There’s been no update in this thread for long. I’ve a feeling that the dinosaur is about to wake up. Any long-term investors in this counter ? The stock has disappointed and frustrated many for past 3 years, are there die-hard believers in here ?
What would be the drivers for the dinosaur to wake up? For me I am holding RIL for demerger plays - Reliance Retail, Jio etc + downside protection against a smallcap / midcap crash.
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Yep , demerger will unlock value significantly. As far as I can see there are 4-5 big companies within Reliance. Green energy, O2C, Jio, Retail and media
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How is Reliance playing the Data center theme
Reliance has done a JV with Digital Realty and Brookfield Infra
(Reliance Industries Enters into Agreement to Invest Alongside Digital Realty and Brookfield Infrastructure to Expand Data Center Joint Venture in India)
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in addition operating leverage will be kicking in Jio and Reliance Retail both.
i.e Earning growth will keep happening for next 2 years.
There is also an optionality that RIL might revive deal with another Oil Player to raise equity in New Energy. They have very big energy plans there and they have not even started.
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While , the stock has not done so well, but may be worth waiting to get the benefit of value unlocking in line with Jio finance
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Jio Financial wants to lend routers so that Reliance Retail’s revenue goes up
We’ve spoken about this a couple of times. If you’re a billionaire, you probably like having separate companies for separate businesses. One of your businesses might be old, boring and predictable. It’s probably what brings in a stable income every month. Another of your businesses might be batshit crazy with years to go before it sees a profit. If the wacko blows up, you don’t want the reliable uncle to go down with it.
This insulation is nice for you, and it’s nice for your investors who can pick and choose the companies they like and ditch the ones they don’t. In general, having multiple companies doing different stuff is a good thing.
Sometimes, though, these companies might intersect. If one of your companies is, say, a large retail company, and the other is a payments company, it might make sense to plug your payments company into your retail company wherever you can. That way, your payments company can get some business, and your retail company can hopefully get a discounted price. [1]
Let’s change the example. Let’s say business hasn’t been great for your retail company. Now, what if you created a new company just so that it could go and buy stuff from your retail company? That’s probably not too nice. From the Ken last week:
Reliance Industries (RIL) is back with yet another one-of-its-kind deal structuring—this time, targeting three birds with one stone.
The latest instance of the deal-structuring chops of the Mukesh Ambani-controlled oil-to-retail behemoth lies in a proposal from its youngest child, Jio Financial Services. The financial services entity wants to buy and lease customer premises equipment/devices and telecom gears, such as airfibre, phones, and laptops, worth Rs 36,000 crore (US$4.3 billion) over the two years ending March 2026.
There seems nothing exceptional about it, except that Jio Financial wants to do this big deal in-house. Its subsidiary, Jio Leasing Services, plans to buy the equipment from group company Reliance Retail and lease it to customers of Reliance Jio Infocomm, RIL’s telecommunications arm.
Mukesh Ambani owns both Reliance Industries and Jio Financial Services. [2] Jio Financial Services—which doesn’t even have a financial services business yet—has a subsidiary called Jio Leasing Services. This subsidiary, Jio Leasing, is going to buy some electronics from Reliance Retail, a subsidiary of Reliance Industries. Jio Leasing will then lease these electronics, which I guess would be stuff like routers, modems, antennas, to customers of Reliance Jio, the telecom company which like Reliance Retail is a subsidiary of Reliance Industries.
Also—Jio Leasing is going to buy ₹36,000 crore ($4.4 billion) worth of stuff?! Jio Financial, which owns Jio Leasing, is an NBFC whose primary business is supposedly to lend out money, charge an interest, get repaid. It’s not begun doing that yet, but it is spending $4.4 billion over two years to lend out some routers and modems instead? [3]
You know what? Fine. Maybe routers are going to replace fiat money very soon. And all lending and borrowing is going to be denominated in TP-Link routers. Maybe the RBI is going to ask banks to ditch their Rupee reserves and switch to routers instead.
