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Time to Buy? - YouTube
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[0]
and now as things stand they have become
[2]
the largest profitable revenue wise
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geography wise reach wise they have
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become the biggest retail company in
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india so should you go and invest in
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reliance retails hi everyone welcome to
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today's video so recently i did a poll
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on my youtube channel where i asked
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people that which is the best retail
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company in india in case you have not
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given an answer on that poll please
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pause the video and please type out your
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response in the comment box while you
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are at it please like this video as well
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so the results were quite interesting
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and a lot of people voted for dmart do i
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agree do i not agree with that
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perspective i will let you my comments
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on that scenario along the video so on
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this video i am going to analyze the
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retail space in india from reliance's
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perspective why is that simply because i
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have already made a lot of videos on itc
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so you can go and check some of my
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previous videos on that topic i have
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already talked about quite extensively
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on hindustan unilever so you can go and
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check out those videos as well i will
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put the links in the description box but
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on this video let us start by analyzing
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the story of reliance and the story of
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reliance is very very fascinating this
[64]
is what the reliance revenues looks like
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in 2015 and you will see that majority
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of the reliance's revenues were made up
[71]
of water it was made up of oil and gas
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and petrochemicals now take a look at
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this chart 2019 here
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literally very less revenue were made of
[80]
petrochemicals and oil and gas so over a
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span of four years red lines
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rediscovered itself in fact if you study
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the history of reliance what you will
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figure out is that it transitioned from
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being a textile oriented company then to
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petrochemical company then to tech
[95]
company and now more towards retail
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company why am i saying this because
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this is a statement from one of their
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managers which says that every five to
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six years we have to rediscover
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ourselves if we would have not
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rediscovered ourselves we would have
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stuck as a textile company and we would
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have gone out of business this is a very
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interesting statement because reliance
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has been able to successfully rediscover
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its new set of businesses almost every
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single decade currently if you study the
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portfolio of reliance it is a 200
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billion market cap company and out of
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that the total market cap or potential
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market cap of reliance retail somewhere
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comes around 80 billion dollar to 125
[132]
billion dollar people assume that
[134]
reliance 0 is bigger but it is not it is
[136]
actually reliant smart which is bigger
[138]
than any of it sub conglomerates of the
[140]
reliance corporation but the most
[142]
interesting part of this story is that
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reliance retail came into existence in
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2006 and in roughly 15 years it has
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literally shook india in terms of how
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much growth it has attained so as to
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become the biggest part of reliance
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conglomerate and even if you de-merge
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reliance retail out of reliance it will
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still become a substantially big company
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just in a 15-year period so three things
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that we are going to talk about one is
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that how reliance retail became such a
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big company in such a short span of time
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number two is it going to maintain its
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comparative advantage and is it going to
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survive against more established player
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like itc hindustan unilever dmart etc
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third and finally should we be investing
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in reliance wait for it to de-merge or
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keep taking positions in other retail
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companies that is the precise discussion
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that we are going to have also a big
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shout out to our sponsors for today
[191]
which is et money they have come out
[193]
with a specific membership called as et
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money genius which can allow you to
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build customized portfolio now many of
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you might not have time to sit and study
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stocks re-curate your portfolio so et
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money genius can help you with that
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aspect so you can go check the links in
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the description box also i have prepared
[209]
a short brief and i have highlighted the
[211]
pros and cons of investing via et money
[213]
so you can go check that out as well and
[215]
make a more informed decision so let us
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get the discussion started and first and
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foremost let us quickly discuss that why
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is it that reliance is focusing so much
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effort time and energy in terms of
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amping up and building up its retail
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game so this is what the market for
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retail in india looks like that right
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now it is roughly a 700 billion dollar
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industry depending on how you are
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defining it and as for an 80 karmi study
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it is projected that by approximately 20
[241]
30 the industry size will 2.5 x so it
[244]
will go up by 2.5 times the value so
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this is just one part of the equation
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another related part is that within this
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retail segment the e-commerce or digital
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segment is going to exhibit almost a 25
[256]
to 30 percent yearly growth rate
[259]
this is massive and this outlines one of
[261]
the biggest opportunities in the next
[263]
five years in india so therefore retail
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becomes a very important segment and
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that is precisely the reason why
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reliance tatas demand all these
[272]
companies are pushing quite aggressively
[274]
not only offline retailing but also
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online retailing and e-commerce major
