Hello friends, today I am going to talk about such a company
Whose shareholders feel proud that they invested in this company
Because this company has doubled their shareholders money every two and a half years
I, Jagdeep Singh, welcome you to the Groww channel. Today we are going to talk about Reliance industries
It is one of India's biggest companies whose market cap is more than 8 lakh crores
And it is one of the most famous company among investors in which investors love to invest
In this video I am going to tell you about Reliance's business model and I will not tell you the story of how it got big
But I will tell you what was different in its business model
Which made this company a big company from a very small company
Apart from this we will conduct a fundamental analysis for Reliance
In which we will see Reliance's different financial parameters and compare it to last year
In this video we will also talk about that Reliance had said some time ago that they are going to sell some of its stake to Saudi Aramco
What will the effect of this be on investors?
Will their balance sheet become better because of this?
Is this a good or a bad thing for investors, financially?
Apart from this, at the end of the video we will talk about Reliance Jio
On which Reliance is paying a lot of attention to at this time
In the recent times, Reliance had announced Gigafiber and how that will be rolled out in the coming days
And what impact that will have on investors
First, it is very important for you to know how Reliance's business is spread out in different sectors
If I try to tell you then Reliance's business is spread out in refining
In petrochemicals
In Retail
In oil and gas and apart from this in Reliance Jio
Because they have taken an entire strategic shift to the digital market so their entire attention is now on Reliance Jio
Now I will tell you about a few brands that maybe you don't know that Reliance owns them
As you can see on my screen, these are the different brands that Reliance owns
First I will talk about retail because in retail
Reliance has multiple brands about which we probably don't know
If I talk about Reliance retail then it is the world's sixth fastest growing retail business
So the different brands of Reliance are Reliance fresh, Reliance jewel
Trends, Reliance digital, Reliance resQ
Ajio.com
So it is possible that you wouldn't have heard of a lot of them but maybe you use them in your day to day activities
Now let us talk about media and entertainment
If we see their overall contribution in Reliance, then it is not that much
But they have multiple brands about which we wouldn't have heard
But we use them daily
Like CNBC TV 18
History Tv 18
So these are the brands that Reliance owns
Which we use daily but we don't know that Reliance owns them
Now you have found out about the brands that what brands does Reliance have
But now you must be wondering how Reliance, from a company that sells clothes
Became a petrochemical king and spread out in different sectors
So there is a very important thing in its business model which has helped a lot for it to become big
And that is backward integration
I spoke about in the ITC video as well
And even ITC incorporated this into their business very well
So how did Reliance use backward integration?
Now you must be thinking why backward integration becomes so important for a company?
And why does a good company do backward integration
Because, friends, if I talk about a business model, when a company makes a product and sells it to the customers
For that they need some raw materials
So if that company doesn't have some control over the cost of their raw materials
And if the cost of the raw materials increases, it becomes very difficult for the company to sell their products
Because it is not that easy for a company to increase the cost of their end products
Because if they increase their price it is possible that their market share goes away
Because maybe the customers don't buy it at a high price
So the good companies, who have good business houses, always
Try to have a control over their raw materials
So that there can be a satbility in their business
There can be a sustainability
Because of which they can supply the same products to the same customers at the same price
Now I will tell you in a very simple way how Reliance did their backward integration
We all know that Reliance started their business with Vimal
When it directly used to go to customers and sell polyester clothes
And at that time petrochemicals were used to make polyester
So Reliance thought, why not make their own petrochemicals
Then they thought where do petrochemicals come from, they come from crude oil and from refining
So they thought why not refine crude oil themselves
And start their own refinery
Because of which Reliance started the world's biggest refinery in Jamnagar
Reliance's refinery in Jamnagar is very important in their business because it is a very big refinery
And apart from that it refines multiple products
Because of which Reliance's portfolio becomes very big
Reliance's gross refining margin is very good
So if I talk about Reliance's gross refining margin that that is currently $9.2/barrel
Which is very good according to the world standards because there is a lot of volatility in the market about crude prices
And crude prices go up and down a lot
But still Reliance's gross refining margin is very good and constant
So let us talk a little about Reliance's fundamentals and conduct a financial analysis
