00:00 Hello and welcome to BQPRIME, I am Hiral Dadia.
00:03 Overall, if you go to see, we have just concluded the Reliance ATM and it seems no major announcements
00:10 that have come in there.
00:11 So, they are betting big on AI, have announced Jio airfiber launch date as well and accelerating
00:18 to achieve net carbon zero by 2035.
00:22 Now what the key announcements mean for the stock is something what we need to understand
00:26 because overall.
00:27 In today's session, the company has ended lower almost by 1.3%.
00:32 It was trading at around levels of around between that 2450 to 2480 kind of range but
00:40 closure has been much lower.
00:41 Joining us on the show to discuss more, we have Mahesh Joshi, Head of Research at William
00:47 O'Neill and Abhijeet Bora, Deputy VP Research Analyst at Sherkhan by BNP Paribas joining
00:52 in.
00:53 Good evening and welcome to the show, gentlemen.
00:54 Mahesh, let me come to you first.
01:01 From a market perspective, what is your key takeaway from the AGM?
01:07 So I think a lot more was expected from the AGM but obviously it's an AGM, you cannot
01:12 have the entire business strategy discussed in an AGM and therefore specifically on Jio
01:17 Financials, I think the market might be a little bit disappointed because they might
01:21 be wanting to hear a lot more in terms of the strategy, in terms of the plan and in
01:27 terms of what they are probably construing for the entire business construct itself.
01:31 Having said that, I think the overall framework that we probably got, it might be a digital
01:36 lending platform, they are probably looking at aspects in terms of the BlackRock for asset
01:42 management solutions, they are looking into the life insurance segment in terms of 4A
01:46 for both life as well as non-life and as well as the consumer durable part of the business
01:51 itself through digital innovations and the elements of credit ratings where a large universe
02:00 is probably not touched upon.
02:02 I think you are probably getting some hints in terms of where Jio Financial is probably
02:07 heading.
02:08 Obviously a team is being put in place as we are speaking and the exact strategisation
02:13 in terms of how this will all take place, the exact 4A, the kind of pricing, the kind
02:18 of expectations of value growth, the target audience across states.
02:23 Being a digital platform, I think it is going to be open across the country as we speak
02:28 and they have obviously got the backbone support of both the Jio platform services as well
02:33 as retail in terms of the physical presence as well.
02:38 So a little bit disappointing on the Jio Financial's front but I think a more strategic outlook
02:43 will come through in the next few days from the Jio Financial management.
02:47 Retail and the Jio, I think the elaboration was very, very diverse and I think the state
02:52 would have liked what they probably are for both these businesses.
02:56 On O2C, typically I think the company is transitioning as we speak and even with the new energy verticals,
03:02 I think no additional capex is what probably I heard, maybe I was wrong, but no additional
03:08 capex means that the targets that they probably set in terms of the battery storage capacity
03:12 by 26, the solar capacities by 25 and 100 CBG plants in the next five years, that seems
03:19 to be on track to enable Reliance becoming a net exporter in general of green hydrogen
03:25 which will be, by the way, in the next few years, the theme to be played out as the world
03:29 plays towards carbon neutral.
03:30 Absolutely.
03:31 You know, there were a whole host of broad-based statements specifically with regards to update
03:39 on green hydrogen initiative as well as the progress in terms of the new energy business,
03:45 but retail deleveraging or value unlocking of retail as well as Jio businesses and details
03:51 about Jio Financial Services, these were a few of the points that were absolutely missing
03:55 which the street may not be enthused about.
03:57 Let me in fact head across to Abhijit and see what his views are.
04:02 Abhijit, specifically talking about the oil and gas side as well, they've said they will
04:07 have around 30 MMS CDC production which has almost reached zero, right?
04:13 Now how do you see this?
04:16 See, this is already well known to the market.
04:20 Earlier in the Q1 results also, they highlighted that they have started the production from
04:26 their MJ field.
04:28 So this AGM has nothing new to tell about the ramp-up guidelines or the ramp-up time
04:34 because these already are very well known to the markets now for the ramp-up at the
04:40 MJ field and the overall gas production being taken up to 30 MMSEMD in FY24.