[279]
giants for example amazon they are
[281]
pushing offline retailing so they are
[283]
trying to build only channels so omni
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channel simply means that they want to
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be ubiquitously present all across the
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board right from internet to physical
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stores now the most important point that
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people forget about retail and the
[294]
importance of retail is that retail
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becomes an upselling opportunity so
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there is a specific word which is used
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in marketing called as upselling it
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simply means that you enter a shop to
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buy attach
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but you would have seen that near the
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store counters the cashiers or store
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managers strategically put like chewing
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gums they put like little little candies
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and all that stuff why because at the
[314]
time of checkout when you're spending
[316]
one thousand rupees in your daily
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groceries you would not mind spending
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ten more rupees buying some chocolate
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for your kid especially if your kid is
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with you for example i have a
[323]
two-year-old son whenever he accompanies
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us to grocery store you have to get him
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that chocolate because he sees it it is
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skipped that way and this process is
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called as upselling so upselling becomes
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a very important game from a retail
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point of view think about it this way
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that amazon started by its e-commerce
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business slowly it expanded into a
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series of different businesses right
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from publishing to streaming to
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logistics and a bunch of other different
[345]
services what has allowed them to do it
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retail and access to the retail data
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what they are selling in a particular
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geography region etc that is the same
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reason why i feel that a company like
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zomato might maintain its mood going
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forward why because it is maintaining
[360]
its mode in retail and logistics and
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going forward it can utilize all this
[364]
data to expand into other different
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services and this becomes a massive
[367]
advantage and this is one of the prime
[369]
reasons why majority of the big
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conglomerates are jumping into the
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retail space because they understand
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that if you have to sell high value
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services probably starting with retail
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and building a brand among common people
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might not be a bad idea this brings us
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to point number two that the retail part
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of reliance is that big is that good is
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that weak can we have some commentary
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around it okay so this is what reliance
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retail business looks like as we
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discussed earlier that it started in
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2006 so it has not been that long that
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reliance has started building its retail
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business over the years they have ended
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up acquiring a lot of companies for
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example a company called as hamles was a
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premium brand company and they ended up
[408]
getting acquired by reliance similarly
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you have reliance fresh reliant smart
[412]
geo mart and several strategic
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acquisitions have already taken place
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for alliance which i will talk about in
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a minute but the overall structure of
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reliance retail is very complicated
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because it contains a series of
[422]
different companies which fall under
[424]
different umbrella for example hamley
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sells toys and 7-eleven is a convenience
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store so the nature of business is very
[430]
very different but they all fall under
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reliance retail umbrella now talking
[434]
about the strength of the company it is
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fairly simple that right now it is
[437]
sitting on a stockpile of cash for
[439]
example they currently have 2.3 billion
[442]
dollars of cash sitting with them which
[444]
gives them a lot of opportunity to go
[446]
and acquire a series of different
[448]
companies and expand in organically in a
[450]
very short span of time in fact this is
[452]
a strategy that they have displayed time
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and again and there are two parts to
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this strategy so these are series of
[458]
firms that reliance retail has ended up
[460]
acquiring now you would say that okay
[461]
where did they get so much money to
[463]
acquire so many different companies in
[465]
such a short span of time okay so here
[467]
is where the genius strategy comes in so
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the first part of the strategy is that
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you get a lot of money for cheap so this
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is called as raising cheap debt for
[475]
example in 2020 you would have seen that
[477]
the interest rates were very low so what
[480]
was the situation then the situation was
[482]
that you could have raised as a company
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a lot of debt and reliance did exactly
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that they ended up raising a lot of
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capital during a time when debt was
[490]
cheap during the phase when interest
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rates are low there is a lot of money
[493]
available in the economy and reliance
[495]
ended up getting companies like google
[497]
facebook silverlake partner on the
[500]
capital and do cash infusion in their
[502]
company and they were able to aggregate
[504]
a lot of capital at very low prices now
[506]
comes the second part of the strategy
[508]
because once you have raised cheap
[509]
capital so to say what do you do you
[512]
wait for companies to come down in
[513]
valuation and reliance is very good in
[516]
terms of assessing it so here is a very
[517]
quick snippet as to how reliance
[519]
acquired urban ladder so back in the day
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urban ladders valuation were very very
[523]
high reliance waited for it to correct
[525]
and it fell by almost 85 percent and
[528]
then reliance went in and acquired that
[529]
company same goes for just dial that
[531]
they ended up acquiring the company at
[533]
almost 55 percent discount now this is
[535]
very contrary to tata's philosophy of
[538]
acquiring companies that tata for
[540]
example acquired 1 mg at almost 100 of
[542]
its valuation the same applied to big
[545]
basket that they paid top dollars for
[547]
acquiring big basket so while reliance
[549]
raised cheap capital acquired companies
[551]
at a discount tatas were doing slightly
[553]
opposite of course we can find counter
[555]
examples but adopting these two
[557]
strategies has allowed reliance retail
[559]
to grow really really fast in the last
[560]
15 years and now as things stand they
[563]
have become the largest profitable
[565]
revenue wise geography wise reach-wise
[568]
they have become the biggest retail
[570]
company in india so should you go and
[572]
invest and reliance retail so right now
[574]
there is no mechanics of investing just
[575]
in reliance retail you have to buy the
[577]
reliant stock but there is news that
[579]
there will be reliance de merger because
[581]
isham money is going to manage reliance
[583]
retail but before we get there let us
[584]
understand the pros and cons of the
[586]
company so the first key advantage of
[588]
reliance retail is its sheer dominance
[590]
as of now not only it has the highest
[592]
revenues profitability market share etc
[595]
etc but going forward its dominance is
[597]
set to increase as per experts for
[599]
example here is a study that was done by
[601]
goldman sachs and they predict that jio
[604]
mart will have 50 of market share in the
[606]
online grocery segment by the year 2025.
