Mukesh Dhirubhai Ambani becoming the sixth richest person on the
planet earth has been adequately highlighted in Indian media, much more than
his younger sibling Anil Dhirubhai Ambani pleading state of total penury in a
UK court few weeks ago.
Twenty years ago, Wipro Chairman Azim Hasham Premji was rated as
the fifth richest person on Earth and the Richest in India. At that time, he
could have exchanged his 75% holding in Wipro worth US$47bn, for 100% ownership
each in Reliance Industry, Hindustan lever and Infosys Technologies, and still
keep enough change to survive for two generations. Having committed most of his
wealth to charity, today Prem Ji is known for his generosity and philanthropic
pursuits and not for his wealth.
This is however not the point of discussion here. Many readers
have asked for my views on Reliance Industries, especially in light of the
impressive growth agenda presented in a grand digital show, watched by
millions. I would like to share my thoughts on Reliance Industries with the
readers. It is however pertinent to note that these thoughts are of a tiny
investor, who has plenty of investment options and unlike the fund managers
benchmarked to Nifty, is under no compulsion to invest in an Index
heavyweight stock.
At the outset, I may say that RIL does not fit into my
investment strategy; hence I would continue to avoid it even after the
impressive futuristic business plan.
Insofar as the grand AGM show is concerned, my views are as
follows:
(a) Section 96 of the Companies Act 2013 requires
every company, other than a One Person Company, to convene a general meeting of
its member every year, and specifically call it Annual General Meeting in the
notices calling such meeting.
As per circular of Ministry of Corporate Affairs, vide F. No.
21412020-CL-V dated 5 May 2020, this year the companies could be permitted to
hold their AGM in digital mode, e.g., through video conferencing. However, "In
such meetings, other than ordinary business, only those items of special
business, which are considered to be unavoidable by the Board, may be
transacted."
As per section 102 (2), the following business is specified to
be ordinary business of AGM -
(i) the consideration of
financial statements and the reports of the Board of Directors and auditors;
(ii) the declaration of any
dividend;
(iii) the appointment of directors in
place of those retiring;
(iv) the appointment of, and the fixing
of the remuneration of, the auditors.
This essentially means that (1) An AGM must conduct the ordinary
business specified under section 102(1); and (2) digitally held AGM should not
conduct any special business unless it is considered unavoidable by the board.
I am no legal expert, and Reliance Management has access to the
best legal resources in the country. Therefore, it would be ridiculous for me
to challenge the legal validity of the grand digital show hosted by the Ambani
family. But within my heart I refuse to accept this as AGM.
The point here being that, the promoters of the company find the
law of the land "manageable", an attitude which as an Investor I do
not like.
(b) Reliance Industries is now one of the largest 60
firms in the world. But the AGM of the company appeared like a Mom and Pop show
with the four family members presenting the products and strategies. Personally
I would have liked an array of top class professionals holding the fort.
(c) The Chairman proudly presented Sundar
Pichai, CEO of Alphabet and Google, as strategic partner. He however
demonstrated no inclination to introduce the leadership roadmap for the
employees of the company. Like the Congress Party, Reliance Industry is also
presented as a dynasty.
That is however not the point. The point is that Reliance
Industries has decided to follow the model adopted by the erstwhile global
giant General Electric and not the current global leader Google and Facebook.
They want to do all the businesses themselves, rather than becoming investor in
new businesses and let the best professional brains run that business
independently.
In the process, India may be missing a tremendous opportunity.
An article by Vibhu Arya published in Business Word titled "The
Sale-And-Leaseback Of India's Internet Economy", is an interesting
read in this context. This article aptly highlights my concerns.
(d) I find the business growth plan presented by the
Ambani family frightening. If successful, Reliance Industries will own almost
all the personal data about more than 50% Indians. This should have worried
most people, especially those who opposed UIDAI (Adhaar) being made mandatory.
But so far I have not heard any voice raising any concern. This business plan
is in total contempt of the core principles of Anti Trust regulations. This
makes RIL a misfit in my investment strategy.
(e) Notwithstanding the unsubstantiated claims
of 37% CAGR since 1977, the stock of RIL has underperformed the value creators
like Asian Paints, Dr Reddy, HUL, etc by huge margin. If we factor in the
losses made by the investors in RPL-1, RPL-2, stocks hived to ADAG etc., the
return will be dismal.
(f) There is no clarity as to how the value
being created in digital, retail and renewable businesses will be assigned to
the shareholders of RIL. If instead of demerging these businesses (mirroring
the shareholding) the management decides to list these businesses as
subsidiaries of RIL, the RIL shareholders will realize little value, like it
was in the case of L&T.
(g) Last but not the least, I believe that for
few more years, the new age businesses will continue to be cross subsidized by
the cash generating Pethem and Refining businesses. If the current down cycle
gets elongated structurally due changes in the way people travel & work and
consumption patterns, the current level of profitability may not be sustained
in the medium term.
I may reiterate that these views are strictly from my personal
investment strategy standpoint. Given that I am a tiny investor, it is natural
that larger investors may not be in agreement with these views. Therefore, I
would not like to indulge in any argument over these views.
To the question "whether RIL share price can rise further?,
my categorical answer is yes it can certainly rise higher from the current
levels.
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