Decoding RIL AGM: Jio emerges as a leapfrogging platform in Ambani's industrial shuffle, aided by trademark financial engineering

Consider the fact that in three years flat, the telecom subscriber base of Reliance Industries Ltd (RIL) has crossed 340 million—and that is 13 million more than the entire population of the United States of America. You could now call it the Republic of Jio. On that hangs the sinewy Digital Age muscles of RIL whose chairman Mukesh Dhirubhai Ambani has unveiled the latest initiatives of his textiles-to-telecom empire that aims to enable everything from groceries to virtual reality to a 1.3 billion-people nation.

RIL's annual general meeting address to shareholders has retained the razzmatazz of father Dhirubhai's era, but it has transfigured from the cricket-match like the mass atmosphere of  Brabourne Stadium in the 1980s to a globally web-cast hall event in which gee-whiz technologies showcased by the founder's grandchildren are supplying the new cool. What remains unchanged is a passionate zest to connect India's burgeoning middle-class aspirations with shareholder value through a deft mix of financial engineering and project management.

What is emerging in the process is probably not a giant company but a complex ecosystem of services and products that resemble a busy airport hub. The current chairman has signalled to unlock value by hiving off Reliance Jio or other ventures separately from the mother ship even as he announces investments in startups (14 on the last count).

At this rate, we could well see RIL becoming more akin to Tata Sons Ltd, the unlisted holding company of the business empire steering and lording over a slew of companies, some listed, some unlisted and others in early-stage incubation based on future possibilities and aspirations.

It is easy to get dazzled or confused in a mish-mash of VR movies, educational videos, free voice calls, and world-class high-speed 1 GBPS fibre-based Internet at Rs 700 per month to middle-class homes that RIL has unveiled. But it is more fascinating to see the financial engineering that goes behind the scenes as Ambani shuffles the old and the new as if he was playing with colourful snooker balls up in the air. The details are such that RIL is beginning to look like an old-world smokestack industrial giant, a public utility and a venture capital fund all rolled into one.

 Decoding RIL AGM:  Jio emerges as a leapfrogging platform in Ambanis industrial shuffle, aided by trademark financial engineering

File photo of Mukesh Ambani, chairman and managing director, Reliance Industries. Reuters

RIL's latest announcement that Saudi Arabia's state oil giant, Aramco, will invest about $15 billion (Rs 1.06 lakh crore) in Reliance's oil and petrochemical business gives an idea of how the financial shuffling goes on. This money (along with an investment from BP) will funnel into digital technologies such as blockchain and the Internet of Things for which Ambani has announced an ambitious foray. On the other hand, the money also secures for RIL a steady supply of Saudi oil for its Jamnagar refinery in a cosy demand arrangement for Aramco.

Ambani announced that the digital infrastructure investments into Jio, at Rs 3.5 lakh crore, mark the end of RIL's largest capital expenditure cycle yet totalling Rs 5.4 lakh crore. The Aramco money will ease some of the debt pressures on the company's bottom line, even as new cash flows coming in from an array of digital-age and retail businesses will keep bankers happy. The latest capex (already done) is 10 percent of the entire amount India plans to spend on its vast railway network over the next 12 years. That should give an idea of the humongous public utility-scale of operations.

But such is the ambition to leapfrog into the future, that the best way to financially de-risk is to unload the completed part of the project portfolio. It is here that Ambani's move to hive off telecom infrastructure worth about Rs 1.25 lakh crore into infrastructure investment trusts (InvIT) fits in. In a single-window view, global or high net-worth local investors will buy into business lines aimed at helping consumption by India's emerging lower middle class, with RIL as the fulcrum of a financial roller coaster.

What possibly could be the challenges in RIL's transition into the fourth industrial revolution? The size is such that management bandwidth may emerge as the Number 1 issue because services bundled with products are increasingly the leitmotif. New services would require customer relations, training, financing and technological depth in a previously unimagined style or scale. A simple family-controlled organisation may need to be enhanced into a smoother institutional style. Also, the nature of industrial disruption is such that Jio's competitors such as Idea-Vodafone and Airtel may see red signals that involve increasingly demanding regulatory hurdles to cross.

Just imagine: Reliance Jio plans to offer new Bollywood releases into broadband-linked living rooms across India. Where will that leave multiplex operators?

In an embrace of giants paralleling the Aramco deal, RIL has also announced a cloud-computing relationship with Microsoft, banking on the Jio network that also serves small businesses and startups. The interesting bit is that this would challenge Amazon, whose Amazon Web Services, as well as its flagship retail business, will compete with Reliance arms.

The nationalist subtext in Ambani's AGM address was more than visible as he spoke of the need to keep India's' data in India as digital age wealth. In a globalised world, the last has not been heard on this subject. Reliance-watching will continue to be an engaging sport for corporate observers.

As Ambani plans to unlock value and rope in more strategic investors into RIL in the world's fastest-growing major economy, this sport will increasingly acquire international dimensions. There has already been speculation about Japan's SoftBank as a potential investor in Reliance Jio. With the SoftBank Vision Fund umbilically tied to Saudi wealth, the tale gets more interesting. Ambani says RIL aims to be a "zero net debt company" in 18 months (meaning cash equivalents will be equal to debt—enough to pay it all off if required). That might take Reliance closer to the early 1980s, when it was a zero-debt company. There is nothing like an asset-rich business that does not owe others much, assuming the colourful balls of investment up in the air move to the juggler's pace and vision.

(The writer is a senior journalist. He tweets as @madversity)

(Disclosure - Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd)

Updated Date: Aug 12, 2019 19:43:54 IST