Empire Building through Unrelated Expensive Acquisitions make Reliance Industries Stock Underperform

India’s Largest Private Sector Company Reliance Industries (RIL) has been looking to expand through the greenfield route.After the failure to acquire Lyondell Basell which would have nearly doubled the company’s revenues,it started to acquire Shale Gas Assets in North America.These small time buyouts made sense as they are related to Reliance’s core Oil and Gas Business.However recently the company has been doing a lot of unrelated acquisitions.The cancellation of a non compete pact between the Ambani Brothers,allowed Reliance Industries to enter a host of new sectors.It promptly did so through a multi billion foray into India’s Wireless BroadBand Sector.It is also rumored to be entering the Power and Financial Services sector through the Acquisitions Route.

Lyondell Said to Reject $14.5 Billion Reliance Bid (Update3) – Bloomberg

The Rotterdam-based chemicals maker had earlier rejected a revised Reliance bid that valued it at $13.5 billion, the Wall Street Journal said Jan. 8. India’s largest company by market value had raised its offer for a controlling stake to $14.5 billion, two people with knowledge of the offer said on Feb. 22. The Mumbai-based company initially offered an undisclosed amount on Nov. 21 and has yet to make public the value of its bid.

Reliance is a Smart Player but Recent Acquisitions have made the Market Wary

Reliance Industries is known to have one of the smartest management teams in the country.The Reliance Group led by Mukesh Ambani is well connected with proven record in executing huge projects in the Oil and Gas Arena.However outside of their core competence,the Group has suffered.Its Retail Entry has not been much of a success despite big bucks being poured in the last 3-4 years.It entry into marketing of oil based fuels has also meandered without going anywhere.Now the Reliance Group has announced an entry into the Hotels Sector by acquiring a 14% stake in East India Hotels at a significant premium over the market price from the promoter Group.This  ~$220 million investment is totally unrelated to Reliance’s activities and make no strategic sense.The Market has voted against these moves with the stock underperforming the broader BSE Sense by almost 18% YTD as the stock forms new lows.While Indian Conglomerates like Tatas have proved to be successful in multiple Business Segments,it remains to be seen whether Reliance Industries has a method in the madness of its recent acquisitions.

Reliance buys stake in East India Hotels for $217.5 million – DNA

India’s richest man, Mukesh Ambani, checked into the Oberoi on Monday.On the face of it, the Reliance Industry (RIL) move on Monday to buy 14.12% stake in East India Hotels, promoted by the Oberois, by paying Rs1,021 crore, looks like helping the founders establish a detente, because ITC, the tobacco-to-hotels giant that’s also a business rival, holds 14.98% stake, perilously close to the open-offer trigger, in the company.

The shares were acquired through RIL’s wholly owned subsidiary Reliance Industries Investment and Holding Pvt Ltd from Oberoi Hotels Pvt Ltd and certain other promoters of East India Hotels (EIH) Ltd.