Consumer business to drive doubling of Reliance's size in the next 7 years

For the coming years, what will hold true for RIL will be Mukesh Ambani's famous statement from a conference last year: 'Data is the new oil and India doesn't need to import it'

Reliance Industries’ annual general meetings (AGMs) are the most awaited investors’ event in the Indian stock market calendar. Like last year, the focus this time was on the businesses headed by Ambani gen-next and it was also an indication that they were settling down well in the saddle.

The group has been the harbinger of equity culture in India, creating wealth for millions of its investors. The importance of Reliance can be gauged from the data on the group’s consolidated tax payment for 2017-18 which exceeds the GDP of about 11 Indian states.

As the oil & petrochemical sector moves into a steady-state zone, the doubling of Reliance Group’s size in the next seven years would come from the consumer businesses, as Mukesh Ambani had famously said in a conference last year: “Data is the new oil and India doesn’t need to import it”.

The group’s consumer business – Retail and Jio – contribute about 13 per cent to the consolidated Ebitda but the time allocated to the presentation of these two verticals in the AGM, nearly 65 per cent, indicated in no uncertain terms that the golden decade for Reliance would be led by the consumer businesses.

The launch of JioGigaFiber could end up disrupting the fixedline broadband space, just like it disrupted the mobile telephony space two years ago. The offering will be an experience in “convergence” for the common man who has been the target customer for Reliance’s consumer foray since the past decade. And it has been able to acquire customers successfully – Jio has 215 million customers which no technology company has been able to achieve in a short period of 22 months. JioGigaFiber is expected to provide telephony, internet and television through a single fibre, with innumerable benefits like converting to smart homes with electronic security, video conferencing, virtual reality, marketplace for e-commerce, etc.

Reliance Retail is the largest brick & mortar retailer in the country, expanding at an unprecedented pace – adding about 4,000 stores last year and taking the tally to more than 7,500 stores in over 4,400 towns covering most of the regular consumer items, including groceries, clothing, jewellery and electronics. The bigger story going ahead would be the convergence of online and offline – synergising the brick & mortar marketplace with the group’s digital infrastructure.

The simple strategy followed by Reliance would be to “spoil” the target customer with products which are aspirational, now offered at unbelievably low entry points. With most consumption products – physical or digital – available on their platform, both online and offline, a customer is locked in. A locked-in customer is usually lethargic to shift. With a huge customer base, the economies of sourcing are unparalleled, adding to their power to control the retail prices. And, more importantly, it is the ability of the brand to influence the consumer choice. The immense embedded value of this is difficult to gauge at this point but from an investor’s point of view, an allocation to Reliance Industries in the portfolio is a “no-brainer”. As investors, we emphasise core competence of the group – but when it comes to Reliance, the core competence seems to be their ability to predict the future and the capability to implement their plans flawlessly.

Ambareesh Baliga is an independent market analyst