Reliance Industries is one of the amazing success stories in Indian corporate history that arrives once in a century. The story of their founder Dhirubhai Ambani is even more interesting. In 1977 Reliance Industries listed on the Bombay Stock Exchange which initiated the equity cult in India. In the 80s they became a ‘Textile Giant’, then at the turn of the century transitioned to ‘Petrochemicals’, over the last 3 years have made significant progress in ‘Telecommunications’. Their ability to pick a new sector, study it, modify the regulatory framework to ensure differentiation, plan big, borrow big, execute with laser focus has been their recipe to dominate the chosen sector.
What makes Reliance Industries so successful is the wide moats they have built to achieve the number one market capitalization. What are those wide moats ? There are quite a few, but the number one is regulatory arbitrage, then of course is their ability to raise debt from Indian and global banks, and further, the ability to think big, and execute at scale. As a business group the work ethic is top notch and they do not take ‘No’ for an answer.
Jio is Reliance’s second foray into telecommunications. The first was when NDA 1 was in power and Pramod Mahajan the telecommunications and IT Minister. There was a huge difference in license fees for fixed line and cellular licenses. So Reliance procured the fixed line license and used wireless in local loop technology from Qualcomm to provide a wireless service with limited mobility. At that time all the cellular networks were based on GSM so they roped in Qualcomm to provide the wireless in local loop technology as well as proprietary handsets using the proprietary CDMA technology. For all practical and technological purposes CDMA was a superior cellular technology and made more efficient use of available spectrum. This is a good example of regulatory arbitrage they cultivate to give them a competitive edge. A few years after launch due to the family spat and split, the Reliance Telecom property went to Anil Ambani who made a royal mess on every count. It must be said the Dhirubhai genes have transferred in full and no transmission loss to Mukesh Bhai.
FY20 was not a good year for Reliance Industries. The Indian economy was sinking even before Covid infections started spreading in India. Reliance Industries was also in deep trouble with more than US$60 Billion in debt and sinking revenues. In the last quarter of FY 20 they reported consolidated sales of Rs 136240.0 crore for the quarter ended 31-Mar-2020, down 2.4 % from the year-ago quarter’s Rs 139590.0 crore and down 11.06 % from previous quarter’s Rs 153179.0 crore. The net profit for latest quarter stood at Rs 6348.0 crore, down 38.74% from the same quarter a year ago down 45.5% from the previous quarter. If anything had happened to Reliance Industries, they would have dragged 10-12 nationalized banks down the drain.
The whole world knows the global oil industry is in the dumps. In September, Reliance announced to the world that Aramco was taking a stake. The investment did not materialize because of a valuation expectation mismatch. Reliance Industries had no option but to lead with Reliance Jio. They quickly repivoted a telecom services play to a platform play and coined the new the term Jio platform. They roped in Facebook as the lead investor followed by a convoy of other smaller investors. Just before the AGM they announced Google’s intention to invest. The Facebook and Google investments come with conflicts wrapped in gift paper. Facebook is waiting for Whatsapp Payment to be launched, no one knows whether the issue is technical or regulatory. As Jio Platforms builds out the stack we can see many conflicts, the obvious one is WhatsApp payment vs Google Pay vs JioMoney.
The investment in the Jio platform by two global technology leaders, Google and Facebook got the markets excited. With this new association they quickly started identifying themselves as a technology company. This new identity and a new investor announcement every 2-3 days doubled the stock price in 60 days. All this happened when the rest of the country has come to a grinding halt physically and economically. Now with many international endorsements under their belt, the AGM was a big PR carnival. In the dog and pony show they announced to the world that they were India’s grand technology company. A point to note throughout the AGM there was no mention or guidance of the Covid (Apr-Jun 2020) quarter.
Even global media giant CNBC referred to Reliance Industries as a tech giant. Is Reliance a technology company or telecom services company? In my view they are a wireless telecom services company. There is no precedence globally of a telecom company that has moved up the software stack. The question that remains unanswered is that despite being the largest Indian company by market capitalization, why is the Reliance brand not a global brand?
Reliance products are not visible outside India. The recall on the brand is mostly amongst the Indian diaspora or investors with interest in the Indian market. Can they make inroads in foreign markets, very unlikely because they first write the rules of the business and then the whole ecosystem aligns. Their plans are always grand, for some it is a dream, for many an opportunity no one would like to miss.
Reliance is a great investor brand far better than being a product, supplier or even an employee brand. I dare not ask the Reliance fans why the Reliance brand has not gone global, their answer will be “Idiot, why go global when globally everyone is coming here for a piece of the Reliance pie”. The idiot continues to wonder why India has no global brand.
The next time I land in Dubai or Singapore and see a bill board promoting the phone they plan to develop along with Google, I will definitely change my mind.
[Disclosure] Our family are financial beneficiaries of Reliance shares since their IPO in 1977.