[609]
if you take a look at the presence of
[611]
geomard across different cities you will
[613]
see that amazon fresh is present across
[615]
nine or ten cities flipkart is present
[617]
across five swiggy is present around 50
[619]
and jio mart is present around 200 odd
[621]
cities so the scale of operation is
[623]
already too big to begin with now the
[625]
natural question comes that okay why is
[626]
this the case that they are able to
[628]
generate so much business one primary
[630]
point there is the number of app
[632]
downloads so here is the breakup of app
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downloads for geomark reserves their
[636]
comparators and you can see the volume
[638]
of jio mart app download is humongous
[640]
right so that's a simple message there
[642]
that the dominance of jio mart is not
[644]
coming down and that will help other
[646]
segments of retail within the reliance
[648]
retail community now the second key
[649]
point is the synergy based point so
[651]
synergy simply means that reliance owns
[653]
a series of different businesses they
[655]
have big big partners who are working
[656]
with them for example facebook can power
[659]
up whatsapp and form a partnership with
[661]
reliance retail in order to find synergy
[664]
synergies means mutual benefits for both
[666]
these companies and that is what
[667]
facebook and reliance retail are
[669]
actually doing so i will read this out
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for you that there is possible
[672]
integration with whatsapp during
[673]
facebook 5.7 billion dollar investment
[676]
in reliance in april it was clear that
[678]
reliance retail would be leveraging
[680]
whatsapp's existing large user base in
[682]
india to reach out to new customers in
[685]
return whatsapp pays possible
[687]
integration with jiomart will give
[689]
facebook the much needed kickoff for its
[691]
payment feature so this partnership is
[693]
huge and is beneficial for both the
[695]
parties and this becomes one of the
[697]
massive competitive advantages for a
[699]
company like reliance now comes the
[701]
third key advantage of reliance retail
[703]
it is very simple it is the brand
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building game this is both an advantage
[707]
and disadvantage the advantage being
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that they are actually expanding across
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fashion luxury segment and a bunch of
[713]
other different different avenues and
[715]
they are trying to scale up and build
[716]
their brand the disadvantage is that
[718]
they are trying to compete head-on with
[720]
companies like hindustan unilever will
[722]
they be successful will they not be
[723]
successful i will not try to cast any
[725]
theories here because this is not a
[727]
binary answer but the good news here for
[729]
alliance is that they are actually
[731]
playing the brand building game and with
[732]
the brand building game if they are able
[734]
to do it really well they will become a
[736]
premium segment brand and will be able
[738]
to have a better pricing power so all
[740]
these advantages the current dominance
[742]
existing partnerships with multi-billion
[744]
dollar companies and a very clear brand
[747]
positioning game that they are playing
[749]
it makes reliance a force to reckon with
[751]
so this is the phrase for today forced
[752]
to reckon with you know what does that
[754]
mean now let's quickly take a look at
[756]
the disadvantages of considering
[758]
something like reliance retail so there
[760]
are three specific disadvantages that i
[762]
would like to talk about first is called
[763]
as generalist versus specialist game
[766]
when it comes to dmart there is a very
[767]
clear positioning that when you go to
[769]
dmart you are getting products for
[771]
inexpensive prices that is the
[773]
positioning around which the dmart brand
[775]
has been built same positioning was
[777]
taken by krugers and their only
[778]
objective in terms of running their
[780]
store was do it very very effectively at
[783]
a very low cost and offer products for
[785]
cheap that is what they were doing dmart
[787]
is doing the same when it comes to
[789]
hindustani unilever they want to project
[791]
little bit of luxury aspiration so there
[793]
are very very specific positioning that
[795]
has been taken by hindustan unilever and
[797]
demar reliance unfortunately to me as of
[800]
now looks like stuck in the middle they
[802]
are not sure which direction to go yes
[804]
they are trying to get a lot of
[805]
customers and they would try to assemble
[807]
a strategy on the fly is that a win i
[809]
don't know additionally another layer of
[811]
