RIL, Aditya Birla Group race to capture India's growing consumption market

Indian conglomerates have had some presence in the domestic consumer space for a while, but they are now looking at the entire space with a new vision, doubling down on their investments in this sphere.
 

For instance, both Reliance Industries (RIL) and Aditya Birla Group (ABG) are in a race, with a fair share of the growing consumption theme in the country on top of their minds. Both companies' new businesses have emphasis on segments within the consumer space, with Aditya Birla Group recently announcing its entry into the jewellery retail space. This announcement came just a few years after the company entered the paints segment. On the other hand, Reliance Industries has in five years opened a luxury retail mall and also entered the FMCG space.
 

Reliance started its journey in the retail and consumer space in 2006 by entering into grocery retailing with its first Reliance Fresh store in Hyderabad. The following year, it ventured into electronics retailing and then spread into fashion and lifestyle with Reliance Trends and Reliance Footprint brands. The conglomerate then entered into partnerships with Zegna, QuikSilver and Steve Madden. In 2015, the group launched multi-channel initiatives and then set foot online with ajio.com. In 2020, it launched JioMart and now boasts of a customer base of over 304 million as on March 31, 2024. The group reported number of transactions at 1.26 billion and footfalls at 1.06 billion in the previous financial year. Its revenue in FY24 stood at Rs 306,786 crore and Ebitda at Rs 23,040 crore.
 

In his 2018 AGM speech, Mukesh Ambani, chairman and managing director for Reliance Industries, had noted: “As the Golden Decade rolls on, our consumer businesses will contribute nearly as much to the overall earnings of the company as our energy and petrochemical businesses.”
 

Aditya Birla Group started its retail journey much earlier. The Group acquired Madura Garments in 1999, which was renamed Madura Fashion & Lifestyle in 2010. It currently houses brands such as Louis Philippe, Van Heusen, Allen Solly, Peter England, Reebok, and Forever 21.
 

In 2012, the Group acquired Pantaloons from Kishore Biyani, which was then renamed Aditya Birla Fashion & Lifestyle. This then gave the company an entry into the women’s wear and kids wear market, which earlier was a missing piece in its portfolio.

It also ventured into luxury retailing with its multi-brand store called “The Collective”, which houses brands like Ralph Lauren and Ted Baker.
 

From 2019, it picked up stake in designer brands like Sabyasachi, Tarun Tahiliani and Masaba, among others. Even Reliance Brands did the same and signed agreements with Abu Jani, Sandeep Khosla, Ritu Kumar and Anamika Khanna, among others. It also brought various global luxury houses into India, which include the likes of Valentino, Balenciaga and Cartier.
 

The Mukesh Ambani-led company also opened the country’s largest luxury mall in Mumbai’s financial hub Bandra Kurla Complex (BKC). But Aditya Birla is not far behind, the Group has signed a deal to open Galeries Lafayette, which is a one-stop-shop for bridge-to-luxury to luxury brands.
 

In 2022, Reliance Retail announced its entry into the fast-moving consumer goods (FMCG) space to tap into India’s growing appetite for packaged consumer goods across food and non-food categories. Aditya Birla, on the other hand, went on to announce its entry into the paints business with an investment of Rs 10,000 crore.
 

Under the Aditya Birla Fashion & Retail banner, it also went on to become a digital brands incubator and launched TMRW (Tomorrow is Awesome), which picks up stakes as it looks to bring in at least a portfolio of 30 brands over the next three years.

Aditya Birla recently also entered into the jewellery space as it launched Indriya, looking to tap into the Indian consumer's never-dying appetite for jewellery. Also, formalisation of the sector played a role in pushing the conglomerate to enter this space. However, Reliance opened jewellery retail outlets much before Aditya Birla’s entry into the space. It retails jewellery under Reliance Jewels.
 

Experts say that the doubling down on emphasis is due to the desire for a piece of smaller towns’ growing appetite for brands. Another reason is, they say, as India chases a $5 trillion GDP, consumption is only set to grow.
 

“Conglomerates have long been interested in the consumer and retail sector. However, there has been a noticeable surge in their investments in these sectors off late. This shift reflects a change in perception regarding the performance potential of these market segments. Additionally, there has been a rise in consumer spending in tier II and tier III markets, prompting these organisations to capitalize on the growing demand emanating from these smaller centres,” said Angshuman Bhattacharya, partner and national leader (consumer product and retail sector), EY Parthenon.

Gautam Duggad, head of research and director at Motilal Oswal Institutional Equities said that Reliance is already doing well in retail, but the Aditya Birla Group is trying to make a mark in consumer business.
 

“Since India is marching towards becoming a $5 trillion economy, the consumption piece is only set to grow from here and they (the two conglomerates) are fighting for a larger chunk of better growth areas,”Duggad said.
 

In January, analysts with Bernstein said, “Reliance is in transition. Over the next two years, we expect earnings growth will be driven by retail and telecom, while O2C (order-to-cash) will see consolidation with profit growth.”

 

The numbers game
 

While both seem to come across as they are marching toe-to-toe to take on the consumer space, the Aditya Birla Group, at least in terms of how consumer businesses feed into group revenues, has significant catching up to do with Ambani’s RIL.

For the latest report quarter ending June 2024, 51 per cent of RIL’s Ebit (earnings before interest and taxes) came from its consumer-facing businesses — retail and telecom — according to Bank of America Merryl Lynch report data. The shift in share has been significant. Two years ago in 2022, the same two verticals contributed a humble 34 per cent to RIL’s Ebit in the June quarter.
 

The trend is drastically different and reversed for KM Birla’s Aditya Birla Group, where cement and metals dwarf contributions from the Group’s other business verticals.
 

Data available with Capitaline shows 65 per cent of the combined net profit of the Group’s listed entities came from its cement (UltraTech Cement) and metals (Hindalco Industries) businesses. According to Capitaline, all listed companies of the Group together reported a profit of Rs 26,325 crore in FY24. The combined data, however, also reflects Grasim's holding interests in the cement, financial services and other entities.
 

While the Group looks to enter and expand in newer businesses, these new interests may take a while to surpass the scale it enjoys in segments such as copper and cement.
 

UltraTech Cement is the country’s largest cement-maker, having close to 150 million tonnes per annum (MTPA) capacity, with its closest rival 70-plus MTPA away. Similarly, Hindalco Industries is at present India’s largest copper manufacturer, even while Adani’s Kutch Copper looks to rival it. KM Birla has on different occasions reiterated the Group’s strategy to aim for market leadership in the businesses it operates. This juxtaposes with ABG’s Aditya Birla Fashion, which has been in losses for the last four financial years. Aditya Birla Capital, the Group’s financial services arm, appears to be on the rise, with profits almost doubling to Rs 3,335 crore in FY24 from Rs 1,706 crore in FY22.
 

For RIL, contribution from the consumer verticals (telecom and retail) has been on a steady rise. Consumer contribution to the company’s overall Ebit, data from the Bank of America Merryl Lynch report shows, has grown to 51 per cent as of June 2024 quarter. Two years ago during the same period, this was 34 per cent.