Even so, why does Jio Financial buy those routers from Reliance Retail? Here’s the company’s rationale from its postal ballot notice asking shareholders to approve this transaction (among others): [4]
RRL [Reliance Retail] is in the business of dealing in customer premises equipment, enterprise devices and other telecom devices. RRL is able to procure these goods at competitive prices due to large volumes and RRL will be providing these devices to JLSL [Jio Leasing] at cost plus agreed margin.
Umm… Jio Financial is buying $4.4 billion worth of stuff. Sure, Reliance Retail might be able to procure these goods at competitive prices. But couldn’t Jio Financial? If I was spending $4.4 billion, I wouldn’t go to a retailer. I’d go to the manufacturers and pick the one that danced the best.
Footnotes
[1] This is happening! In addition to Jio Leasing Services buying from Reliance Retail, another subsidiary of Jio Financial—Jio Payment Solutions—is going to manage payments for Reliance Retail’s stores as well as website. In addition to, of course, buying equipment from Reliance Retail itself. It seems to me like buying from Reliance Retail is every Jio Financial subsidiary’s rite of passage.
[2] I mean, they’re both listed companies so Ambani doesn’t technically “own” them. He just owns huge chunks of both.
[3] At the end of March 2024, Jio Financial had ₹24,000 crore in total assets. How is it going to pay ₹36,000 crore to Reliance Retail? Unfortunately, they don’t tell us that. Hopefully it’s something funny so that I can write about it.
[4] Since the possible conflict of interest in transactions like this is obvious, Jio Financial has to take shareholder approval for them to go through. Considering Ambani owns nearly 50% of Jio Financial, it probably will go through.
Original Source: Jio Financial wants to lend routers so that Reliance Retail's revenue goes up
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Blockquote
Under the Companies Act, 2013, the relevant provision regarding related party transactions involving promoters is Section 188. This section lays down rules for transactions where promoters or their relatives have a direct or indirect interest
Section 188(2) specifies that a related party or a director who is a related party cannot vote on such resolutions:
“No member of the company shall vote on such special resolution, to approve any contract or arrangement which may be entered into by the company, if such member is a related party.”
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Correct, his ownership is not relevant here. My bad.
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I am also holding Reliance for the same demerger play but What if Reliance instead of demerger like Jio Finance decides to do a separate listing (spin off) for RR and Jio?
How will the existing share holders benefit via vi if it had been demerger.
- Has any time in past MA said that there will be demerger only for those two subsidiaries?
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Recently most companies have done IPO and not demerger of subsidiary.
Example:
- Tata technologies IPO from Tata motors
- Bajaj housing finance from Bajaj finance
Only saving grace is existing shareholders can apply for IPO in shareholder category as well.
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Okay
There are few scenarios which can play out then.
Say for example i am holding today 20L worth of shares of RIL
I can liquidate securities in few ways
-
If i hold 10 lakh worth of shares of RIL
and apply for 10 lakh worth of shares of Jio (from the 10L cash by selling 50% RIL holdings) -
If i hold 1 lakh worth of shares of RIL
and apply for 19 lakh worth of shares of RIL. (by selling 90% RIL holdings)
There can be many combinations and i am not sure if I will get allotment also ( I have not applied in shareholder category before)
Between 1 and 2 and other combinations, is there a way that i get maximum allotment?
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In both the IPOs I applied in both retail (applied 1 lot)and shareholder category (applied for 2 lakhs) from the same PAN.
- Tata technologies - got in retail category 1 lot.
- Bajaj housing finance - got in shareholder category that too only 1 lot. It looks like no point in applying for 2 lakhs.
If there’s oversubscription the max an applicant will get is 1 lot.
PS: getting allocation in IPO is pure luck. No skill needed. No amount of money can move it in your favour.
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Hmm…holding RIL for de merger play is not desirable anymore.
OFS rather than demerger is my biggest worry as well. The more I think about it, it makes sense for MA to come up with IPO (via OFS). Because that way he can keep control of Retail and Jio. In case of demerger, he would own only 33% of the companies.
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But recently Reliance demerged Jio financial. They didn’t go the IPO route. So there’s still hope.
That was just a peanut thrown to keep the shareholders quiet. The real deals are Jio and Retail and green energy (whenever they invest serious money in it)
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