04:48 And this oil and gas business accounting for very small portion in the overall valuation
04:55 compared to other large businesses of O2C, retail and Jio.
04:59 So I think that this will not drive anything on the stock performance side because that
05:06 is well known to the markets.
05:08 And how about the Giga factories integrated solar module production capability?
05:13 Because they said that between 25 to 30 they would want to set up most of these facilities
05:18 which is the Giga factories.
05:21 See the thing is that what they said that their investment of close to 10 billion dollars
05:28 or 75,000 crore for this new energy business is on stream and going as per the announcements
05:36 earlier.
05:37 So they just reiterated their plans which they have highlighted in the previous AGMs.
05:43 And just they put, there was nothing new in terms of putting a new thought to all these
05:50 stuff.
05:51 Just there was a reiteration of what they announced earlier.
05:55 So I don't, I can like to infer more on this Giga.
06:02 Right.
06:03 In fact, Mahesh, coming to you from a valuation perspective, we're looking at Reliance Retail
06:14 which is valued at say around 8.2 lakh crores.
06:18 If you talk about RIL's market cap, that's around 16.8 lakh crores, somewhere thereabouts.
06:24 Now this clearly tells you retail is 50% of the veteran's market cap, right?
06:30 Now what's then left of RIL because assuming taking Jio into consideration, say you take
06:38 a 5 lakh crore valuation basis, what Airtel has in terms of market cap, you're just left
06:44 with a 3.3 lakh crore in terms of Reliance's core business.
06:48 Is it right to say that Reliance itself, the core business is then undervalued?
06:56 With the transition that we are seeing here, clearly, I'll give an example.
06:59 I think you look at what is happening with Saudi Arabia's Ramco.
07:03 Over the last few years, they've clearly ramped up their business model from being a typical
07:09 crude stroke diesel producer to a more O2C giant.
07:13 And that transition is happening as we speak.
07:16 So I think the world's best companies are entering the petrochemical business and specifically
07:20 in the petrochemical business towards the O2C business, which is clearly transitioning
07:24 from oils to chemicals.
07:25 Now two aspects here.
07:26 One, I think the margin profile for the chemical business is relatively better and more stable
07:34 than the traditional oil business as we are transitioning into renewables, electrification,
07:38 so on and so forth.
07:40 The next few quarters, you're also going to see a huge amount of supply coming in from
07:44 China, and therefore the kind of spreads that you're probably looking at, both in terms
07:48 of deltas created for the polymer and the polyester chains, that might be a little bit
07:55 subdued.
07:56 And therefore, value-added products that will come out from the chemical chain is obviously
08:01 going to be a huge beneficial impact for companies and the large scale companies like an RF Corp
08:06 Reliance in that aspect.
08:07 You would have heard in the speech, they are adding 13 new feedstock options.
08:13 And therefore, with the optionality that Reliance probably has in terms of feedstock availability,
08:18 the sheer outperformance in the refining part of the business compared to Singapore GRMs
08:23 or better margins on the chemical side of the business and the entire transitioning
08:27 happens over the next few quarters does imply value.
08:29 You're asking about the gas part of the business, they've already hit 30 MMS MD.
08:34 They're probably looking at numbers in terms of realizations at $10.8 per MMBTU.
08:39 They've obviously got a cap at 12.12.
08:42 But somewhere I think as they start ramping up, I think that leverage probably comes from
08:46 the gas part of the business as well.
08:48 Core business, transitioning, I think there is still ample value.
08:53 But is it undervalued currently then?
08:56 Probably yes, because I think the state expects to believe this transition actually taking
08:59 place over the next few years.
09:02 And as the transition happens, my own sense is that the ascribed value for the core business
09:08 as the transition happens, will get re-rated.
09:11 So yeah, if you put it simply undervalued as we speak, but with a horizon over the next
09:15 few months.
09:16 Abhijeet, how are you looking at it?
09:18 If I have to take the same question with you, what does your SOTP actually tell you in terms
09:22 of a valuation perspective?
09:26 Valuation for the new energy business?
