Here's why CLSA and Edelweiss have downgraded Reliance Industries' stock

Edelweiss Securities notes that the stock’s primary triggers – deleveraging, asset monetisation and digital momentum – have already played out.

Market News: It has been a dream run for Reliance Industries’ (RIL) stock in calendar year 2020 (CY20). From hitting a low of Rs 868 on March 23, the stock has skyrocketed over 150 per cent to a record high of Rs 2,199 on July 27. The stellar rally came on the back of a series of big-ticket investments by marquee names such as Facebook, Google, Intel Capital, and Qualcomm Ventures into RIL’s digital arm, Jio Platforms. Further, the company’s announcement of becoming a net-debt free entity way before its schedule of March 31, 2021, made Street in awe of RIL, thus firing up the stock price.

However, not everyone looks convinced with the current valuation of the stock and believes that the market is way too optimistic on Mukesh Ambani-controlled RIL, overlooking the risks associated with it. For instance, Edelweiss Securities, in its report dated July 27, notes that the stock’s primary triggers — deleveraging, asset monetisation and digital momentum — have already played out. Also, the current exuberance witnessed in the stock seems redux of euphoria seen earlier, in 1994 (India liberalisation), 2000 (Y2K bug), and 2008 (KG-D6 offshore gas field), which suggests associated risk is high. Edelweiss has downgraded the stock to ‘Hold’ from ‘Buy’ with the target price of Rs 2,105.

Edelweiss Securities notes that its two-stage reverse-discounted cash flow (DCF) analysis of RIL stock shows that the market is baking in high earnings per share (EPS) growth, particularly for Jio Platforms – 35 per cent compound annual growth rate (CAGR) and 31 per cent for Reliance Retail sustaining over the next ten years, which by any measure is a tall ask.

Abu Dhabi’s Mubadala to buy 1.85% stake in Jio Platforms for 9093.6 crore

Other recent investors in Jio Platforms are private-equity firms General Atlantic, Silver Lake, Vista Equity Partners, and KKR & Co Inc .

Reliance Industries Ltd has said that Abu Dhabi state fund Mubadala Investment Co will buy a 1.85 per cent stake in its digital unit, Jio Platforms, for Rs 9,093.6 crore. Reliance has now sold a combined 19% interest in Jio Platforms, which houses movie, music apps and telecoms venture Jio Infocomm, in six fundraising deals including a 9.99% stake sale to Facebook Inc for $5.7 billion.

The interest in Jio Platforms highlights its potential to become the dominant player in India’s digital economy. The telecoms unit has already decimated several rivals with cut-throat pricing and is counting on Reliance’s retail network to expand into e-commerce.

The Jio Platforms investment is the largest in an Indian firm by Mubadala, which is the second-biggest state investor in Abu Dhabi after Abu Dhabi Investment Authority (ADIA), managing about $240 billion in assets. The other recent investors in Jio Platforms are private-equity firms General Atlantic, Silver Lake, Vista Equity Partners, and KKR & Co Inc ..Read More

Total Reliance: Why investors are betting on Jio Platforms’ future

Over the past six weeks, Jio Platforms has raised a striking $10 billion from global investors

From its Silicon Valley-like campus near Mumbai, Indian billionaire Mukesh Ambani’s Jio telecom carrier is emerging as a winner from changes in the way Indian consumers plug into a digital economy made more urgent by the coronavirus pandemic. For Indian shoppers who prefer to order online, it is launching a grocery ordering service with Facebook Inc’s popular WhatsApp messaging. For Bollywood fans who would prefer to avoid a crowded theater, it is readying same-day-release on the Jio platform.

Those plans had been in the making for months, but the pandemic has given them a shot in the arm. India’s 10-week lockdown has also led to a surge in demand for data, boosting Jio’s phone and broadband offerings. And, over the past six weeks, the digital business of Ambani’s Reliance Industries Ltd, known as Jio Platforms, raised a striking $10 billion from global investors.

The investments, including $5.7 billion from Facebook and money from private equity firms Silver Lake, Vista Equity Partners, General Atlantic and KKR & Co Inc , value Jio Platforms, where Reliance last year announced it was consolidating its digital offerings, at roughly $65 billion (51.6 billion pounds)…Read More

After Facebook, Silver Lake to invest Rs 5,656 cr in Reliance Jio Platforms

The deal comes less than two weeks after Facebook made an investment of $5.7 billion to buy a minority stake in Jio Platforms

American private equity firm Silver Lake has invested Rs 5,655.75 crore in Mukesh Ambani-owned Reliance Industries’ Jio Platforms. The deal comes less than two weeks after Facebook made an investment of $5.7 billion to buy a minority stake in Jio. The investment by Silver Lake values Jio Platforms at an equity value of Rs 4.9 trillion and an enterprise value of Rs 5.15 trillion, and represents a 12.5% premium on the equity valuation of the Facebook investment announced on April 22, 2020 – said Reliance Industries in a statement.

“I am delighted to welcome Silver Lake as a valued partner in continuing to grow and transform the Indian digital ecosystem for the benefit of all Indians. Silver Lake has an outstanding record of being a valuable partner for leading technology companies globally. Silver Lake is one of the most respected voices in technology and finance. We are excited to leverage insights from their global technology relationships for the Indian Digital Society’s transformation,” said Mukesh Ambani, Chairman and Managing Director, Reliance Industries.

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Silver Lake is a prominent investor in technology space. The company has over $40 billion in combined assets under management and committed capital. Its investments include Airbnb, Alibaba, Ant Financial, Alphabet’s Verily and Waymo units, Dell Technologies, Twitter and numerous other global technology leaders…