Consumer-centric businesses would be the focus of Reliance Industries (RIL) in the coming years, indicated its chairman, Mukesh Ambani, while addressing shareholders at the company’s 41st Annual General Meeting on Thursday.
“As the ‘golden decade’ rolls on, our consumer businesses (Reliance Retail and Jio) will contribute nearly as much to the overall earnings of the company as our energy and petrochemical businesses,” he said.
The statement assumes significance because all these years, the petroleum and refining businesses have been major contributors to the firm’s profits and have provided cash to nurture newer businesses such as retail and telecom. RIL is now reinventing itself to emerge as a consumer business giant. Jio, the digital business, including telecom, is expected to become vital in the retail play.
RIL’s overall size, Ambani hoped, would double by 2025. “As India starts on its high growth journey to double the size of its economy by 2025, I assure you that the size of Reliance will more than double in the same period,” he said.
Claiming that the current year has been yet another “transformational” year for RIL, Ambani said the group’s consumer businesses represented about 13 per cent of the consolidated Ebitda (earnings before interest, tax, depreciation and amortisation), up from a mere 2 per cent last year. “This increase is especially remarkable because it is taking place at a time when the hydrocarbon business is growing rapidly,” he added.
On the one hand, consumer businesses have started delivering profits for RIL, on the other its hydrocarbon business has scaled up its capabilities to become more profitable, integrated and predictable in its earnings profile.
For instance, for 2017-18, the petrochemicals segment reported a 35 per cent rise in revenue at Rs 1.25 trillion and segment Ebit (earnings before interest and tax) jumped 63 per cent year-on-year to Rs 211.79 billion. Segment Ebit for its refining business was also at a record Rs 258.69 billion for 2017-18. This is most likely to grow further in the coming quarters.
“We expect further improvement in Ebitda levels over the next 12-18 months as the company gets full benefit of its investments in refining and petrochemical businesses, and generate higher Ebitda from its digital services and retail business,” noted a Moody’s Investors Service Issuer Comment in April.
So, can consumer businesses, largely a pet of the Ambani scions, grow to match the size and scale of the legacy business? Ajay Bodke, head of investment strategy and advisory, Prabhudas Lilladhar, feels that while it does look ambitious at the moment, if backed by capital pump in, 10 years is a long horizon over which the consumer business could see a natural scale-up. In fact, the downstream petroleum business (retail fuel outlets) is likely to emerge as a big play, Bodke felt.
The Jio push
In a bid to further push its telecom venture, Reliance on Thursday introduced a new broadband service, which is expected to be a pricing disruptor in the domestic market largely dominated by two players now – Bharti Airtel and state-owned BSNL. Analysts feel that Jio’s entry is likely to spice up the 420-million subscriber broadband market. This will be the largest greenfield fixed-line broadband roll-out.
RIL plans to launch JioGigaFiber in over 1,100 Indian cities on August 15. With up to 100 mbps (megabits per second) speeds on offer, JioGigaFiber is expected to open up video conferencing services, smart home solutions, online gaming and high definition video services. With the aspiration to reach 100 million people, it has launched the JioPhone 2, the successor to the original Jio feature phone, with a QWERTY keypad and priced at Rs 2,999. Sticking to the Reliance marketing style, it launched a ‘Monsoon Hungama’ offer for early birds who can exchange their old feature phones for the JioPhone2 at Rs 501. There are 25 million JioPhone users now.
Jio, Ambani claimed, has doubled its customer base to over 215 million now. “215 million customers within 22 months of start is a record that no technology company has been able to achieve anywhere in the world,” an emphatic Ambani said.
The retail game plan
As Reliance transitions to become a “technology platform company”, it is looking to launch an online-to-offline new commerce platform, Ambani said, an initiative he dubbed as 'Bharat-India Jodo' enterprise.
“We shall create this (new commerce platform) by integrating and synergising the power of Reliance Retail’s physical marketplace with the fabulous strengths of Jio’s digital infrastructure and services. This platform will bring together the 350 million customer footfalls at Reliance Retail stores, the 215 million Jio connectivity customers, the targeted 50 million Jio Giga-Homes, and 30 million small merchants and shop-keepers who provide the last-mile physical market connectivity,” he said.
Through the deployment of merchant points of sale for small shop owners, the company expects to enable shop owners to do everything that large enterprises and large e-commerce players are able to do. This would include inventory management, keeping digital records and filing returns, improving working capital management, retaining and upgrading customers, link to its highly efficient supply chain, and so on. Reliance would also facilitate availability of financing to small shopkeepers and merchants.
Ambani claimed that JioGigaFiber would bring the entire marketplace to large screens powered by high speed broadband at home. “We will also leverage Reliance Retail’s deep insights into Indian customers, large local presence, and best-in-class supply chain,” he said. Reliance Retail operates over 7,500 stores across more than 4,400 cities. It opened more than 4000 new stores in FY 2018.
Growth pill for the legacy biz
Efforts to turn itself into a more consumer-facing conglomerate are not limited to the retail and telecom ventures. Ambani added the company would look at opportunities to source and distribute gas to Indian consumers, including city distribution. RIL looks to do so through a joint venture with oil major BP. "Your company is proposing a cross-border merger of RHUSA with RIL thereby integrating the US gas resources with Indian market as we have done with ethane for petrochemicals," Ambani added.
Even as RIL now looks to accelerate its consumer businesses, vast resources have already been pumped in scaling up the core segment. RIL’s recently completed a huge capital expenditure cycle.
There is more to be expected on the petrochemical business in the coming years. “As the world migrates from fossil fuels to renewable energy, we will further maximise this oil to chemicals conversion and upgrade all of our fuels to high-value petrochemicals,” Ambani said without disclosing details. Part of its retail business segment is also a network of more than 1,300 petrol fuel outlets. At present, RIL has a 4.3 per cent market share in the fuel retail segment and has plans for 1,890 new fuel outlets. According to a CLSA report, the fuel retailing business contributed 15 per cent to Reliance Retail’s overall revenue in FY18.