09:28 Overall, you know, when you talk about Reliance retail, which is at 8.2 currently, that's
09:33 what everyone's looking at, 8.2 lakh crores with the RIL market cap of 16.8.
09:38 So 50% of the parent's value is for Reliance retail.
09:42 And let's assume that the Jio business is valued at 5 lakh crore basis, the market cap
09:47 of Airtel.
09:48 What is just left with Reliance's core business is 3.3 lakh crores, right?
09:52 So basis this, how is your valuation model looking like?
09:56 Actually the core business, O2C business, it is a steady business.
10:01 If you see, they're not adding more capacities, the margins are volatile.
10:06 So we normally value it at a mid cycle level of margins of for say, Singapore GRM of 6,
10:13 $7 and some premium for companies like Reliance, which has the ability to process higher crude.
10:19 So the O2C business would be in the total stock price of say around 2,400 rupees or
10:28 it will be around 700 rupees will be accounting from that.
10:32 So you can 1000 rupees maybe for the retail business, which we see there is a possibility
10:39 of uptick from the recent strategic investment, which is higher than what average state valuation
10:46 is for this business.
10:48 So basically as per the information given by you, there is an undervaluation either
10:53 on the consumer side or either on the O2C side.
10:57 So there is definitely something is being not fully factored in the price.
11:04 Right.
11:05 Moving on, Mayuresh, my last question coming to you is from a stock perspective in the
11:11 last one month, it's down around 4.5%.
11:14 Today ended lower as well, how are you expecting tomorrow morning opening in terms of the stock
11:18 price?
11:19 Broadly going by the statements, it might have a negative take, broadly on a sentimental
11:24 basis.
11:25 But I think if you have a long drawn process on what the company has probably spoken about,
11:29 say in the previous AGMs, when we were discussing, I think, four years, five years back on how
11:34 Jio will unfold, how retail will unfold and what numbers we've probably seen four years,
11:39 five years down the line.
11:40 I think four, five years down the line, the new energy verticals, including the solar
11:44 PV manufacturing module, the battery storage module, as well as the CBG plants coming in
11:49 along with hydrogen and the wind part that he was talking about.
11:53 I think that might add to sustainability optionality value that exists for Reliance at the end
11:59 of four to five years.
12:01 Tomorrow sentimental downtick probably on the stock for lack of statements related to
12:04 the Jio financial and probably largely what the state was expecting in terms of other
12:09 business segments as well.
12:10 But a long drawn process if things work out in their favor.
12:14 My own sense is that there is still a lot of value to be drawn from.
12:17 Right.
12:18 So I think then tomorrow's session, a direct impact in terms of 50 something that we could
12:22 be expecting as well.
12:24 But last question with that one.
12:27 What would your stance be on a Reliance Industries basis, the commentary from the AGM?
12:33 And what would you advise investors to do?
12:36 See, definitely the AGM was lacking a few announcements in terms of the likely value
12:42 and looking for retail and Jio.
12:45 So that will be a negative thing.
12:47 So if there is any fall in the stock prices, we believe that the long term story is compelling.
12:54 Even they are more towards now focusing towards transition of their O2C business and also
13:02 focusing on growth in the consumer sector in businesses where Jio financial services
13:06 can be a long term value creator for the investors.
13:11 So long term, we advise investors to buy the stock on any dip.
13:16 Right.
13:17 So buy on dip should be the strategy as well one should be watching out for.
13:20 Thank you, Mayuresh.
13:21 Thank you, Abhijit so much for joining us on the show and sharing the views.
13:24 But clearly, you know, it seems like a non event from the commentary that we've got from
13:28 the AGM and no major announcements that the street was anticipating have come up.
13:34 And that's what will not enthuse the shareholders as well in tomorrow's day of trade.
13:38 So it's going to be an interesting day to see how Reliance opens up in trade and what's
13:42 the counter impact that we have on Nifty 50 taking into consideration its weightage as
13:47 well.
13:48 That's all that we have on this session.
13:49 Thanks for watching and lots more lined up on the other side.
13:51 Please stay tuned to BK Brian.
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