Is there still a value in Reliance to buy
Or is it very overpriced right now
As I told you in the starting of the video that Reliance has different verticals in which it operates
So in the financial analysis as well we will compare vertical wise
How their revenue increased
And against their revenue how their EBIT increased or decreased
If I talk about EBIT then EBIT stands for Earning Before Interest and Tax
If I tell you in very simple terms
So if the company had a sale for Rs 100
So after you remove all the expenses of the company, how much money is left with the company
So higher the EBIT, better it is
And many companies make a lot of sales
But to make their sales, there is a lot of expense
And the company actually starts going into losses
So it is very important that with the sales of the company, their EBIT also increases
First let us talk about Reliance's refining and marketing
So if I talk abut the revenue from refining then Reliance's net revenue has increased from 2,50,000 crores
To 3,93,000 crores in the financial year 2018-19
But there is a very interesting thing here
As compared to 2018, in 2019
Their revenue increased a lot
From 3,06,000 crores to 3,93,000 crores
But their EBIT actually decresed
From 24,000 crores to almost 20,000 crores
So a small thing of worry here is
That the company's sales is increasing
But their EBIT is not increasing
The reason of which can be that their crude prices increased in the recent times
Because of which there was directly a negative affect on their EBIT
Now let us talk about petrochemical business
If I talk about the petrochemical business, the raw material here is Naphtha
And Naphtha comes out of Reliance's refining business
So even here we get to see how well Reliance has done its backward integration
And how good the control is of Reliance on raw materials
So if I talk about the petrochemical business, then it is growing very well
Because its use happens in the packing industry,
Second in clothes and third in petrochemical industries
And a very good thing in petrochemicals is that its margin comes out ot be really good
Now let us talk about Reliance's net revenue and EBIT from their petrochemical business
If I talk about the net revenue then Reliance's net revenue has almost doubled
In comparison to the financial years 2016-17
Which in 2016-17 was 92,000 crores
That has now increased to become 1,72,000 crores
If we talk about EBIT then that is better because their EBIT has increased by more than 2 times
Their EBIT which in 2016-17 was 12,000 crores
Has now increased to be more than 32,000 crores
So here Reliance's sales in petrochemicals increased a lot
Apart from this their margins also increased very well
Now let us talk about Reliance retails financial which is the world's 6th fastest growing retail brand
In their sales and EBIT you will get to see very interesting things
If I tell you about their net sales, then for the past three year their net sales have been doubling every year
As you can see on my screen, that in the financial year 2016-17
Reliance retail's net revenue was 33,000 crores
Which increased in 2018 to become more than double
69,000 crores
And in the financial year 2018-19 it increased to become more than 1,30,000 crores
If I talk about EBIT then it is more astonishing than this
Which in 2016-17 it was only 784 crores
Which increased in 2017-18 to become 2,000 crores
And it increased in 2018-19 to be more than 5,500 crores
I will tell you again a very interesting fact about Reliance retail that
For the past two years, Reliance retail daily
On an average opens ten new stores
So you can imagine how extensively it is expanding itself for the past few years
Now we have seen sector wise, the benefits it is getting from every sector
But now let us talk about the overall business of Reliance
And how much their sales have increased every year
Apart from this how their margins have been
And I will tell you a red flag here, which is a small concern of worry for investors here
Now let us talk about Reliance's total sales
Because what we spoke about until now was about segments, that from which segment, how much revenue does Reliance get
If I talk about the total sales then
As you can see on my screen
This is their total sales for the past five years
In March 2016, their total sales was 2,93,000 crores
Which in 2018, increased to become 4,30,000 crores
And in 2019, it increased to become 6,22,000 crores
So if we talk about the coming years, then if Reliance
Monetises itself itself in jio and rolls out its Jio fibres well
Then their total sales in the coming time can increase very well
So if I talk about operating profit margins then Reliance's total margins
Has been around 14 or 15%
And Reliance has always maintained it
Because a lot of times it happens that Reliance's margins comes less from one business so it compensates from another business
Like now, Reliance gets very small margins from its retail business
From its digital business because right now, it is in expansion mode in that
And until a company is expanding a certain business, until then it doesn't get a lot of margins from that business
So until then Reliance is maintaining its margins in refining and the petrochemical business
So even if in the coming days Reliance keeps good margins here
So Reliance's operating profit margin and their sales can grow really well
So if I talk about the red flag that I told you in the beginning
That is only one in the Reliance industry and that is their debt level
