Game Changer

Reliance Industries Limited

CONSUMER BUSINESSES TODAY CONTRIBUTE ABOUT 35% OF OUR CONSOLIDATED EBITDA. JUST FIVE YEARS AGO, NEARLY ALL OF OUR EBITDA WAS FROM OUR ENERGY AND MATERIALS BUSINESS”

Mukesh Ambani, Chairman, RIL at the company’s virtual AGM in July 2020

When Mukesh Ambani addressed the Reliance Industries ( RIL) annual general meeting in 2017, the launch of telecom venture Reliance Jio was still a couple of months away. Though shareholders knew about Ambani’s project execution skills, many were unconvinced about the investment opportunity in an incumbent dominated, price-war driven telecom business. Ambani then announced the next 10 years will be the ‘Golden Decade’ of RIL as the company founded by his father Dhirubhai Ambani celebrates the Golden Jubilee of its initial public offering ( IPO) in 2027.

As the world pushes towards a future in renewables, Ambani literally pivoted RIL from a core sector, oil & gas monolith to a new- age software, technology and retail business. Till quite recently, petrochemicals and oil refining accounted for 90 per cent of RIL’s cash flow. Today,

consumer businesses — telecom, technology and retail — contribute around 35 per cent. Reliance Jio has emerged as India’s largest telecom service provider with 398 million subscribers in three years.

Ambani now calls RIL a technology company. In the last six years, RIL invested ` 6 lakh crore to transform the empire. Of that, almost ` 4 lakh crore went to the digital business, ` 50,000 crore in retail and just ` 1 lakh crore into expanding petrochemicals capacity. In the process the market capitalisation of RIL crossed the ` 14-lakhcrore mark, going way ahead of Tata Consultancy Services ( TCS) with which it was in a neck- to-neck battle to be India’s most valued company over the years.

RIL’s market value at ` 14 lakh crore, is around 145 per cent higher than what it was since the historic market crash on March 23. It is now valued more than the combined market cap of the top 15 Tata companies (around ` 12 lakh crore) as on August 20. It is even bigger than the GDP of West Bengal, Andhra Pradesh, Telangana, Rajasthan, Madhya Pradesh, Kerala and Delhi.

RIL’s big push in the technology space was evident during the pandemic, when 13 global marquee technology investors, including Facebook, Google, Silver Lake, KKR and Vista, invested ` 1.52 lakh crore in RIL subsidiary Jio Platforms Ltd (JPL) for 32.97 per cent stake. Today, JPL and Reliance Retail Ventures Ltd ( RRVL) account for around two third of RIL’s valuation.

RIL also executed a ` 53,125 crore rights issue that was oversubscribed 1.59 times. The stake sale and the rights issue helped Ambani to make his new- technology empire net- debt-free. There are deals pending to make

the decade more interesting. Saudi oil giant Saudi Aramco wanted to pick up 20 per cent stake in Reliance O2C Ltd, which houses the twin refineries and petrochemical complex of RIL, for ` 1.1 lakh crore. It has been delayed after the crash of oil market in March and April.

Ambani is looking to dilute the stake in RRVL, the holding company for retail operations, and is in talks with global investors. RIL has divested its stake in the tower infrastructure investment trust ( InvIT) to Brookfield for ` 25,215 crore and awaiting another deal in optical fiber InvIT. BP Plc’s ` 7,629- crore investment in the retail joint venture Jio- BP has already been realised.

Ambani monetised part stakes to deleverage the balance sheet. It resulted in a 300 per cent jump in the share price of RIL since 2017 — from around ` 530 to ` 2,100, even though RIL reported a flat 0.1 per cent rise in consolidated profit at ` 39,880 crore in FY20 on revenues of ` 659,205 crore, up 5.4 per cent.

Recently, RRVL acquired majority stake in digital pharma marketplace Netmeds for ` 620 crore to take on Amazon and others in the e- health space. RIL is also expanding its business in financial services with insurance, brokering and mutual funds.

Ambani has plans to build a software company inside RIL — which can provide e- commerce, cloud storage, entertainment, home automation and high- end broadband services for businesses.

In FY20, Jio posted a 87.65 per cent rise in standalone net profit at ` 5,562 crore, against ` 2,964 crore in

FY19, driven by continued subscriber additions. Standalone total income was up 33.47 per cent at ` 63,983 crore. Research agency Credit Suisse expects Jio will have 550 million subscribers and the average revenue per user (ARPU) will rise to ` 200 from ` 130.6 at the end of FY21.

Reliance Retail has the advantage of multi- channel play. It owns the largest physical retail network in the country with 11,806 stores ( Reliance Digital, Reliance Trends, Reliance Smart, Reliance Fresh and Reliance Mart) and 29 million sq. ft. of retail space, across 7,000 cities. During the pandemic, it announced the nationwide launch of ecommerce grocery platform, JioMart, which rolled out across 200 cities and towns. Ecommerce businesses such as Ajio (fashion), and Reliancedigital. in are contributing substantial revenue.

The hydrocarbon business has faced challenges because of weak global trade since 2018- end. The

FY20 revenue from petrochemicals fell 15.6 per cent to ` 145,264 crore due to weaker demand. EBIT was at ` 25,547 crore, down 21.1 per cent from the previous year.

RIL wants to convert 70 per cent of its output from Jamnagar refinery and petrochemical complex to chemicals. Currently, chemicals is just 10 per cent while fuels account for the rest. The transformation continues unabated.