Reliance Industries at Rs 1055….”The Best Years Lie Ahead” says Mukesh Ambani…how does it stack up against Global Giants?

Switched on my mobile this morning after a few days of tackling a tough Viral…thank you guys for all your “get well” wishes…they worked

Listened to the live broadcast on stock channels of Mukesh Ambani at the 36th AGM of RIL this morning in Mumbai rolled out the roadmap ahead for his Group…this are a few interesting bytes that really caught my ear

  • Now with the rescinding of the Non Compete Agreement with brother,Anil Ambani’s (ADA) Group, Mukesh Ambani’s RIL Group will enter the Power Industry in a very big way…a blueprint is being prepared….what is amusing however is that despite discovering and drilling Gas from the KG Basin,RIL will not execute any gas based project till 2022…so it’s going to be coal based,hydel,nuclear and alternative energies projects….ironically it is supplying this Gas to Other Fertiliser and Power Plants as directed by the Government…even to ADA Group Power Plants when they are ready to accept and if the Government directs then
  • Organised Retail has earned Revenues of Rs 4500 crs in 2009/10….in just Five Years it will jump ten fold to Rs 45000 crs !…..keeping in mind that RIL is the first Indian Company to cross Rs 200000 crs turnover this year,this would be a great contributor 

Anything BIG to earn and HIGH growth rates forecast,then rely on RIL to enter that sector….Petrochemicals,Petroleum,Retail,Infrastructure….nowTelecom,Pharma,Healthcare,Power,Education.

What next ?

How about Information Technology …RIL can take a look at the three World Tech Giants,Google,Apple and Microsoft……have a look at this Comparative Table I’ve prepared…RIL against Peers and these three Tech Giants…I’ve used todays ref rate US $ =Rs 46.14 for translating RIL’s Share Price of Rs 1055 and Market Cap of Rs 345135 crs…However RIL Financials are as sourced from RIL’s website (imputed rate used by them is US $ =Rs 44.64)…for the other Global Giants,the figures are sourced from the NYSE/Nasdaq 

KEY COMPARATIVE STATISTICS : RIL v/s Global Peers and Global Tech Giants

 

Key Stat

Unit

RIL

ExxonMobil

BP

Apple

Microsoft

Google

 

Share Price

US $

22.75

63

32

272

26

500

Market Cap

US $ b

75

294

99

247

231

159

 

 

 

 

 

 

 

 

Revenues

US $ b

44.6

301

266

51

59

25

PAT

US $ b

3.6

21

20

11

17

7

 

 

 

 

 

 

 

 

Cash

US $ b

4.9

13.8

7

23

37

26.5

Debt

US $ b

13.9

9.5

32

6

 

 

 

 

 

 

 

 

Trailing PE

Multiple

21

14

5

23

13.7

22.8

Forward PE

Multiple

15

9

4.3

17

11.4

15.7

Price/Book

Multiple

2.7

2.6

0.9

6.3

5

4

Clearly the Tech Giants rule the Exchanges in terms of Valuation and even Market Caps…High Multiples,High Profits and Profit Margins,Low or No Debt,Rising Revenues with new product launches have worked wonders for the three Tech Giants

RIL always thinks BIG…..Organic Growth in Technology Sector will take ages…But with a Market Cap of relatively lower US $ 75 b and the fact that 1/3rd of Capital Employed is through Debt even Inorganic Growth looks difficult for RIL to take over a major World Giant among it’s peers and even the Tech sector if it wants to enter it….what does look interesting is the Infotel playout it has just started with a near US $ 4 b layout…I’ve got their presentation on this and shall be examining it closely sometime soon

So are RIL’s Best Years Ahead as Mukesh Ambani assured shareholders today ?….With strong proven large scale project implementation capabilities RIL surely is excited about the opportunities opening up in India and even overseas…RIL is already a Giant in India in it’s Operations…With It’s Expansion Plans in Petrochemicals,it’s new big scale forays in diversified fields,it hopes to be reckoned as a Global Giant

It’s Best Years may certainly be ahead,but the above table shows it’s got a hell of a lot of catching up to do with Global Giants

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Borrowing against Brands !…Interesting,but Risky area opening out !

