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The Street may be cautious about Reliance Industries’ (RIL) telecom and retail businesses, but the Mukesh Ambani-controlled firm says Jio and retail will place Reliance in a select group of most valuable companies in the world.
“This is the story of Reliance. We don’t want be called a 'lala' company. Every five to six years one has to rediscover. If we don’t, we will be lagging behind. Had RIL been a textile company even now, it would have perished like other textile players,” said an RIL official.
At RIL’s 41st annual general meeting last Friday, Mukesh Ambani said retail and telecom will be the next big focus for the company.
Reliance Retail, which operates across various product categories and formats, attained revenues of over Rs 17,000 crore in the last year, with record profits of Rs 784 crore at an EBITDA level.
RIL accelerated its pace of growth by adding 930 new stores last year, which effectively translates to five new stores every two days – that is the largest number of store openings in a year. It currently has a network of over 2,600 stores and presence in 200 cities across 20 states.
“We are committed to growing Reliance Retail and making it a significant part of our consumer business to generate societal and shareholder value,” said Ambani at the AGM.
Till last year, RIL was not optimistic about the e-commerce segment in the country. But it now plans, before the end of this year, to roll out its e-commerce initiative in the fashion and lifestyle formats of Reliance Retail. Its grocery segment already has an e-commerce presence which RIL plans to scale up.
RIL says in terms of fashion it is the largest value retailer in the country, having built its own internal designing teams. “We are able to produce 100s of designs internally. Earlier it was a couple of seasons in a store every year. Now we have 12 seasons in a year in our Trends stores. For e-commerce we are going to have 100s of new designs online,” an official said.
In its grocery retailing segment, the company plans to have a B2B2C platform. RIL plans to have different e-commerce strategy for different segments.
Though refining and marketing continue to be a significant contributor to Reliance's profitability, exploration and production business has taken a back seat and currently very small in RIL's overall portfolio.
The contribution of the E&P business to RIL’s total EBITDA (Earnings before Interest and Taxes) of Rs 31,835 crore last year stands at about Rs 194 crore or 0.6% of the company's EBIT.
“We are aware that the domestic E&P business, while creating huge economic value to the country, has generated shareholder returns lower than the cost of capital, Ambani had said, adding “there is value yet to be unlocked from 5-6 TCF of resources discovered at various stages of development, appraisal and approval.”
With Jio’s launch, RIL plans to play a significant role in lifting India from its current 142nd rank in internet penetration to amongst the top 10 nations in the world.
As Ambani rightly said that Jio's true success will be measured by a whole new generation of entrepreneurs stepping up to leverage the digital assets that Jio has built. The year 2016-17 will tell how RIL fares on these two growth businesses. Or if it will look to rediscover itself again.
