Reliance in the next 10 years: Watch out for these businesses of the Ambani family

India’s largest company continues to grow in its traditional and consumer-facing sectors, but its digital businesses, data capabilities, and seamless connectivity will drive the next phase

For Reliance Industries Ltd, which closed FY23 with consolidated revenues of Rs 9,74,864 crore, the decade gone by was about new ventures that gave the B2B conglomerate a healthy appetite for consumer-facing businesses. 

In the year to March 31, 2023, Reliance’s bedrock, the refining and chemicals operations (which it calls oil to chemicals or O2C), fetched over 60 per cent of its revenue, while the rest primarily came from retail and digital. Looking into the future, Reliance Chairman & MD Mukesh Ambani told shareholders at its annual general meeting on August 28 that his three children—twins Isha and Akash (31) and Anant (28)—will be inducted into the board of Reliance, which retains its No. 1 spot on the BT500 list this year.

This clear succession planning lays the groundwork for the next decade, at least when each of its diverse businesses has to be reimagined to ensure revenue growth on a larger base and make them more profitable.

“ It (RIL) understands manufacturing well... One of the big strengths is chemistry, which is what it is playing to in the new energy business ”

Deepak Jasani
Head, (Retail Research)
HDFC Securities

Digital, Data and More 

When Ambani rolled out his Jio telecom business in 2016, it brought down tariffs sharply, launched a new technology, and became the largest player with over 440 million subscribers. He had launched telecom under the Reliance Infocomm banner in 2002, but it was given to his brother Anil in the 2005 split of the Reliance empire.   

Jio disrupted the industry and continues to grow on a large base.

Those familiar with the conglomerate point out that “subscriber market share” is a limited understanding of telecom (now called digital because of its suite of offerings). Jio’s wired broadband service reaches 10 million homes, but the difficulty of laying fibre in smaller cities or rural India has restricted its growth.

The September 19 launch of Jio AirFiber, a wireless broadband service, across eight cities bypasses the fibre hurdle. Jio AirFiber’s fixed-wireless service uses 5G technology, making use of emerging technologies such as connected cars and augmented reality possible. Company insiders are confident that the broadband service can get 100 million homes. “Even for the fibre business, the enterprise part with cloud and edge computing are potentially large revenue streams. Globally, this drives the business,” says a person privy to the issue.

Aliasgar Shakir, Telecom, Media & Retail Analyst (Institutional Equities) at Motilal Oswal Financial Services, says Jio’s mobile-telephony subscriber count will show linear growth, though AirFiber can drive big growth like DTH or direct-to-home television did in its time. “It (AirFiber) is similar to the early phase of DTH in India when it serviced those homes where a cable connection did not reach. Here, Jio can use its 5G infrastructure to grow the business,” says Shakir. 

AirFiber’s advantage is that it can reach more homes faster to capitalise on an interesting combination: data prices are low, and people are guzzling data. Wired broadband reaches over 30 million homes in India, while 220 million homes have television. “India is still a small broadband market today and will grow over time,” says Shakir.

For FY23, Reliance’s retail businesses fetched Rs 2.6 lakh crore in revenues, up by over 30 per cent on the previous year. Reliance Retail added 3,000 stores and 20 million sq. ft, taking its network to 18,000-plus. Reliance’s retail business gives it a large brand portfolio, a robust logistics backend and a convergence of online and offline. The scale gave it an efficient cost structure.

“Brands bring stickiness to the business, and with stores, that connection with customers becomes stronger. Using technology, Reliance can zero in on a large number of stores to give them only those brands that sell quickly,” says one person close to the business. Ideally, pushing its brands is the preferred option and that has worked for fashion and lifestyle—over 80 per cent of the revenue comes from here. Reliance Retail runs its fashion and lifestyle stores and just networks third-party kiranas. 

Shakir reckons Reliance’s retail business will grow by 25 per cent a year for the next three years based on the current momentum.

