46th AGM of Reliance Industries looks at RIL 3.0

Then why were the markets disappointed?

On the day of the 46th AGM of Reliance Industries, the stock closed the day 1.27% lower at Rs2,437. The AGM speech had some hits and misses. It enthused the street in terms of its detailed rollout plans for 5G across India. The AGM also dwelt at length on the initiatives on the green energy front and even on the battery gigafactory. However, the markets were expecting more specific announcements on the expected IPO of Reliance Digital and Reliance Retail. 

From the perspective of Reliance Industries, these are very complex businesses with high risk and a lot of costs getting front-ended and revenues and profits getting back-ended. It is not clear if RIL is really considering an IPO at this juncture. It already has the comfort of valuations with the recent stake sales in Jio and Reliance Retail. And, as Reliance showed in the case of Jio Financial Services, not every listing has to happen through the IPO route. There are other methods too; but more on that later. Now for the AGM gist.

What the AGM said about succession plans

The markets were probably enthused by the fact that Mukesh Ambani would continue as the Chairman and Managing Director for another 5 years. That gives him enough time to put the massive transition into auto mode. From a traditional oil to chemicals company; Reliance has seamlessly transformed into a digital plus retail company. That is not only evident in growing sales but also in the growing share of EBITDA. 

That should give more continuity to the transition. In addition, Nita Ambani stepped down from the board to focus more on the activities of the Foundation. At the same time, the company has inducted Isha Ambani, Anant Ambani and Akash Ambani into the board of Reliance Industries, subject to the approval of the board of directors. This will ensure a smooth transition across the 3 principal business lines of Reliance viz. Digital, Retail and Oil to Chemicals (O2C). 

Digital plans built around 5G

This was an area in which the company showed substantial progress since the last AGM and the shareholders were not disappointed. Firstly, on the all-India rollout of 5G, the AGM has confirmed that the company would complete the total rollout of 5G by December 2023, which is much earlier than anticipated. But there are other derivative products of 5G that are more interesting. The AGM announced the launch of Jio AirFiber on the occasion of Ganesh Chaturthi on September 19, 2023. This will expand coverage to 100 million households. 

The innovative Jio AirFiber technology offers a wireless experience, akin to fibre optics, by utilising the 5G spectrum range and specially crafted customer premise equipment giving it a performance boost. Another big launch announced at the AGM is the launch of the Jio Bharat economical smartphone at a cost of just Rs999. At this price, the user can leverage live TV, seamless streaming, digital photography and also conduct UPI transactions. It is going to be a mass-level experiment in the Digital space.

No mention of IPO for reliance retail

Reliance Retail Ventures, the retail arm of Reliance Industries, started off with a lot of expectations. There were expectations that after the listing of Jio Financial, Reliance Retail would be the next off the block. Markets were expecting details like the game plan of monetizing stake and likely IPO data. However, neither was forthcoming. However, there have been some interesting updates on Reliance Retail. As Isha Ambani put it, Reliance Retail had crossed 100 crore transactions in 2023, scaled a customer base of nearly 25 crore and with the digital and new commerce business contributing Rs50,000 crore. 

Its store count stood at 18,040 spread across 65.6 million SFT. But that is just the numbers side of the story. What is more interesting is the valuations that it has got. According to the latest deal, Qatar Investment Authority has picked up 0.99% in Reliance Retail Ventures for $1 billion, pegging the valuation of Reliance Retail at over $100 billion. This comes on the back of $10 billion invested by Reliance into the retail business so far. Reliance Retail is also a bet on new India as nearly 67% of the stores are in Tier-2 and Tier-3 cities and towns.

What about the oil to chemicals (O2C) business?

The broad philosophy outlined by Reliance at the AMG for the O2C business is; Green Energy and Materials everywhere. Back at the 2019 AGM, Reliance had announced the sale of 20% stake in the Reliance oil to chemicals (O2C) business to Saudi Aramco. Subsequently, the pandemic struck the world and due to the sharp fall in crude oil prices, RIL and Aramco could not agree upon a price. 

Eventually, the deal fell through and then Reliance went ahead and raised money via private placements of its stake in Reliance Digital and Reliance Retail in its quest to turn zero net debt. In recent AGMs, the top boss of Saudi Aramco, Al Rumayyan, had been inducted into the board of Reliance Industries Ltd. However, the only major update on the O2C and green energy business at the AGM is that the battery giga factor will be ready by the year 2026. At the AGM, RIL reiterated its commitment of $10 billion capex for new energy.

Concluding with the cardinal principles

Finally, let us touch upon the cardinal principles for Reliance Industries, as outlined by Mukesh Ambani in his address at the 46th AGM of Reliance Industries Ltd. For a long time, Reliance had the mindset of thinking big and that was evident in the scale of projects that it took up. Somewhere in the last few years, the focus has shifted to being in sync with tomorrow and pre-empt trends rather than reacting to trends. That is captured in the 5 cardinal principles outlined by the chairman.

• Growth driven by perpetual demand. The company commits to being in businesses and markets perpetually growing vertically and laterally.
   
• Superior customer experience and value. There were questions about whether would be able to handle the retail-facing business. However, the principle of offering great value at low prices has worked for Reliance.
   
• The power of disruptive demand is most evident in its recent business forays into digital retail, fibre optics and green energy. That will be the road ahead.
   
• Growth driven by business discipline. Obviously, a strong balance sheet and sedate margins are at the core of growth. It will strive to keep cutting its net debt.
   
• Finally, the core principal will be the global market potential. Reliance sees itself as a true blue multinational in terms of influence and reach. 

To sum it up, the 46th AGM of RIL may have disappointed by not announcing the IPO dates. But that would be taking a very myopic approach. The real value of such complex businesses is best left to institutions rather than depending on retail investors. That is the right way to move ahead.