Over the last few days, the stock of Reliance Industries has been trending post-Facebook’s announcement of buying a minority stake in Mukesh Ambani’s telecom arm Reliance Jio. The $5.7 billion investment has made Facebook the largest minority shareholder in Reliance Jio.
According to newspaper reports, Reliance Jio is looking for more funds and trying to rope in investors like Saudi Arabia’s $320 billion Public Investment Fund.
This new investment will be over and above the $8 billion investment already raised by the company and the fourth capital infusion in less than a month. USA based General Atlantic is the latest to join the investment bandwagon in RIL’s wholly-owned subsidiary, Jio Platforms with a planned investment of over 6,600 crore to buy 1.35 per cent stake.
With Reliance share price gaining momentum, many investors are asking the same question – Is it time to invest in the stock now?
To better understand the answer to this question, let’s first take a look at the history of how the stock of Reliance Industries has generated multibagger returns to long term investors.
Right from its IPO days, the stock of Reliance Industries has been a wealth creator. An investment of Rs. 10,000 in the year 1977 in the stock of Reliance Industries would be worth over Rs. 2 crores today.
Strengths of the company which can propel Reliance share price to new heights in future
- The largest company in India in terms of market capitalization
- Visionary management with an exceptional track record
- Well-diversified business spread across petrochemicals, retail, media and telecom
Challenges ahead for Reliance Industries which may impact Reliance share price in future
- Immense competition for Reliance Jio from Bharti Airtel, the number 2 player in the segment.
- High levels of debt
- Falling demand for refined petroleum, RIL’s core business
Past performance of Reliance share prices alone cannot predict its future performance
Yes, the stock of Reliance Industries has generated excellent returns to investors in the past. However, that alone should not be the only criteria which an investor should look at while investing in the stock of the company.
Stocks of many Reliance group companies owned by the younger brother Anil Ambani like Reliance Capital and Reliance Communication which had performed exceptionally well in the past have bitten the dust off late with some companies of the group trading in even single digits.
In 2019, the world’s largest oil producer Saudi Aramco had announced its intent to purchase a stake in Reliance Industries hydrocarbon business, for $15-billion. However, given the recent collapse in crude oil prices, the proposed deal may not go through according to USA-based brokerage Bernstein.
Reliance Industries has recently announced a rights issue which is aimed at making the company a zero-net-debt firm by March next year. Currently, Reliance Industries has a gross debt of over Rs. 3 lakh crore and net debt of Rs. 1.5 lakh crore.
So, Reliance Industries, under the chairmanship of Mukesh Ambani, is taking the right steps to reduce or eliminate its debt. Having realized early that ‘Consumer+Digital’ is the new gold, Mukesh Ambani led Reliance Industries is on a mission to transform itself from an oil and petrochemicals company to a technology-driven, consumer and e-commerce company.
However, before investing in the shares of Reliance Industries or any stock, an investor should look for an economic moat around it which in simple words means the ability of a business to retain its competitive advantages over its peers to secure its long-term profits and market share from competing firms.
There are many investment opportunities currently available in the market, which have the potential to grow your wealth at a faster pace. Our detailed research can help you to invest in those untapped opportunities for wealth creation.
The objective of this article is solely to help the readers understand whether it is worth investing in the stock of Reliance Industries (RIL) from a long-term perspective and should not be considered as an advice to buy/sell/hold.