For Years ,Brand Valuation has been part of my sessions on Valuation of Equity at BSE and Other Forums….so it was with great Interest that I read the Economic Times Front Page atricle today on ‘Cos flash brands to raise cash’

Strapped for cash,Kingfisher Airlines has managed to Borrow from State Bank of India against it’s Brand of ‘Kingfisher Airlines’ which has been valued at Rs 1900 crs,that’s US $ 391 Million at an Exchange Rate of US $ =Rs 48.50 

Interestingly,Kingfisher Airlines has actually included this Brand Value as an Asset in it’s Balance Sheet…If it had not,then the Debt/Equity ratio would have computed higher….However,It’s probably because the Brand  is shown in the Balance Sheet,that PSU Bank,State Bank of India has been convinced to lend against this Asset

‘Kingfisher Airlines’ is a seperate registered Brand than ‘Kingfisher’ for Beer and Wines…Just a thought…if the Airlines defaults ,then the bank could opt to make the Brand it’s property…It would need to monetise this to recover dues…so it will have to sell the Brand !…to a Competitor Airline or a new Airline maybe !?…does the Borrowing Agreement categorically state that this Brand also include all the licenses and permissions  etc ?…what’s the hairline % taken by the Bank for this Asset value when lending?

Now Brand Value,like Intellectual Property Rights and Goodwill is an Intangible Asset.It normally is never reflected in the Accounts,because no real consideration has been paid for it…Thus this makes this Asset Class,riskier to lend against…It may be difficult to liquidate or realise monies for it in case of default

Being an Intangible,Brand Valuation is one of the most subjective and controversial areas in Valuation…Valuing Tangible Assets is a more objective exercise

Will Banks lend against Brand Value even if it is not reflected in the Books as an Asset !?

Clearly,Corporates appear to be running out of Tangible Assets to pledge or offer as Collateral and therefore borrow against…….They are resorting to prop up their  Brand Values for actual Funds leverage

An interesting Valuation and IPO assignment I was involved in recently,threw up this demand from the Promoters when we were working to price the placement and the IPO…”Does not our Brand count for anything ?”…Of course it did…In fact it is one of India’s largest companies in it’s field and has been in existence for over a hundred years !….but potential buyers were reluctant to negotiate a higher valuation that included,both soft and  hard numbers

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Bill Gates of Microsoft sells off a liitle over 1% stake for US $ 227 Million

Bill Gates,Founder of Microsoft,sold Ten Million Shares ,a little over 1% of his holdings, for US $ 227 Million in a week spanning October 31,2008 to November 6,2008

Microsoft is quoted now at just over US $ 21.Bill Gates still hold nearly 9% of the Equity and over 780 million shares which would be valued at over US $ 16.50 billion.

INSIDER & RULE 144 TRANSACTIONS REPORTED

 

Date

Insider

Shares

Transaction

Value

6-Nov-08

GATES WILLIAM H III
Director

2,000,000

Sale at $21.40 – $22.03 per share.

$43,430,000

5-Nov-08

GATES WILLIAM H III
Director

1,000,000

Sale at $22.79 – $23.28 per share.

$23,035,000

4-Nov-08

GATES WILLIAM H III
Director

3,000,000

Sale at $23.31 per share.

$69,930,000

3-Nov-08

GATES WILLIAM H III
Director

2,000,000

Sale at $22.64 per share.

$45,280,000

31-Oct-08

GATES WILLIAM H III
Director

2,000,000

Sale at $22.68 per share.

$45,360,000

 

Sold 10 Million Shares

Aggregating US  $ 227 Million

This is part of Bill Gates direct stake which he has sold…selling a slice in these uncertain and volatile times to secure a slice of his Future perhaps !…..Even the Richest Man on this Planet needs to encash to feel personally financially secure !…or does he plan some more charity ?

Incidentally Bill Gates slipped into India and Pune last week without informing his Charity Foundation Team here….he personally went to the red light areas in Pune to assess for himself whether his Charity Aid was actually reaching the people there

Really amusing that in the past whenever Bill Gates touched our shores, he was ardently wooed by Politicians and Industrialists and Media alike…every sentence he uttered became a “Quote”

This Time around we are all preoccupied with what will happen to us and our Sensex…not him….as Stock Markets are in a great sell off panic mode globally and the World’s Financial System is on the verge of Breaking Down as Recession raises it’s Ugly Head in US and Europe…..and our Sensex has chopped off over 50 % of it’s 2008 high and the Share Price of Microsoft is down to US $ 21.30,just over 11 times it’s trailing EPS of US $ 1.89 and a Market Cap of US $ 189 Billion…..In the heady days in 1999 Microsoft was quoted at 70 multiples and Bill Gates had warned that Investing in his Company at such crazy valuations would be a gamble…it was too much of a long Term risk as he did not expect his company to be in the top three after 25 years