Secondly, there has to be oomph on their platform business, and in the e-commerce business, they have acquired companies but given the sheer size of Reliance these companies are still very little and the street is waiting for that. The O2C business has been doing better than expected, but the catalyst will be whether or not the Saudis will come and whether they are forgetting part of that work to decrease the overall level of debt.
Net debt is now negative but overall levels are still very lofty and that means the company’s free cash flow is not what the street is happy about, those were the big issues. Of course, retail was in line with other retailers due to the shutdown 2, which led to lower retail numbers. Those will eventually pick up. Meanwhile, the margins were lower.
In general, how I would approach Reliance is that the e-commerce part as well as the retail part are the drivers. If we can get more clarity on those and see some traction happening; In addition, I will take a look at the renewable energy project that was announced at the Annual General Assembly. It is an entire value chain, from manufacturing panels to sourcing manufacturing of raw materials and then being a major producer of renewable energy. Let’s see what happens there. It’s the first days yet. But I would say it is the number one company in our markets. Fund managers remain invested in it and the list is vast.
If you compare it to Alibaba at its peak, there is a seven to eight times more chance that Indian consumption will converge with Chinese consumption. We are skipping some stages. Reliance has also led leaps in some stages and this will unlock value. It’s firm to say whether that’s happening in two years, three years, or five years. But in the lengthy run, this is the story one has to look at.
I was laughing when I saw Aswath Damodaran’s review of Zomato. He did the alike thing when Facebook’s IPO went back a generation, and Facebook mocked him literally all the way to trillions of dollars in market capitalization. This is already a developing business and is firm to assess by conventional standards. One should rate them based on the type of growth they will have, and the number of customers they will have.
I’ll donate you a little example. We saw what happened at Ed Tech over the weekend. News arrived that the Chinese posted one notice that food delivery platforms should treat food delivery boys well and that there were a few other things they said and my tone only dropped 15% on one note. This is the danger.
When you are a platform business that relies on light assets, anyone with deeper pockets can come in and take you out. That wouldn’t happen now with the considerate of dominance Zomato and Swiggy had and the considerate of Orchid chest they made.
The second is organizational, and the third is something that radically changes itself. If some unused technology comes out or there is some delivery, I unkind the company has about 20, 30, partial deliveries in all major markets that start serving restaurants directly. It’s firm to imagine that happening but there’s a lofty possibility that something could happen and we saw that with Chinese technology it’s a vast risk.
Stephen Roach described it as the start of the unused Cold War, and regimes like China, North Korea, and even Iran take positions in the markets and then take regulatory steps like this. So they make money both ways. First, they let their companies go and list and create trillions of dollars in market capitalization. There is $15 trillion of global money invested in Chinese bonds and now in cases like Evergrande and others, even bad state-owned banks, the Chinese government has not intervened.
So it is very interesting to watch. I’d say watch your appetite for risk, we don’t know who’s the next Amazon or the next alphabet. It could be Zomato, so take a little stand and wait. This is what most investors do. Other than that, on a cash flow basis, at 42 times sales, what does this platform really value?