Consumer Units Replace Refining As RIL’s Second-Biggest Business

The Mukesh Ambani-led firm generates a third of its operating income from consumer-focused telecom and retail businesses.

Mukesh Ambani, chairman of Reliance Industries in New Delhi, India. (Photographer: Prashanth Vishwanathan/Bloomberg)
Mukesh Ambani, chairman of Reliance Industries in New Delhi, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

India’s most-valued company now relies on its consumer-facing businesses more than ever.

Reliance Industries Ltd.—the first domestic company to reach Rs 9 lakh crore market capitalisation—now generates a third of its operating profit from retail and telecom units.

The energy giant and the owner of the world’s largest crude oil refinery is not only India’s No. 1 retailer but also the nation’s biggest telecom operator. The combined share of Reliance Retail Ltd. and Reliance Jio Infocomm Ltd. in earnings before interest, tax, depreciation and amortisation is second only to the petrochemicals cash cow.

The contribution of consumer-focused units surged since the wireless carrier of Asia’s richest man—having started with free services followed by rock-bottom data tariffs in September 2016—began commercial operations in the middle of fiscal ended March 2018.


The data war by Reliance Jio, India’s fastest growing telecom operator, wiped out smaller rivals and forced others to merge. Cheaper tariffs helped it lure subscribers, making it India’s largest by revenue share.

Reliance Jio’s quarterly revenue has on average grown at 9 percent in the last two years. It has on an average added 2.7 crore users every quarter in the last two years. This, however, came at the cost of average revenue per user that has fallen ever since it started commercial operations.

JioPhone subscribers, who join at lower rentals and pull down ARPU, comprise a fifth of the operator’s users.

Still, a rising subscriber base led to a sharp drop in inter-connect usage charges that it paid to rival networks for completing calls. Jio’s expenses under this head have fallen to Rs 655 crore in the quarter ended September from Rs 2,140 crore a year ago.

Reliance Jio aims to capture 50 crore users and half the industry revenue. It recently slashed prices of the low-cost phone by half as it targets 35 crore users still on 2G network of rival operators.

Such discounts show that the company is still hungry to capture low-paying 2G users from incumbents, said Rajiv Sharma, telecom analyst and head of research at SBICAP Securities. That could impact Vodafone Idea Ltd. and Bharti Airtel Ltd., he said, as the carriers have 52 percent and 42 percent of their users in rural areas, respectively.

Reliance Jio has also started offering high-speed (fibre-to-the-home) broadband and targets to reach 2 crore homes and 1.5 crore businesses in 12-18 months. Yet, analysts expect the rollout to be gradual compared with the aggression of the telecom foray and haven’t factored in a meaningful contribution in their estimates.

But, according to Credit Suisse, if the company achieves its target of 2 crore subscribers, broadband could contribute $1.2 billion (Rs 8,600 crore or 10 percent of FY19 Ebitda) to its operating profit annually.


Reliance Retail started out in 2006 by opening Reliance Fresh grocery stores in Hyderabad. It has since expanded into consumer electronics, apparel, connectivity division (distributor for Jio) and fuel retail.

Revenue from the retail unit jumped more than ninefold in six years through March 2019, while its operating profit soared 17 times. That was driven by store expansion in tier III and IV where breakeven is achieved early. Besides, a healthy same-store sales growth, operational efficiencies, leverage of scale, better store economics and private labels aided growth. Sales, however, spiked in the last two financial years because of a surge in Reliance Jio recharges, sale of JioPhone and LYF phones.

In the core retail business, consumer electronics and apparel drove revenue. Sales of appliances and gadgets unit, which contributes nearly 30 percent to the retail revenue, has grown at an annualised rate of 67 percent in FY14-19, backed by aggressive store addition. Expansion of Reliance Trends and private labels helped clothing business grow at 26 percent annually. It now accounts for 8 percent to the retail revenue.

The connectivity division is driven by the success of Reliance Jio, and largely earns its revenue from recharges. While the business earns a low margin of 2 percent, it accounts for nearly 14 percent of the retail Ebitda. A growing a subscriber base and ARPU will improve the contribution of this unit.

India’s household retail is a growing opportunity with everyone from Walmart Inc. and, Inc. to China’s Alibaba Group Holding Ltd. seeking a slice of the pie.

The nation’s retail industry was worth $875 billion as of March, according to a report by Axis Capital, and is likely to grow at an annualised rate of 10.5 percent till FY24, driven by formalisation of economy after demonetisation and goods and services tax rollout and changing consumer preferences. The share of organised retail, the report said, is expected to rise from 11 percent in FY19 to 15 percent by FY24.

E-commerce initiatives are also expected to aid Reliance Retail’s growth. Besides launching online retail portals for apparel ( grocery ( and consumer electronics (, Ambani is also marrying offline and online retail by tying up with kirana stores, a business model pioneered by Alibaba.

Online push is still at an early stage and could lead to cash burn impacting margins as it leads to huge customer acquisition, market discovery, and distribution and shipping costs.

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