MUMBAI – Reliance Industries, India’s most valuable company, has rarely taken a corporate misstep. But recent market speculation about 63-year-old chairman Mukesh Ambani’s health has apparently wrongfooted the firm’s share price.
Ambani, one of the world’s richest billionaires with an estimated net worth of around US$70 billion, has raced while others have stumbled through the Covid-19 crisis, with fast expansion plans underway in telecoms, digital industries and retail.
Until now, investors have clearly liked Reliance’s post-Covid prospects. After dipping at the end of March coincident with a countrywide coronavirus lockdown, the firm’s listed shares almost tripled in value, rising from 875.7 rupees on March 23 to 2,368.8 rupees on September 16.
More recently, however, investors have seemed to sense something is amiss, perhaps at the company’s top rung. Shares began to slide again in October and on November 2 plunged a whopping 9%.
Since the September high, shares slid to an intra-day low of 1,835 rupees on November 3 before recovering to trade at 1,955.1 on November 5.
The November 2 collapse wiped off $16 billion from Reliance’s market capitalization, cut chairman Ambani’s net worth by $7.9 billion to $70.4 billion, and dropped his rank among the world’s top billionaires to No 9, as per Forbes World’s Real-Time Billionaires list.
The mainstream explanation for the slippage was poor second quarter (Q2) earnings.
However, brokers and analysts say the Q2 decline was well-expected and already priced into the market, and that unproven rumors about Ambani’s health are more likely what drove down shares.
The speculation, widely circulated on social media and discussed in market analyst circles, has it that Ambani has a liver ailment and is seeking top-notch treatment in Europe.
Other analysts have suggested that certain stock speculators may have short-sold positions in Reliance and have disseminated the rumors to make money on the downside.
Reliance declined to reply to Asia Times’ inquiries on the speculation. Asia Times could not independently confirm the market rumor which is being discussed widely among analysts but not picked up by the local media.
True or false, they’re taking a toll. Australian bank Macquarie cut its 12-month target price for Reliance shares to 1,320 rupees and slashed its earnings estimate by 20% for the financial years ending in March 2022 and March 2023.
That projection doesn’t completely add with the company’s nimble moves through the pandemic. Reliance and its subsidiaries Jio Platforms Ltd and Reliance Retail Ventures collected more than 2 trillion rupees ($27 billion) by selling stakes in various units to global leaders including Facebook and Google, among others, and a rights issue.
While the country was locked down against the pandemic, Reliance launched a successful share sale raising 530 billion rupees that trimmed the company’s debt from 1.61 trillion rupees as of March 31 to zero.
Ambani announced the company’s “debt-free” position in his chairman’s speech in an annual report released in June.
That, analysts say, will position the company well financially to make its planned expansions into telecoms, digital and retail, among other potential ventures.
Reliance says it has big plans for turning India into a digital hub of undisclosed sorts. The company has reportedly invested $50 billion to build so-called digital and connectivity systems.
The moves are also part of grooming a new generation of Ambanis for key positions in the company. In August, the local newspaper Mint reported that chairman Ambani is working on succession planning and plans to set up a family council to give equal representation to his family including his two sons and a daughter.
The company has neither denied nor confirmed the report. The elder Ambani’s Ivy League-educated children, Akash and Isha Ambani, joined the boards as directors of Reliance subsidiaries Jio Infocomm and Reliance Retail Ventures back in 2014.
They were reportedly instrumental in recent sales negotiations with Facebook, Google and other global tech titans. Yet it may require more seasoned leadership and hard-grinding experience to achieve the same success Reliance originally notched in petrochemicals into more modern, tech-driven sectors.
“On a one to two year view, we agree with India’s long term digital opportunity, but we continue to see meaningful execution challenges and no moat particularly in retail for Reliance,” Aditya Suresh and Abhinil Dahiwale, analysts with Macquarie Capital wrote in a report to clients using a market term for protected competitive positions.
Traditionally focused on petrochemicals, Reliance has gradually diversified into telecoms and retail over the past decade. While it has rapidly secured more than a third of India’s mobile telecom market by offering cut-rates, rivals allege the company receives benign regulatory treatment.
Reliance now has some 405 million mobile users. Bharti trails Reliance with a 28% market share while Vodafone follows with 27%, the latter having lost 105 million users to competitors since September 2018.
The retail market is perhaps even more competitive, pitting two of the world’s richest men in Ambani and Amazon founder Jeff Bezos. The two are going head-to-head for one of the few retail markets worldwide that boasts a potential one billion customers.
Ambani has indicated plans to acquire a controlling stake in the Future’s Group, a retail pioneer in India with 2,000 outlets across 400 towns nationwide that was forced to sell due to rising debts.
Bezos already owned 49% in another Future Group company that he apparently believed gave Amazon first right to purchase after a third year of ownership. He has challenged Ambani’s deal through an arbitration court in Singapore on those grounds.
Ambani remains the key to the company’s vision and drive to power in the targeted new growth areas.
But with questions swirling about his health and uncertainty about his children’s management, Reliance has its work cut out to convince markets its future performance will be as sound as its past and that all is well and hale in India’s richest family.