Is anything fishy happening with in Reliance shareholders?

A recent announcement by Reliance Industries has sparked controversy among its shareholders, raising questions about whether they were cheated. The situation revolves around the buying and selling of Reliance Retail shares in unofficial markets, resulting in significant losses for some investors. 

Rewarding Employees and Paper Wealth

Companies often reward their employees with shares, aiming to foster a sense of ownership. Publicly listed companies allow employees to easily sell these shares and profit from them. However, in the case of private companies, the process can be more complex, and the value of shares may remain largely on paper. To realize actual profits, employees typically rely on three options: generous buybacks by the company, an IPO enabling share sales in the open market, or seeking buyers in the unofficial market at a premium.

Reliance Retail's Coveted Shares

Employees of Reliance Retail Ltd resorted to offloading shares in the unofficial market, attracting both fortunate and unfortunate buyers. In 2019, investors were willing to pay ₹500 per share, translating to a staggering P/E multiple of 200. The market for Reliance Retail shares experienced soaring demand, with recent transactions reaching ₹3,000 per share, resulting in a remarkable 500% return in just four years.

Explosive Growth and Market Expansion

Reliance Retail's success story is attributed to its explosive growth. Revenues have surged to $32 billion, surpassing the combined revenues of the next three major retail giants. Market share expanded from 1.2% in FY18 to 3% in FY23, encompassing both organized and unorganized retail sectors. Reliance Retail strategically expanded its operations through acquisitions, investments, and collaborations, solidifying its presence in various retail verticals.

The Shocking Announcement

Reliance Industries recently made a surprising announcement, expressing its intention to acquire 100% ownership of its shares and exclude retail investors who own a mere 0.09% of the shares. While this may seem like an exit opportunity for investors, the catch lies in the offered price—₹1,362 per share. Consequently, investors who bought shares at ₹2,000 or ₹3,000 are now facing substantial losses, leading to frustrations and accusations of being cheated by India's wealthiest family.

Reliance's Fair Valuation

Reliance engaged reputed firms, EY and BDO, to conduct a valuation, which indicated that one shares of Reliance Retail is worth around ₹850-₹900. Surprisingly, Reliance is willing to pay a 50% premium to buy back the shares, implying that the company does not appear to be intentionally cheating shareholders. The inflated prices in the private market are beyond Reliance's control.

Conclusion

The controversy surrounding Reliance's treatment of its shareholders reveals a complex situation with multiple perspectives. While investors express frustration and feel cheated, it is crucial to consider the nuances and factors at play. Reliance's actions do not appear malicious or deceitful, but rather a reflection of market dynamics. The emotional response of investors underscores the importance of careful analysis and a comprehensive understanding of investment decisions. As the situation unfolds, only time will reveal the true implications for all parties involved.