complexity for reliance retail is that
[813]
it is a very confusing business it
[815]
comprises of so many different segment
[817]
toys retail online offline b2b b2c so
[821]
the problem that has become with
[822]
reliance retail is that analysts are not
[824]
able to assign a value to it so you
[827]
would not know whether it is under price
[828]
overpriced everyone will give
[830]
speculation around it second key point
[832]
is around the accounting matrix so this
[834]
is a study that was done by ken where
[836]
they talked about the profit margins of
[837]
tata old branch vis-a-vis reliance
[839]
retail loan bank so i will read it from
[841]
here for example if you take a look at
[843]
reliance retail's bottom line its margin
[845]
in apparel in the year april means
[847]
clothing in the year ended 2020 was 20
[850]
which is very high if you consider even
[853]
these super successful brands like west
[855]
side which is owned by tata their profit
[857]
margin makes up only 11.5 percent so i
[860]
don't know i can't comment on accounting
[861]
standards but the instance that i can
[863]
remind you of is that between 2008 and
[866]
approximately 2018 reliance did not give
[869]
any money back to its shareholders so to
[871]
say the stock price got stuck you will
[873]
say that it's not reliance's fault
[875]
actually i can make a separate video on
[877]
that and i will not say much on that
[878]
topic but for the time being please be a
[880]
little considerate as per the total
[882]
numbers that you are seeing for reliance
[883]
retail an additional chart can be seen
[885]
from here that despite the fall in
[887]
revenues the retail margins have
[889]
actually risen this can happen this is
[891]
not necessarily a malpractice but you
[892]
should look into this more closely now
[894]
comes the final point which is around
[896]
the demerger news of reliance first and
[898]
foremost there was a lot of hoopla and
[900]
news that was created in the market that
[902]
reliance retail is going to demerge from
[904]
reliance and it will be listed as a
[907]
separate share and the stock price rose
[909]
what not right so this was just news it
[911]
has not materialized yet my theory on
[913]
that is that they are waiting for the
[914]
markets to recover and then they will
[916]
probably demerge it from reliance to
[918]
unlock a lot more value but this
[921]
demerger thing can be a problem and the
[923]
traces of which can be found in the
[925]
previous generation of the ambani's for
[927]
example when mr urubayam money passed
[929]
away there was dispute between mukesh
[931]
mani and anil mani and there was a
[933]
vigorous battle that was fought in court
[934]
now if no succession planning is done at
[937]
reliance right now mr mukesh ambani has
[939]
announced that
[940]
money is going to take care of certain
[941]
businesses and akash ambani is going to
[944]
take care of certain other businesses
[945]
but this demerging always comes with a
[948]
massive cost to me it looks like a
[950]
problematic scenario counters can be
[952]
built that you know what mr mukesh amani
[954]
would have learnt his lessons he would
[955]
have instituted proper structure
[957]
guidelines in terms of separating the
[959]
businesses so he would have learned his
[960]
lesson and he might be working from
[962]
experience here but dean munching such a
[964]
big company will always come with its
[965]
own set of challenges so please be aware
[968]
of that i will wait for the stock to get
[970]
d merged the company gets demarched and
[972]
then i will make a final call on this i
[973]
have no interest in investing in
[974]
reliance as of now but yes please make
[977]
your own call what is my final verdict
[979]
as to which stock i think is the best so
[981]
two contenders there one i would say
[983]
that if you're looking for slightly more
[984]
luxurious brand hul is probably the best
[987]
fmcg or retail based stock as of now it
[990]
has massive advantage massive mode why
[992]
because it has massive branding power
[994]
which is not there with any other
[995]
company as of now second key company
[997]
that i would be bullish about is dmart
[999]
but here the problem is that it had
[1000]
already reached an overvaluation stage
[1003]
the valuations are correcting yes
[1005]
results are fine it is growing well all
[1007]
good good things are happening but the
[1008]
valuations are crazy so from that
[1010]
particular perspective i would place
[1012]
hindustan unilever over dmart is this a
[1014]
recommendation to buy no absolutely not
[1016]
please do your own due diligence but i
[1018]
hope you enjoyed the video you learned a
[1020]
lot about the retail space in india do
[1022]
let me know in the comment box and i
[1023]
will see you soon
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