Well-oiled machine

Mukesh Ambani takes deadlines seriously—not just the ones he gives his employees, but also those he sets for himself. In the annual general meeting of Reliance Industries Ltd on August 12, 2019, Ambani, the company’s chairman and managing director, said he had “a clear roadmap to becoming a zero net debt company within 18 months”. On June 19, 2020, Ambani announced RIL had become net debt free, nine months ahead of the scheduled date.

What helped him achieve the feat was not just his core business of petroleum and petrochemicals, but also the telecom company he launched just four years ago. Jio is now India’s largest telecom company with more than 380 million subscribers; the strong base, which Ambani amassed using disruptive business tactics, helped him attract marquee investors. While Facebook acquired 9.99 per cent in Jio Platforms, a clutch of private equity players and sovereign wealth funds have picked up stakes of varying magnitude, pumping in Rs1,15,693.95 crore altogether.

RIL also raised Rs53,124.20 crore through a rights issue, which was the largest ever in India. Earlier, in December 2019, RIL inked a definitive agreement with BP to form a new petroleum retailing joint venture in India. In total, RIL has raised about Rs1.75 lakh crore. It is also working on a deal with Saudi Arabia’s Aramco to sell 20 per cent stake in its oil and petrochemical business.

The fundraising could not have been timed better, as RIL’s traditional petroleum refining and oil and gas businesses were hit hard by the crash in oil prices and the lack of demand for fuel. “The trend over the next few years is towards cleaner fuels,”said Mayuresh Joshi, head of equity research at William O’Neil and Co. “Ambani had read the trends well. He had also read the trends that online and consumer discretionary are going to be the new oil. He invested a lot more in these businesses.”

Jio today is not just a telecom company. In the past few years, it made many key acquisitions like Haptik, Radisys, Reverie Technologies, Embibe and C-Square, which will help it build a strong portfolio of future tech like artificial intelligence, internet of things, natural language processing and virtual and mixed reality. Jio has partnered with Microsoft to offer cloud-based solutions to small enterprises as well.

While beefing up the technological backbone, Jio has also ensured a constant supply of content to its customers, through its deals with Balaji Telefilms and the music streaming app Saavn, and the Network18 media and entertainment business it already owns. RIL has majority stakes in cable TV companies Hathway and Den Networks. “The marquee investors see Jio Platforms as a unique consumer platform with distribution strength that can be leveraged across connectivity, commerce and credit using technology prowess to stay ahead of the curve,”said Axis Capital analysts Shashi Bhusan and Anand Shah.

Having become debt free, Ambani has now set his sights on bigger things. In a letter to shareholders on June 23, he said the Jio-Facebook partnership would “digitally enable and empower India’s 60 million micro, small and medium enterprises, 120 million farmers, 30 million small merchants and millions of SMEs in the informal sector, in addition to empowering people seeking various digital services”.

A month earlier, RIL had launched JioMart, a digital platform connecting neighbourhood grocery shops with consumers across 200 towns and cities, which will take on the likes of Big Basket, Grofers and Amazon. JioMart will act as a centralised procurement and delivery platform between manufacturers and merchant partners. It will also enable digitisation of merchants through Jio point of sale (PoS terminals) at the back end and JioMart app at the front end.

Reliance Retail, RIL’s retail arm, is already the largest organised retailer in the country, operating 11,784 stores. The Jio-Facebook tie-up will give Reliance Retail huge opportunities through WhatsApp and Instagram, which Facebook owns.

Goldman Sachs analyst Nikhil Bhandari forecast Reliance Retail’s gross merchandise value (GMV) to surge to $83 billion in financial year 2029, from $5 billion last year. Online grocery will alone account for $45 billion in GMV. “Reliance and organised retail overall still have a significant opportunity to gain share from the unorganised and fragmented market, especially in grocery and fashion,”
Bhandari said. “Reliance’s market share in tier 3 and tier 4 cities is a real differentiator when compared with other modern retailers, online and offline, with Reliance having a significant lead in developing the ecosystem in these towns.” Ambani has plans to list the retail business within five years.

The platform approach will be RIL’s biggest advantage while taking on its e-commerce rivals. “RIL has scale in telecom and brick and mortar stores, and it has brands. With Facebook, it now gets access to social media platforms and it owns media companies. So, it is as far reaching as Amazon is in the US or Alibaba is in China,” said Govind Shrikhande, a retail industry veteran and former managing director of Shoppers Stop.

RIL recently identified financial services as a separate business. It had joined hands with State Bank of India for Jio Payments Bank in 2018. It has also ventured into consumer lending and insurance broking. The segment reported a revenue of Rs1,271 crore in the year ended in March 2020, and analysts reckon it is well placed for strong growth, riding on the strengths of the digital and retail platforms.

“The model of new commerce platforms can aid RIL’s financial services business to capture consumer loan origination,”said the Axis Capital analysts. “Moreover, as the platform achieves scale, it may also aid in capturing loan requirements for the small businesses.”