The 50% share of retail businesses in RIL’s OP and shift to clean energy capture an economy transiting to a buyer’s market
Stock
valuations can be misleading. They do not always correctly reveal management’s
risk-taking or risk-averseness. Surging prices can be due to irrational
exuberance or lots of liquidity even when there is lack of clarity on the road
ahead. Depressed prices might stem from a cyclical downturn, credit crunch, or
from an emergency like the current pandemic, affecting capacity utilization and
output. A reasonably fair method to check the health of the economy is by
examining the financial performance of companies. Unless subjected to
window-dressing, numbers do not lie. There is no need to dig into all listed
companies. A close look at a few, representing the industry they operate, can
give a glimpse of ground-level reality. State Bank of India’s credit flow
points to the economy’s slump or resurgence. Bajaj Finance is considered a play
on consumer sentiment. The composition of the order pipeline of Larsen &
Toubro indicates the state of domestic capex of the private and public sectors.
The robustness of infrastructure capacity-building finds an echo in the
financials of Bhel. Coal India’s offtake offers a clue to the ability of power producers
to make payments. TCS and Infosys earnings are affected by the strength and
weakness of the Indian currency, influenced by dollar inflows and the import
bill. Asian Paints’ sales suggest revival or slump in industrial activity and
discretionary spends by households. HDFC’s sanctions and disbursements hinge on
mortgage rates and resistance to inflation. Rural demand, depending on monsoon
and the procurement price fixed by the government, can lift or slow down Hero
MotoCorp.
India’s most
valuable company is increasingly being viewed as a proxy for India’s travel
from the licence raj to a choice-based economy The oil-to-chemicals conglomerate’s
moves usually mimic the direction of the country. Reliance Retail started 15
years ago and Reliance Jio 10 years later. The consumer businesses contributed
half of the operating profit of the 48-year-old conglomerate last financial
year. The transition from a B2B company to a hybrid model gradually focusing on
the mass segment has a message for Corporate India if it has missed the better
discounting banks with a higher share of retail deposits and assets are getting.
The other takeout is the market’s diminishing obsession with oil. Two forces
are responsible for the change. First, technology giants have replaced refiners
in the market-cap sweepstakes. The top five companies in the US, including
Apple, Microsoft, Amazon, and Alphabet, are much younger than Exxon Mobile,
pushed below the 20th rank. Second, the growing movement to reduce
carbon footprint. Many big-ticket investors will not touch polluting companies.
The availability of substitutes is hastening the transformation to clean energy.
RIL seems to
have read the tea leaves. The quest to attain leadership by underwriting voice
calls and offering data at low tariff was initially greeted with scepticism.
The strategy looks visionary in retrospect, following the reliance on mobile
connectivity during the pandemic lockdowns. Resources that would otherwise be
swallowed by the commodity business are being freed by inviting Saudi Armaco to
pick 20% stake for US$75 billion in the O2C segment and giving UK’s BP 49% equity
for US$1 billion in the joint venture floated to sell fuel at pump stations. One-third
control in Jio Platforms, the arm that will supervise the digital backup of the
telecom and retail ventures, and a small stake in the retail entity to foreign
investors resulted in a collection of Rs 3.24 lakh crore last year. Funds are
attracted to mature industries for their track record and to emerging
businesses for their potential is the third implication. Partnership with global
brands is to tie up capital as well as knowhow. Two stakeholders, Facebook and
Google, will provide the platform and support to make Reliance Jio addictive to
users looking for entertainment, shopping and surfing. The net debt-free status
allows raising Rs 60000-crore capex over three years to put up infrastructure
to generate clean fuel, with an ambition to produce over 20% of India’s 450-GW solar
generation target for 2030, in the race to become net zero carbon emission free
by 2035. Collaboration with small retailers
through telecom and digital offerings and earmarking Rs 15000 core for
value-additions and financing of solar ancillaries will ensure captive
cash-flow. Ironically, the four giga factories will come up at Jamnagar in
Gujarat, the venue of its Old Economy world-class refinery, setting an example
of how to seamlessly transport from the past to the future.
-Mohan Sule
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