Will The Reliance Conglomerate Have A Demerger In The Future?

Reliance Industries Ltd (RIL), India’s largest company by market capitalization, reported a 7.3% increase in consolidated net profit at Rs.79,020 crore for the financial year 2023-24. The company’s gross revenue surpassed the Rs.10 lakh crore mark during the same period. The conglomerate’s two emerging businesses, Reliance Retail Ventures Ltd (RRVL) and Jio Platforms Ltd (JPL), registered profits of Rs.11,101 crore (up 20.9%) and Rs.21,423 crore (up 12%), respectively.

Financials and Expansion 

However, RIL’s standalone profit, which includes the core oil refining and petrochemicals businesses, stood at Rs.42,042 crore, lower than the previous year’s Rs.44,190 crore. Despite substantial investments in the 5G sector, retail expansions, and FMCG ventures, RIL’s consolidated net debt remained at Rs.1.16 lakh crore. Yet, with cash and cash equivalents amounting to Rs.2.08 lakh crore, the company anticipates clearing its entire net debt within eighteen months, given its current cash flow. Presently, RIL’s major pending investment is the establishment of five factories for solar panel and storage battery manufacturing, requiring Rs.75,000 crore.

Check: Mukesh Ambani Group Stocks

Possible Demerger 

With the rate at which the company is growing and expanding, a demerger could be anticipated, with IPOs for Jio and retail businesses, expecting better valuations. Both businesses, overseen by Mukesh Ambani’s children, Isha and Akash, have grown to a scale where they generate sufficient cash flow to cover capital expenditures and manage debt. Like last year, Reliance’s decision to demerge Jio Financial Services was essentially made to keep the financial service business different from other operations. As a result, the division allowed each business to concentrate on its strengths and opportunities, potentially resulting in increased value generation and growth prospects for both companies. 

Reliance’s Growth

RIL is valued at Rs.20 lakh crore in the stock market, with a price-to-equity ratio of 44.83. Mukesh Ambani noted that RIL’s initiatives have significantly contributed to various sectors of the Indian economy, becoming the first Indian company to exceed ₹1 lakh crore in pre-tax profits. Their Jio business has experienced accelerated growth in its subscriber base, serving over 108 million 5G customers. Reliance Retail, expanding aggressively since 2016, now operates 18,836 stores nationwide and has ventured into FMCG with brand acquisitions and new launches. 

Conclusion: Reliance Industries Ltd’s thriving businesses, including Reliance Retail Ventures Ltd and Jio Platforms Ltd, suggest a potential demerger. Such a move could unlock potential, attracting investors and facilitating growth. With its exceptional financial results and expansion, Reliance looks ready to remain on top in India’s business world.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.