Reliance should not keep the stock market waiting too long

The flagship of Asia’s richest tycoon is looking a tad overburdened with businesses that are mature enough to be cast off on their own. Successful public floats of telecom and retail units will do more than make Mukesh Ambani a centi-billionaire—they may well determine the hold of the family-run conglomerate on India’s broader economy when control passes to the next generation.

That transition could arrive by 2028. At Reliance’s annual general meeting on Monday, the 66-year-old announced that his three children would be joining the board, even as he continues as chairman and managing director for five more years. Reliance’s sway has grown following a $150 billion investment spree over the past decade. It now controls 15% of the total fixed capital deployed at India’s top 300 non-financial firms, employs 7% of the workforce and garners 10% of their combined ebitda. Reliance is no longer just a corporate, but “a precious Indian institution,” Ambani said. The market, however, wants to see some of that translate into a higher share price. After spinning off its consumer-finance venture worth $16 billion, the enterprise is valued at $232 billion, including net debt. Macquarie analysts downgraded the stock to ‘underperform’ last month. A premium for retail and telecom may already be embedded in the share price, and investors may be assessing new energy—its next big bet—at around $20 billion, they wrote.

Reliance wants to put up gigafactories to make solar modules from sand, low-cost wind turbines using carbon fibre from its own plants, batteries powered by lithium and sodium ions, and electrolyzers to split water into hydrogen and oxygen. In his address, Ambani promised “a new and virtuous multi-decade value creation cycle defined by faster growth, higher revenues, better margins and increased ebitda,” significantly upping the earnings multiples of each businesses. This is where the market seems to be less sanguine than him. The price-to-earnings ratio dipped below 25 after his speech. It had soared well past 30 when Ambani was raising billions of dollars of equity from global investors.

The focus on leadership succession can’t detract from the need to validate bets that Ambani has himself made so far, particularly in telecom and retail. Through those two capital-guzzling gambles (and renewable energy), he has sought to transform the petrochemicals empire his dad, Dhirubhai, left him. However, instead of indicating a timeframe for initial public offerings, the tycoon talked of things that will cost yet more money. The plans include 2,000 megawatts of AI-ready computing capacity, fixed-wireless broadband for 200 million Indian homes, expansion of a fledgling consumer-goods franchise to other parts of Asia and Africa, global leadership in carbon fibre, and more investment in gas exploration. Capital will also be needed for 100GW of clean-energy generation by 2030 and a nationwide 5G rollout by December.

Reliance recently got Qatar’s sovereign wealth fund to cough up $1 billion for 1% of Reliance Retail. A $100 billion price tag is nearly double what private equity paid during a 2020 fund-raising round. Had it been listed, Reliance Retail would’ve ranked among India’s top 4 companies, Ambani said. So why not go ahead?

That way, the stock market will get a chance to weigh the next generation. At 31, the twins Akash and Isha Ambani are a decade older than their dad when he joined the Reliance board in 1977. They are no longer too young to be helming digital and retail enterprises, respectively. The complex new-energy unit, overseen by Anant, their 28-year-old sibling, will need five to 10 years before it’s IPO-ready. At least for the next five years, the millennial leaders will have their father’s guidance.

It helps the group that rival Gautam Adani, who had overtaken Ambani last year in global wealth rankings, has had a bad run, lately, leaving the Ambani family to go after big market opportunities. From telecom and media to retailing and marketing brands, these opportunities are vast.

Then there’s the whole new area of payments, lending, asset management and insurance. Jio Financial Services’ recent stock-market listing hasn’t unlocked value; it has simply given Reliance shareholders a stake in a shadow bank that will now get created from scratch. Until its strategies pan out, a large part of the financial venture’s market capitalization will come from its stake in the main firm, where it may be subject to a typical 20% holding-company discount.

A smooth transition to the next generation is important. It will help preserve family wealth and the conglomerate’s clout. But Reliance’s telecom and retail IPOs need to arrive soon. Otherwise, excess baggage on the mothership could riddle it with a permanent drag. ©bloomberg