Their debt level is very high, if I talk about this year their debt level then that is almost around
2 lakh 87 thousand crores
In last year's comparison it has increased a little this year
So if it such a big company that is the only red flag then the company would have thought of something for it
So in the case of Reliance, they have already charted out a plan
About how they are going to become a zero debt company
By March 2021
Yes, friends, in the annual general meeting this year, Mukesh Ambani has said that by March 2021
Reliance will become a 0 debt company
They have made a deal with Saudi Aramco by which they
Will sell 20% of the shares from refining and petrochemical business to Saudi Aramco
Because of which they will get 15 billion dollars
Apart from this, from their oil marketing business
They will sell 49% to British Petroleum from which they will get 1 billion
If Reliance can implement these strategies then they have a good plan
Through which they can significantly reduce their debt in the coming time
And if we look at their 2021 plan, which is to become a 0 debt company
That is not a very overambitious plan, it can be completed
Now I will talk about everyone's favourite topic, Jio
Why did Reliance industries shift itself towards Jio
So whenever we talk about a big company
They innovate themselves at the right time according to their customers
They bring a strategic shift in their business at the right time
One of their businesses is going well, so they expand themselves in another business as well
Because of which when Reliance found out that their oil business has almost been saturated
There are very less chances of them expanding there
So they chose another segment which was the digital segment
Now why did Reliance choose just the digital segment
If I talk about a big country then 3% of their total GDP expense
That goes in digital
So if I talk about India then their total expense in the digital sector totally is going to be
Around 5 trillion
So you can imagine how big the market segment is
That Reliance Jio is trying to target in the coming time
So if we talk about this, the planning of it was started a long time ago by Reliance
Because from before itself they saw a lot of potential in this segment
Everyone likes to listen to the story of how they are ging to expand themselves in the coming time
But we get to know the reality by looking at their financials
How it has been performing until now
And what we can expect in the coming days
Let us talk a little about Reliance Jio's financials
As you can on my screen, we have compared three thing in the data of the past four quarters
First, Jio subscriber base
What the total subscribers of Jio were
Second, revenue
How much revenue came from them to Reliance industries
Third, EBIT
How much the EBIT was
If the revenue was a certain amount, how much was the EBIT
So first, if I talk about the subscriber base
In June 2018, their subscriber base was 215 million
Which increased in March 2019 to become 306 million
If I talk about the recent quarter then it has become 330 million
Apart from this, if we talk about revenue
There wasn't a lot of increment because it is in expansion mode still
And they haven't started monetising from here well
So their revenue has now almost come to 13,000 crores
Apart from this, the EBIT hasn't increased that much
The EBIT hasn't increased that much because it hasn't been monetised well yet
It is still in the expansion mode
If we talk about Jio fibre, they were offering it for free until now
So if they expand well in the coming time
So we can expect that from this
There can be a good overall profit for Reliance industries
As we saw in the beginning that Reliance's EBIT has reduced a little from refining
So if in the coming few quarters their business segment increases well
Their loss from here can be compensated
I will come back to my first question
Is this the right time to invest in Reliance industries or did we miss the golden opportunity to invest here?
I will never directly tell you whether you should buy or sell
But I will give you a general advice
There is no right time to buy a good company
The right is always, you can enter the market at any point
Choose a good company
And keep your three pillars strong, first discipline
Second, good research
Third, a longer time horizon
So here, even in the case of Reliance you should do your research
You can use this video as a fact check
But first do your own research
How this company performs in the coming time
Because in every quarter, every month, we keep getting new data
Because of which our decisions related to companies keep changing
So if you are an investor and you are thinking of investing
Then research well
Keep some discipline in your company
Apart from this, invest for a long time so you can get good returns
And if you see something wrong in a company
No matter what the company is
Whether it is a big or a small company
If there is a red flag there, a problem, an issue of corporate governance
You should exit from there at the right time
So we will end this video with two questions for you
First question
Do you think it is still the right time to invest in Reliance industries or do you think the golden opportunity has passed to invest here?
Second
As Mukesh Ambani said in the annual general meeting
That Reliance is going to become a 0 debt company by March 2021
Do you think they will be able to become a 0 debt company or not
Please comment below and let us know what you think
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