Deven R. Choksey, Chairman and MD of wealth management and investment advisory firm DRChoksey Finserv, sees Reliance’s business model moving from transaction and subscription-based to large-scale computation at the core. “Reliance must be viewed as an infrastructure player with FTTH [fibre-to-the-home], enterprise solutions and mobility at one end. The other [end] will have strong content across verticals such as agriculture, healthcare, e-commerce and gaming,” he says.

“ It (AirFiber) is similar to the early phase of DTH... Here, Jio can use its 5G infrastructure to grow the business ”

Aliasgar Shakir
Telecom
Media & Retail Analyst (Institutional Equities)
MOFSL

This structure will give Reliance a direct connect with customers.

Choksey is clear the way forward is about generating and processing “tonnes of data,” making it a dominant player here. “Reliance can use technologies such as AI, blockchain and AR to be a service provider. Its end-to-end data model will give it a play in segments like sales and demand forecasting apart from payments, entertainment and anything requiring large amounts of data,” says Choksey.

Reliance declined to take part in this story. 

Syncing the Old and New 

Reliance is in the top bracket of refining and petrochemicals companies: its oil refinery at Jamnagar in Gujarat is the world’s largest and is No. 16 in chemicals. ICICI Securities said in an August 2023 report that Reliance has achieved this position despite a “challenging global environment over the last 12 months”. The upstream piece is looking up, and Reliance is trying to derisk the commodities business by growing its portfolio of specialty chemicals, adding material capacity and making Jamnagar, over the next decade, a feedstock production hub.   

Deepak Jasani, Head (Retail Research) at HDFC Securities, has been watching how Reliance has ramped up its Jio and retail businesses to ride the rising demand in these segments over the last three to four years. “In the process, the expansion of service offerings here caters to the emerging requirements of consumers. The B2C element in these two businesses significantly insulates it from cycles and competition,” he says.

The O2C business is cyclical and depends on crude oil prices and the spreads in each product. “Here, it has gone slow in expanding, focussing on new emerging areas like renewables and hydrogen. It has also raised funds at good valuations by diluting stake in the retail and digital (telecom) businesses to fund its other ventures and/or to bring down debt,” explains Jasani.

Those close to Reliance’s business model say the company’s energy business initiatives help it manage volatility better. “They understand manufacturing well, and it is in their DNA. One of the big strengths is chemistry, which is what they are playing to in the new energy business.”

The scale has been a clear strategic advantage for Reliance at many levels. Jasani points out how the company can raise debt “at fine rates and has enough forex exposure; hence, it remains the first choice to fund new projects”. 

The lender’s comfort is the cash flow that Reliance’s existing businesses generate to service the debt.

Reliance’s recent entry into financial services, an extremely competitive space, is being watched closely. Can Reliance disrupt the segment the way it did in telecom? “While they can do that, it may be difficult to dominate unless Reliance can get a banking licence and make large acquisitions of growing tech-enabled companies or banks,” he says. To Jasani, telecom will need a lot of capex and regulatory support, while retail is about striking the right balance between offline and online models. 

At the 2023 AGM meeting, Ambani and his team used the word “digital” 61 times. “India has the scale. India has the data. India has the talent. But we also need digital infrastructure in India that can handle AI’s immense computational demands,” he said.

Although Reliance gets the biggest chunk of its revenues from O2C, in its FY23 annual report the company flaunts retail and digital, followed by media & entertainment. It puts 02C in fourth place, followed by oil & gas exploration. Reliance is India’s largest retailer and digital services player. 

The average consumer is not moved by Reliance’s Jamnagar complex being the largest oil refinery on earth, way ahead of those in countries such as Saudi Arabia that sit on the largest petroleum reserves.

Shareholder-friendly Reliance, which created the equity cult in India in 1977, knows it gets the biggest mileage from its customer-facing businesses. And what better magnets than retail and digital?