Chasing growth: RIL has ambitious plans

Future technology, new energy, retail-the diversified conglomerate's strategy is seen positively by markets

The 45th annual general meeting (AGM) of Reliance Industries (RIL) has clarified multiple questions about succession and different business segments. The stock responded well as the road map for the diversified conglomerate’s strategy was seen positively. The 65-year-old chairman, Mukesh Ambani, revealed his elder son, Akash, would be in charge of the digital division, while Akash’s twin sister, Isha, would handle retail, and their younger sibling, Anant, would be given the new energy business. The future management of the oil-to-chemicals division (O2C), which still produces the bulk of the revenues, though was not so clearly demarcated. Jio is set to launch its 5G service by Diwali and intends to offer 5G coverage across every taluka by December 2023. There’s a tie-up with Qualcomm for developing cloud-native 5G infrastructure, which should help in upgrades. The offering of standalone 5G will not rely on the existing 4G network. There’s a target of 100 million subscribers for the fixed broadband service (the current base is of about 7 million), and a capex of Rs 2 trillion is allocated to the roll-out, including Rs 88,000 crore on spectrum.

In new energy, RIL is starting its fifth “giga-factory” for power electronics, and by 2024-25 or earlier, it will have begun producing fuel cells, PV modules, hydrogen, and batteries and it intends building 20 Gw of solar capacity by 2025. RIL itself will be the biggest consumer of its own green energy, at least in the initial stages. The company also intends to build self-sufficient value chains for its green-energy products. It is pursuing research into bio-energy, offshore wind and other cutting-edge renewables, apart from aiming to complete a transition to green hydrogen by 2025. It is working on a heterojunction technology to improve conversion efficiency and extend PV life from 25 years to 50 years. This is a big bet on future technology.

Where retail is concerned, RIL is set to launch a fast-moving consumer goods line and it targets growing this specific division to become the largest in the company. The petrochemicals capacity will also be increased, with a capex of Rs 75,000 crore, with the apparent intention to move beyond transportation fuels to higher-value products. The group has never lacked in ambition and the recent AGM makes it evident that it intends to carry on in the same spirit. Despite an apparent lack of synergy at first glance, many of the plans do tie in with each other. The retail and digital divisions, for example, dovetail with RIL being uniquely positioned to offer a tightly integrated network of online and offline retail, which would be backed by its own telecom service. No other business anywhere in the world has such a model.

Moving up the line to higher-value petrochemicals products can also be coupled with decarbonising RIL’s power-intensive operations by going green. If RIL does crack the green hydrogen value chain at the scale it is contemplating, it would be a pioneer that drives change in the global energy mix. Investors will, however, be wondering about the possibility of spinning off these divisions as separate listed concerns. This would be sensible in several ways. It would pre-empt a future power struggle between siblings as occurred some years ago. It would also allow careful analysis and valuation of the separate businesses. That would almost certainly boost the overall market value of the group.