Reinventing RIL

There was a time when Reliance Industries (RIL) founder Dhirubhai Ambani wanted to emulate the success of global energy super giants like Exxon and Royal Dutch/Shell. However, his elder son, Mukesh Ambani, has been quick to realise that digital technology is the new superhighway to mega success and has reimagined RIL in a way that has few parallels in India’s corporate history. Mr Ambani’s speech at the annual general meeting on Wednesday outlined the huge distance that RIL has covered in the last four years. The company, he said, has developed a complete home-grown 5G solution and would be able to launch 5G services once spectrum is available. It would also be a rare instance of Facebook and Google investing in the same firm anywhere in the world, which is another stamp of approval from global digital behemoths for RIL’s transformation from a predominantly oil firm till 2016 to a major technology and digital player. Going forward, the group’s dominance over various high-tech spaces will grow. RIL is now debt-free, after raising over Rs 2.1 trillion in equity, partly through the Rs 53,000 crore rights issue, and partly via the headline-grabber stake sales in its unlisted subsidiary, Jio Platforms.

This enormous war chest can be deployed judiciously, while the group can unlock even more value whenever it chooses to list Jio Platforms. Going debt-free not only reduces the cost of financing dramatically, it ensures the group has cheap funding to grow both organically, and via acquisitions.  Mr Ambani said he is targeting to sign up 500 million more internet users in the next three years, more than doubling the subscriber-base. Moreover, the group will work with its new strategic partner, Google, to develop a cheap 5G-ready Android handset, accentuating its likely first-mover advantage in 5G. 

Apart from generating more revenues from digital entertainment, Jio intends to leverage Reliance Retail’s large footprint to pull in more customers with a unique online-offline commerce and e-commerce model. It can add value by enabling direct video-interactions with offline retail stores via JioMeet and can even offer mixed reality on the newly-launched Jio Glass platform, allowing customers to “test-drive” products online. Jio can seamlessly integrate its fintech offerings, with partner Google Pay, to capture transactions as well. Although there are competing businesses at various points on this value-chain, no other company is present end-to-end in this fashion, anywhere in the world. This would make Jio Platforms a unique entity. It’s worth noting that every separate node on the digital value chain is in itself high-growth, and also the sum would be greater than the parts. Apart from the multiple revenue streams, the data generated by this end-to-end presence will be incredibly valuable. This data in itself will likely help Jio gain market share at every node on the digital chain, as it can start to micro-target subscribers. 

Though the stock market responded negatively to the lack of clarity about the Saudi Aramco deal and the spinoff of the oil and chemical divisions into a separate company, the group looks well on its way to achieving much higher growth in the digital and retail segments, which means the dependence on cash-flows from oil will be reduced. The corporate structure will change once the oil and chemicals division becomes a separate entity and Jio Platforms is listed. Valuations could rise for both businesses in that event, since investors assign higher valuations to focussed businesses than to conglomerates with disparate divisions. The steady implementation of this ambitious game plan will transform Digital India.

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