsustainable, says Airtels Mittals.
Cost of mobile data across countries
Cost of mobile data across countries. Source: www.vodafoneidea.com

Key Observations:

  • Data led growth to be the key driver for future ARPU and earnings growth of the telecom service providers.
  • Jio’s entry into the telecom market with one of the lowest 4G data rates triggered price wars among the major telecom service providers.

Reliance Retail

Reliance Retail Gross Revenue and EBITDA
Reliance Retail Gross Revenue and EBITDA. Source: www.ril.com

Key observations:

  • Store functioning impacted, but the easing of lockdown restrictions to help the business recover.
  • Footfall severely impacted, which is now showing signs of recovery through commercial activity remains impacted and night curfews make a comeback in several parts of the country.
  • Giant retail chains impacted more than smaller neighbourhood grocery stores.
  • E-retailing or online delivery businesses gained market share in metropolitan areas.
  • The Grocery segment remained more resilient than the Consumer Electronics, Fashion & lifestyle segment.
  • Consumers focus more on essential goods and services than discretionary spending until commercial activities recover.

what excites investors about Retail business:

Stake sale by Reliance Retail to Global Private Equity Firms
Stake sale by Reliance Retail to Global Private Equity Firms
  • The Company announced the acquisition of Future Group’s retail/wholesale, logistics/warehousing business.
  • Completed acquisition/integration of Netmeds, Grab, Nowfloats, C-Square and Shopsense(Fynd)
  • Largest fundraiser in India in the consumer / retail sector from marquee global investors

Overall Financial performance of the company over a decade

RIL Financial Performance over the last decade
RIL Financial Performance over the last decade. Source: www.ril.com Also see https://ril.com/DownloadFiles/Fianncial%20Highlights%2010%20years.pdf.

Key Observations:

  • The Company diversified into Retail and Telecom businesses, and it took almost a decade for these businesses to become strong players with a national presence.
  • Retail and Telecom have gained significant market share in their respective categories against key competitors. Still, investors should prefer to keep an eye on profitability, given the tough competition and heavy CAPEX.
  • Telcom business is readying itself for the launch of 5G as the business requires consistent investments to remain technology ready in short ‘relevant’. Partners with Jio, Airtel for 5G-ready networks, aims to cut per-bit data cost: Cisco’s Sanjay Kaul.
  • Company’s core ‘cash cow’ business [Petchem and Refining] impacted by COVID-19 and weakness in global peak oil demand.
  • Retail business has grown to become national, but margins remain low, given a tough competition and aggressive pricing by competitors.
  • Jio: ARPUs to grow as data rates currently lowest in the world. Subscriber poaching is now subsiding as the telecom market reaches maturity levels in most parts of the country except pockets in rural areas.
  • Fundraising activity in Retail venture helped the company to command premium valuations and reduce overall debt.
  • “A stake sale to BP for the petro-retail joint venture (JV) is also expected to conclude in FY21 and bring in about ₹7,000 crores to the kitty.” Source: Reliance Industries is apparently net-debt free, but actually it is not so

Looking Ahead: What lies in store for investors?

RIL PE median PE and TTM EPS
RIL PE median PE and TTM EPS. Source: www.screener.com

There are signs of aftershocks from COVID-19 [Pandemic] on the Petchem and Refining businesses, as clearly visible in the quarterly financial reports. The company has a strong focus to reduce overall debt position in the books which caught the eyes of the investors. However, the commercial activities are yet to resume at pre-covid levels, and until that happens, businesses related to Oil, Petchem and Marketing spaces are bound to suffer. 

Long term investors should expect the company to reap benefits of the growth in Consumer retail and telecom businesses and rewards investors on similar lines; however, investors should also keep an eye on the valuations front. 

Though valuations are subjective phenomena, and investors should not hold them captives to the narratives set over in the media space. 

Reliance Industries Ltd. can be compared on the valuations front with its peers across Oil & Gas, Retail and Telecom businesses. Investors across the globe use SOTP [sum of the parts] valuations to arrive at the fair price of the companies which are present in many related or unrelated businesses, in short, ‘Conglomerates’. 

Given the valuations of Rs 13 Lakh Crores, the SOTP methodology gives more than Rs. 5 Lakhs Crores to Jio and its platform business alone. Source: Jio Platforms valuation surged to $65 billion in the time of pandemic – here’s how 

However Bharti Airtel [Leading Telecom operator] is valued at 2.5 Lakh Crore Rs. and the advantage Bharti Airtel enjoys is the presence in the corporate segment, which brings in the biggest chunk of more loyal and premium [Postpaid & VAS] customers. Jio is yet to make a mark in the corporate segment of the telecom market.  Note: Bharti Airtel is the leading telecom operator in 18 countries including India, Sri Lanka, Bangladesh and the African continent. 

Long term investors willing to make an entry into the stock given the current news flow around telecom and retail businesses, can expect valuations play to catch up since the stock price discounts future earnings flow already and investors might be in for a long haul.
Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.

  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter with the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

Explore the site! Search among our 2000+ articles for information and insight!

About The Author

Pattabiraman editor freefincalDr. M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter, Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision-making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & it's content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)