RIL's big bets

It aims to become a world leader in green energy

Reliance Industries Ltd (RIL) has never been afraid of making big bets and it aims to be the dominant player in every space it enters. The latest Annual Report (2022-23) makes it clear the company is sticking with this idea. One really big bet for RIL is green energy. The firm is hoping to solve several intractable challenges as it invests in developing expertise and scale along the green hydrogen value chain. The goal is to produce hydrogen using green electricity, with no carbon impact. The hydrogen may be used in fuel cells, which are zero-emission, or to make synthetic petrol if it is combined with carbon captured from ambient air, for example. In several steps along the green energy value chain, in areas such as storage, transport, and electrolysis, technologies are yet to be proved cost-effective at scale. RIL is betting it can plug those gaps and achieve the scale to become a world leader in green energy. It has committed Rs 75,000 crore to this effort and claims to be prepared to double the investment already made.

RIL has spent multiples of those sums on telecom, but the key difference is that telecom technology is stable. In telecom, RIL has successfully rolled out 4G and fibre-wired networks at great speed and it looks set to complete a similarly fast rollout of 5G. Jio Infocomm is India’s largest telecom service provider and now looks to complement its dominance of 4G and fibre with its 5G offers. The new Jio laptops and cheap 5G phones will attract subscribers. Jio has a big entertainment footprint as well. The telecom-cum-digital network also ties in with the complex mechanics of Reliance Retail’s combined physical and online presences. This is unique — no other player anywhere has a strong presence across both channels, and no other player is backed by a telecom network.

Meanwhile, RIL, of course, remains the largest player in India’s oil & gas energy chain and associated petrochemicals. It explores oil and gas and produces them from its deepwater fields. It aims to eventually contribute up to 30 per cent of domestic oil and gas production. It also runs the largest and most sophisticated refinery in India and markets fuels from retail pumps apart from producing petrochemicals and textiles. Another intriguing move is the recent spinoff of Jio Financial Services as a separate entity. The implied valuation of the new entity as derived from changes in RIL’s share price is much more than the notional valuation assigned to it. An early listing could confirm the optimistic valuation. Jio Financial’s tieup with BlackRock, along with a stated focus on asset management, could lead to a shakeup in the mutual funds industry. This is a highly competitive and tightly regulated financial segment. So, it will be fascinating to see how the new entity intends to disrupt this space.

As the success of hiving off Jio Financial indicates, splitting unrelated businesses is one way to boost valuation. It is possible that RIL will be looking at listing either the retail arm or Jio Infocomm or perhaps both in the coming years. It may be safely assumed that Chairman and Managing Director Mukesh Ambani will receive the shareholders’ approval to shepherd the group through the next five years, by which time the next generation will be set to take over.