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Even COVID Cannot Stop Mukesh Ambani & Reliance
Sutanu Guru analyses the “market dominance” plans of Mukesh Ambani even as India Inc struggles in turbulent economic times.
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In 1981, Steve Ballmer and Mukesh Ambani were classmates pursuing an MBA at Stanford University in the United States. Both dropped out to chase their own dreams. Ballmer eventually became CEO of Microsoft and is worth $ 60 billion. Mukesh Ambani came back to India to help his father Dhirubhai Ambani build a petrochemicals empire. Incidentally, he is now worth $ 45 billion.
Even as India Inc is literally struggling to stay afloat in the aftermath of the COVID pandemic, Mukesh Ambani is stunning the corporate world with a series of moves and deals that appear simply unbelievable in these turbulent times. On May 20, Reliance Industries launches a rights issue for shareholders that could raise upwards of % 7 billion. In the last few weeks, he has successfully persuaded the social media giant Facebook and three large global investors, Atlantic General, Vista Equity Partners and Silver Lake to pump in almost $ 8 billion in Jio Platforms which is now valued at $ 65 billion with the Ambani family still holding close to 85% of the stake even after all these deals.
Reliance Industries Ltd is already the largest company in India in terms of revenue. Mukesh Ambani is already the richest man in Asia. But his appetite for scale and growth seems insatiable... In 2019, when Time magazine had Mukesh Ambani as one of the most influential people in the world, this is what his old friend Anand Mahindra wrote in the magazine: " Mukesh Ambani's father Dhirubhai was a visionary in Indian business, whose Reliance Industries Ltd pioneered ways of targeting global scale. But Ambani's vision is now even more ambitious than that of the father...". The numbers bear this out. In 1981, when Mukesh came back to India, the annual turnover of the company was Rs 40 crore and net profit was Rs 2.9 crore. By the time his father Dhirubhai Ambani passed away in 2002, Reliance reported a revenue of Rs 65,051 crores and net profit of Rs 4,100 crore. And in fiscal 2019-20, revenue has zoomed to Rs 6,59,000 crores and net profit of Rs 39,800 crores.
The key reason behind this seemingly unstoppable growth is his ability to bet big on “sunrise” sectors, a trait he seems to have inherited from his father. Back in the 1980s and 90s, petrochemicals and petroleum were the sunrise sectors in India. The father and son ensured that Reliance became an overwhelmingly dominant force in this sector by the end of the 20th century. But they knew even that growth of the kind they dreamt about need newer avenues. I
In the late 1990s, the Ambani family had made up its mind to gate crash the mobile telecom sector. In 2003, Reliance Infocom formally launched services by offering cheap tariffs to potential customers. At a time when call rates were prohibitively high, Reliance Infocom offered calls at “40 paisa per minute”. But the telecom ambitions of Mukesh took a hit in 2005 after a split with his younger brother Anil Ambani. But Mukesh never gave up. In 2016, he came back with a bang by launching Reliance Jio that promised a whole new world of cheap data to consumers. And he transformed the industry. In 2016, the average data usage by a consumer was 600 MB per month. Today, India is the largest data market in the world with average monthly usage per consumer of 8 GB. That’s mainly because prices crashed from Rs 200 per GB to Rs 6 per GB, thanks to JIo. Mukesh has already made Jio the undisputed market leader with 375 million subscribers, followed by Vodafone-Idea with 334 million and Airtel with 328 million subscribers. But there is much more to come.
When his telecom ambitions were interrupted, Mukesh Ambani gambled big time on organized retail by launching Reliance Retail in 2007 with a grand promise of crossing Rs 100,000 crores in revenues in 10 years. Many skeptics mocked at this show of “overconfidence”. But it is the skeptics who have proven to be wrong. In 2019-20, Reliance Retail reported revenues of Rs 1, 62,000 crores. The number two player in this market is Big Bazaar with a revenue of Rs 35,000 crores. Clearly, like in petrochemicals and telecom, Mukesh has made Reliance on the dominant player even in the organized retail sector. But his real big bet is Jio Mart which aims to connect with the 6 million Kirana stores in the country and reach out to consumers through them. The Reliance deal with Facebook gives Mukesh Ambani access to 400 million WhatsApp users who could be potential consumers. Get set for an exciting battle ahead as Jio, Wal-Mart (Flipkart) and Amazon slug it out for dominance in this market worth $ 800 billion a year.
Many will be betting on Mukesh to win even this one. A well-known equity research firm released a report in March 2020 where it called Reliance as India’s Exxon, AT&T and Amazon rolled into one. How much bigger can the scale of ambitions become?