Reliance Industries, the giant Indian conglomerate controlled by Asia's richest man Mukesh Ambani, has gone from strength-to strength during the coronavirus pandemic, despite the country's battered economy.
The company attracted more than $20 billion (Dh73.4bn) from foreign investors - including Facebook and Google - into its digital unit and became debt-free. Reliance, which is India's largest company, is the country’s first company to exceed market capitalisation of $150bn. Reliance's diversification from oil to telecoms and data in recent years, has underpinned its growth trajectory and led to it overtaking Exxon as the world's second largest energy company. That catapulted Mr Ambani up in the ranks of the Forbes rich list overtaking Warren Buffet with a net worth of just over $70bn.
“If you look at the Reliance story, it has been a diversified conglomerate for a long time, but it's main focus has been oil and energy, and the group made a decision a few years back that they were going to focus on data - which is the oil of the new century,” says Utkarsh Sinha, managing director at Bexley Advisors, an advisory firm focused on technology and Media companies.
Reliance has managed a successful “conversion and execution” of its telecom company Jio, Mr Sinha says. Founded in 2016, Jio is now the largest mobile operator, with some 400 million subscribers, having decimated much of its competition with its low prices.
“They were ahead of the curve in understanding that there is going to be a move to digital in India, and digital is going to be the enabler of the next wave of the Indian economy,” he adds.
That accelerated pivot towards the digital space helped the company raise funds into its Jio platform, attracting a dozen foreign investors, which also include Mubadala Investment Company and Abu Dhabi Investment Authority.
The investments from strategic investors came as Reliance achieved its target of becoming debt-free in June and raising such capital amid India’s domestic credit crisis would have been difficult.
“We now have an extremely strong balance sheet that will support all our growth plans,” Mr Ambani said, speaking at the group's annual general meeting (AGM), held virtually in July. He added that its target for capital raising had been completed.
Still despite the recent successes, Reliance has also had a difficult time. On Thursday the company reported its energy business was hit hard in the quarter to the end of June, with revenue from operations down about 44 per cent to Dh44.72bn, as demand for refined oil products, including jet fuel and diesel, has been affected by the slump in the travel industry because of Covid-19.
Reliance’s earnings results were cushioned by BP investment in a fuel retailing joint venture with the Indian company. That helped prop up Reliance’s second quarter net profit by 31 per cent. In addition, its telecom company Jio managed to add almost 10 million customers during the quarter and tripled its net profit.
Data usage has been rising during the coronavirus pandemic, as a result of lockdowns and Reliance has been a primary benefactor of this.
Covid-19 “resulted in a much higher usage of voice and data due to the need for work from home, video conferencing, data access, leisure,” says Suresh Surana, the founder of RSM India, a consulting group.
The stock price of the company surged as much as 153 per cent from its 52-week low on March 23 and analysts see more room for growth.
“The unprecedented amount of fund raising Reliance was able to achieve during the lockdown has been the major reason for the Reliance Industries stock doing so well,” says Rahul Agarwal, the director of Wealth Discovery, a financial services company in New Delhi. “The company now has the liquidity and the strategic partnerships that it requires to execute its business plans and perhaps that is the most important reason for the investor frenzy that is currently being witnessed in Reliance stock.”
But he adds that “the biggest challenge that Reliance faces now is to live up to the expectations that are built up in the stock price,” noting that the next few quarters will be tough for its oil refining business.
But analysts say that Jio’s performance is expected to help Reliance tide through the tough months.
Mr Sinha says that “one of the big selling points about Jio is they have really good execution and really good follow-through, so they have a good track record which goes in their favour”.
The company is also taking every opportunity to push ahead with its digital ambitions. In July, Jio launched its own cloud-based video conferencing app, called JioMeet, to leverage storage needs as businesses and people increasingly operate remotely.
This comes at the heels of a recent ban on dozens of Chinese apps by the Indian government, which is creating an opportunity for homegrown tech solutions.
Looking forward, the company's future is all about expansion. And the recent strategic investments Reliance has attracted will only propel its rise in the digital space, analysts say.
Mr Agarwal from Wealth Discovery explains that one of the main reasons for “raising funds from abroad is based on the strategy to synergise technology and collaboration that the foreign players can bring into the Reliance Industries' business to achieve its expansion plans”.
For those investors in Jio, the company offers them a chance to get a foot into what is arguably a lucrative market for technology companies. With over 560 million internet users, India is second only to China in terms of users, according to Statista.
Google, for example, is aiming to play a larger role in digitising businesses while tapping digitisation opportunities in health, education, and agriculture.
With Facebook – its first major investor - Reliance Jio is already partnering to operate JioMart that allows small grocery stores to sell their goods through Facebook-owned WhatsApp.
“We believe the strategy of Jio Platforms would be to continue to dominate the growing Indian telecom market and moving to indigenously developed 5G technology,” says Mr Surana. “The tie up with social media giants will increase its content offerings.”
But he warns that Reliance could face challenges including a potential increase in regulations amid concerns about data privacy, and the pressure to keep up its rapid pace of growth.
“The deployment of 5G and how much penetration they are able to get and how quickly” could be a major test for Reliance, according to Mr Sinha.
But Mr Agarwal says that the “global partnerships will help Reliance to incubate new businesses, pursue inorganic opportunities and gain technological advantages which would have been impossible to source domestically”.
“Having on-boarded thirteen strategic investors including the largest tech firms and investors globally, Reliance Industries is well-positioned to play a leading role in India’s transformation into a digital society,” says Mr Agarwal.
And to facilitate even further growth, there are widespread expectations that Jio Platforms will eventually go for an initial public offering.
