Mukesh Ambani gets ready to alchemise Reliance Industries into a tech giant

The deal with Aramco may be closed next year. If it is, it will bring in $15 billion for a 20 per cent stake
On a warm April day, while the world was immobilised into inactivity by the lockdown, a group of top Reliance executives were putting in longer hours than ever before. They were locked in intense negotiations in an ultra-secure call with potential Facebook and PE funds to persuade them to take a big bet on the group.

The strategy paid off. In the next eight months, Reliance raised over $28.09 billion in two companies — Jio Platforms and Reliance Retail. It was the largest sum ever raised in India by a corporate entity. Reliance went on to top this by successfully completing the largest rights issue, raising another Rs 53,000 crore.

The money helped Mukesh Ambani wipe out the group’s entire debt of Rs 161,000 crore. The investments in Reliance accounted for a staggering 81 per cent of total foreign direct investment (FDI) this year.

Ambani also successfully leveraged the West Asian sovereign funds such as Mubadala, ADIA and Public Investment Fund more effectively than anyone else ever had. Together, they accounted for nearly a fifth of the money raised by Reliance. The money that Mubadala put into Reliance accounted for a fifth of its total global investments in 2020.

Yet this year was not all about Ambani’s great money-raising machine. He was also able to rope in top global names — Facebook, Google, Qualcomm, Intel — to buy into his new vision for Reliance to transform itself into a technology company rather than a mainly gas and oil company.

Facebook’s WhatsApp and Reliance’s e-commerce app JioMart are going to collaborate on a seamless platform both for shoppers and the 30 million kirana  stores who will become last-mile delivery partners for Reliance. This is the behemoth that Ambani hopes can take on the might of Amazon and Flipkart.

Google has teamed up with Reliance for developing a low-cost Android 4G smart phone that could be extended to 5G too, posing a challenge to Chinese phone makers that dominate that market.

And chip designer Qualcomm is working with Reliance-acquired Radisys in the US to develop 5G software and new uses for this technology.

Analysts say Ambani offered an opportunity to many global tech companies who were hesitant about negotiating the myriad regulatory challenges in India. They were able to invest in fast-growing digital commerce in India without the attendant risks.

As preparation for the transformation into a tech company, Ambani made some disruptive moves in 2020. One was to announce that Reliance is building its own 5G networks that will be sold to the world. By doing so, he challenged the long-established domination of incumbent gear makers such as Ericsson, Huawei and ZTE.

That he means business is reflected in the fact that the group has developed in-house software for the 5G core as well as radios and has applied for some 100 patents in the US. This will give it an edge over its rivals by being able to roll out 5G networks faster and more cheaply. 

Reliance has also decided to skip one level of technology in 5G by planning to go directly for stand-alone 5G networks instead of non-standalone, which is an interim architecture in which the existing 4G core can be used for 5G. This decision will help the group move ahead in generating revenue from autonomous cars, remote surgery, and machine-to-machine automation which 5G will enable. 

His other big technology play is to leverage his 400 million captive 4G customers to straddle different segments of the digital platform space: Education, healthcare, lifestyle, grocery and food, either through acquisitions or by building from scratch. With that in mind, he bought online pharmacy NetMeds and online furniture company Urban Ladder.

Nonetheless, he faces tough competition in most of these segments from established players. J P Morgan says the problem is that Reliance has still not found a digital flywheel. In other words, it has launched many businesses through its access to telcos but has yet to find a niche or a core competence. 

But the answer could lie in JioMart, which is now live in 200 cities. E-commerce is a $400-billion market and currently accounts for only one per cent of sales. Ambani’s acquisition of the Future group’s physical retail business will help JioMart increase its revenue market share to 16 per cent.

But there is a long way to go. With only 10 million users, JioMart is nowhere near Big Basket (34 million) or Grofers (30 million) or Zomato (105 million). 

As J P Morgan points out, there is no clear visibility on how JioMart’s digital revenues will play out and this, it says, is a key reason for Reliance shares underperforming in the latest bull run.

In oil and gas, Reliance and BP have recently announced a gas finding in KG D6 off the east coast which has the potential of meeting 15 per cent of India’s gas demand by 2023. 

The deal with Aramco may be closed next year. If it is, it will bring in $15 billion for a 20 per cent stake. 

That’s the kind of war chest which could be enough to pay for Ambani’s 5G dream as well as for funding an aggressive digital commerce play next year.

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