RIL reinvents, again

The scale of its green energy debut is stunning

Reliance Industries Ltd (RIL) has never been short of ambition and the latest annual general meeting on Thursday has confirmed that it isn’t content with merely consolidating its current domination of telecom, organised retail, and digital. The Mukesh Ambani-led conglomerate is aiming for a big bang entry into green energy, and the Jio network is also looking to sweep up 200 million new subscribers with the launch of a new low-cost smartphone. Meanwhile, the induction of Saudi Aramco chief, Yasir Al-Rumayyan (he is also chairman of the Saudi sovereign wealth fund, PIF), into the RIL board emphasised the close alliance with the world’s largest oil company. This is one of multiple partnerships nurtured by RIL along with BP, Google, and Facebook.

The RIL business segments have little synergy, but there is logic to the strategy of seeking growth in new areas such as telecom, retail, and renewables rather than living with the cyclical nature of petrochemicals. Operating profits from the petro-related segments dropped 29.6 per cent in 2020-21 due to a combination of demand destruction, followed by rising input prices. But operating profits in the retail and telecom businesses grew by close to 40 per cent, offsetting the oil segment’s difficulties. The Saudi Aramco partnership ensures feedstock supply (so does the BP partnership, which is producing gas from KGD6). But the oil business is inherently cyclical and if RIL wishes to go net carbon zero by 2035 as it has committed, it has to diversify into renewable energy.

The move into the new energy division is, therefore, logical — other oil companies are also going green. The company will build four “gigafactories” to manufacture solar PV panels, green hydrogen, battery and other storage solutions, and fuel cells. These are all cutting-edge technologies. Assuming RIL can scale in these areas, it could grab 25 per cent market share across the renewables space by 2030. The requisite investments in new energy are estimated at Rs 60,000 crore over the next three years. This will not be a problem to finance. Jio alone has cost at least five times that much and RIL has raised a huge war chest of over Rs 3.2 trillion in the last financial year. Moreover, Jio will not need huge investments for a while since it has acquired the spectrum and built the network it needs. Indeed, it claims to have the capacity to service 200 million more subscribers. Not coincidentally, the affordable smartphone (built in association with Google, which is an investor in Jio Platforms) targets around 200 million subscribers who are on voice-only 2G networks. If Jio can migrate these admittedly low-revenue customers, and tie them to Jio, it will hold 60 per cent market share across telecom.

If the telecom strategy succeeds, the inevitable increase in digitisation will also feed into organised retail. Reliance Retail has a unique offline-online model. The alliances with WhatsApp-Facebook and Google help Reliance Retail handle the digital end of things; partnerships with small kirana stores give it a hyper-local presence. The scales are stunning. RIL is, by far, the largest private-sector refining and marketing player. It is the largest telecom network and a dominant player in organised retail. If the new energy initiative goes as planned, it would also be the largest renewables player. It remains to be seen how Mr Ambani intends to manage the corporate structure, which is now looking increasingly unwieldy.