Mukesh Ambani's Reliance Industries to ride on Jio, retail to double size

Consumer-centric businesses would be the focus of Reliance Industries (RIL) in the coming years, indicated its chairman, Mukesh Ambani, while addressing shareholders at the company’s 41st Annual General Meeting on Thursday.

“As the ‘golden decade’ rolls on, our consumer businesses (Reliance Retail and Jio) will contribute nearly as much to the overall earnings of the company as our energy and petrochemical businesses,” he said.

The statement assumes significance because all these years, the petroleum and refining businesses have been major contributors to the firm’s profits and have provided cash to nurture newer businesses such as retail and telecom. RIL is now reinventing itself to emerge as a consumer business giant. Jio, the digital business, including telecom, is expected to become vital in the retail play.

RIL’s overall size, Ambani hoped, would double by 2025. “As India starts on its high growth journey to double the size of its economy by 2025, I assure you that the size of Reliance will more than double in the same period,” he said.

Claiming that the current year has been yet another “transformational” year for RIL, Ambani said the group’s consumer businesses represented about 13 per cent of the consolidated Ebitda (earnings before interest, tax, depreciation and amortisation), up from a mere 2 per cent last year. “This increase is especially remarkable because it is taking place at a time when the hydrocarbon business is growing rapidly,” he added.

On the one hand, consumer businesses have started delivering profits for RIL, on the other its hydrocarbon business has scaled up its capabilities to become more profitable, integrated and predictable in its earnings profile.

For instance, for 2017-18, the petrochemicals segment reported a 35 per cent rise in revenue at Rs 1.25 trillion and segment Ebit (earnings before interest and tax) jumped 63 per cent year-on-year to Rs 211.79 billion. Segment Ebit for its refining business was also at a record Rs 258.69 billion for 2017-18. This is most likely to grow further in the coming quarters.

“We expect further improvement in Ebitda levels over the next 12-18 months as the company gets full benefit of its investments in refining and petrochemical businesses, and generate higher Ebitda from its digital services and retail business,” noted a Moody’s Investors Service Issuer Comment in April.

So, can consumer businesses, largely a pet of the Ambani scions, grow to match the size and scale of the legacy business? Ajay Bodke, head of investment strategy and advisory, Prabhudas Lilladhar, feels that while it does look ambitious at the moment, if backed by capital pump in, 10 years is a long horizon over which the consumer business could see a natural scale-up. In fact, the downstream petroleum business (retail fuel outlets) is likely to emerge as a big play, Bodke felt.