The year 2020 brought the global economy to a screeching halt, but it proved to be an astonishingly good year for India’s richest billionaire.
Mukesh Ambani, the 63-year-old chairman of the country’s most valuable publicly listed company, Reliance Industries (RIL), became richer during the pandemic. And his oil-to-telecom conglomerate became debt-free thanks to more than $20 billion in investment from global tech platforms backing his vision for the 50-year-old company’s future.
The common factor behind Ambani’s personal and professional milestones was his year-old venture, Jio Platforms, the subsidiary that houses Reliance’s internet economy ventures, including digital commerce, next-generation wireless, the cloud, and more. The pivot in Reliance’s focus from its longtime oil, gas, and petrochemicals business to tech couldn’t have been clearer than at Reliance’s annual meeting in July, where mentions of Jio dominated the tycoon’s two-hour long speech.
“The tech sector is ripe for growth and it’s no surprise that Reliance is looking to enter this segment. The fact that Facebook and Google have invested recently also demonstrates that the Indian tech sector has immense potential to drive growth in the future,” said Kazim Rizvi, founding director of public policy think tank The Dialogue, referring to a string of deals in 2020 that included $5.7 billion from Facebook and $4.5 billion from Google.
A series of tasks that await Reliance this year will deepen the company’s focus on technology. This includes working on India’s roll-out of 5G, the next generation of wireless network, which could pave the way for such sales overseas as skepticism increases about Chinese telecom equipment providers. It will also move forward on incorporating Facebook’s WhatsApp payments service into its online grocery platform JioMart to widen its reach.
“Expansion of Jio will be critical to Reliance’s growth in the coming few years as digitisation will play a key role in enabling the next wave of economic opportunities in India,” says Kazmi.
Reliance’s cushion in the pandemic
Started as a textile firm in 1973, it wasn’t until the early 2000s when Reliance arrived on the global refining map. It caught everybody’s attention with the commissioning of the world’s largest refinery in Gujarat’s Jamnagar two decades ago, and within a few years had a 12% market share in fuel retailing in India.
Reliance’s refinery and petrochemical businesses remain the main sources of its revenue, but their contribution to the overall business has been declining, going from 80% of revenues in the financial year that ended March 31, 2017, to 65% in the following year. Fortunately, that dip coincided with Jio’s rollout of cheap data plans—and telecom and related businesses promise to be a vital new source of revenue.
“Oil refinery and the petrochemical sectors have been RIL’s flagship areas of business until now but the flurry of investments from investors like Facebook and Google have shifted the focus from RIL’s stock to consumer-related businesses,” said an analyst from a New Delhi-based credit agency, who did not want to be named. “Unlike oil, digital, and retail sectors are more resilient to economic shocks.”
Last year, when the coronavirus halted India’s economy and slashed demand for fuel, oil and gas sales plummeted from a year earlier in quarter ending in September, leading Reliance as a whole to report a 15% decline in profit to 9,567 crore rupees ($1.3 billion) for the period. But as the demand for data for work video calls, streaming, and online shopping soared, profits at its telecom business, Reliance Jio Infocomm, nearly tripled in the same quarter.
Additionally, India is seeing growing competition in the refinery and petrochemical sector that could threaten Reliance’s growth in the sector. In the financial year ending in March 2019, RIL dominated petrol and diesel sales in the country, accounting for about a 21% and 16% share, respectively. The firms’ partnership with the London-based British multinational oil and gas company, BP, which was initially announced in 2017, was also expected to chip away at the market share of state-owned fuel retailers. But things are changing.
For instance, public players such as Indian Oil Corporation, Hindustan Petroleum Corporation, Bharat Petroleum Corporation, GAIL, ONG, and others have been building up their capacity. This includes plans for a major crude oil refinery complex in Maharashtra being developed by three major Indian state-run petrol firms, with investment from Abu Dhabi’s state-owned oil company ADNOC and Saudi Arabia’s Aramco. When completed, it’ll produce 60 million metric tons a year of fuel products.
While Reliance’s energy business is still attractive to investors, it makes sense for Reliance to tap into segments where it can establish unmatched dominance with the backing of global tech giants.
The partnership with Facebook, which saw the US social media behemoth take a nearly 10% stake in Jio Platforms, for instance, can help the rising tech firm strengthen its data analytics capabilities and use that to target Indian shoppers better, Greyhound Research said in a report on July 13.
Reliance could be India’s Amazon—or Alibaba
Many people believe that RIL has all the right elements to become a leading global tech firm. Just ask Facebook’s Mark Zuckerberg.
“What happens in India is important for the whole world. India’s building local capabilities and tech capacity to power innovative new business models and provide the citizens access to digital financial inclusion,” Zuckerberg said during a panel with Ambani in December at Facebook’s Fuel for India 2020 virtual event. “So, decisions that are made here shape the global discussion about how technology can drive more economic opportunity and better outcomes for people.”
Despite Reliance’s old-economy roots, experts believe the company is tech-savvy and nimble enough to provide what the digital consumer wants.
“They are already a technology-first company. When we got to see under the hood, we saw great practices and processes at the firm including the way their data centres are set up, and their apps are engineered. They can implement changes within a few days,” Kedar Kulkarni, co-founder and CEO of HyperVerge, a Silicon Valley-based machine learning startup told in May. HyperVerge worked with the Reliance Jio team to help the firm switch to an agent-assisted, face-based digital “Know Your Customer” process to verify client identity.
The challenges ahead
The journey to becoming India’s leading internet economy firm will not be free of obstacles.
For instance, Reliance’s meshing of grocery retail and online delivery, which comes as India moved to overhaul farm pricing and sale rules, led many farmers to see it as a potential rival to their businesses, and to take aim at its crown jewel. Along with the vandalism of Jio telecom towers, many farmers in Punjab and Haryana vowed to boycott Jio themselves. This week Reliance sought legal intervention over the damage to its towers. The same tensions could spill in unexpected ways into other areas where smaller players come to see Reliance’s digital ambitions as a threat.
But it’s India’s government and Reliances’s growing ranks of consumers that may face the bigger challenges.
Governments everywhere have found it hard to contend with the power of the likes of Google, Facebook, or Alibaba—which is now being cut down to size in China. With a major footprint in energy, retail, and the internet, Reliance will have even more clout than it already does, and a massive user base, making it especially complex to regulate.
And in the absence of stricter data laws in the country, concerns about privacy are like to rise as Jio comes to amass ever more personal data, including fingerprints and passwords, across product lines ranging from phone services and shopping to healthcare and education.
Addressing the concerns in November last year, Reliance told a parliamentary panel in a statement that it does not have any “data sharing mechanism with any third party” such as Google and Facebook even though they have become Jio’s investors.
“Not just third party or investors, personal data is not even shared” with any other entity within the Reliance Group, the company said.