RIL's bet on retail consumers is, however, not difficult to understand. Last week, its stock rose 12 per cent, outperforming the benchmark indices by a good margin. But that was almost an exception. For most of the last five years, its stock has underperformed the broader market. Although refining and marketing continue to be a significant contributor to profitability, the exploration and production business contributed just 0.6 per cent to the company's earnings before interest, taxes and depreciation last year. This tests investors' patience - most of them have fond memories of the stock beating benchmark indices year after year. RIL's return on capital employed has hit single digits for the first time since 1989-90. The near- to medium-term outlook is not bright either, given a slide in international crude oil prices and a global supply glut in petrochemicals. New businesses that RIL has entered in the last decade have also saddled the formerly debt-free behemoth with net debt of close to Rs 75,000 crore. The projects include fuel retailing, shale gas and domestic oil exploration and production.
So Mr Ambani may have had no option but to go off the beaten track. There is decent logic behind his move. After all, data services account for just 15 per cent of the Indian mobile telephony market. If Jio is able to disrupt the market by providing high-bandwidth data services at affordable cost, married to low-cost devices, the resulting push to revenues would be truly transformational for RIL. But can he pull it off? In the mobile business, acquiring spectrum and rolling out a nationwide network is not so difficult for a company of RIL's might - compared, at least, with attracting and retaining customers, which is a different ball game altogether. So far, most of the chatter about Reliance Jio has centred on the awesome capex; there have been too few details on how it plans to pull customers away from other networks. A simple price war may not be enough. Reliance Jio will need to wean away India's top third of mobile users; these account for over two-thirds of the industry's revenues. Its success will also be measured by its contribution to RIL's incremental profits. Analysts peg the break-even revenue market share at 20 per cent within five years of the launch. A failure to make a good start down that road would take away some of the cheer when Mr Ambani rises to address his shareholders next year.