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Is this the most interesting company in the world?
It’s a big call, but Reliance Industries (BSE:500325) may well be the most interesting company in the world. The Indian conglomerate, founded by Dhirubhai Ambani in 1997 and now controlled by his son Mukesh Ambani, became the first Indian company to exceed US$200 billion ($256.4 billion) in market capitalisation in 2020.
In recent months, the group has got into a legal battle with none other than the world’s leading e-commerce group, Amazon Inc., over the future of the Indian retail sector – a market estimated to be worth more than US$1 trillion ($1.3 trillion).
Taking a step back, however, it’s important to understand the foundations and background of the company. The group’s groundings come from polyester and textiles: it listed on the stock exchange in 1977 in a very different form to today. Capitalising on a monopolistic position in that sector, the group leveraged its position to expand into multiple sectors of the economy. This began with an expansion into petrochemicals in the early 1990s, along with petroleum and energy assets. What followed was opportunistic acquisition or expansion into telecommunications, e-commerce, digital payments and media. Over this multi-generational journey, the company has entered partnerships with a number of global corporate leaders, ranging from BP to General Electric and Google.
As it stands today, the business operates in four distinct units, the first being retail, where it became the largest national retailer by revenue in 2014. Despite only commencing in 2006, Reliance Retail caters for millions of customers and serves as many as 100,000 customers an hour. The business has expanded into fresh groceries and includes supermarkets, specialist and online stores that span the nation. It has managed to fight off the likes of Amazon and Costco to gain this dominant position, due primarily to what Reliance describes as its understanding of the cultural and consumption diversity of India and its many regions.
The petrochemicals division may well be the heart of the business, but is clearly more about the past than the future. The unit is the largest producer in the country and top ten in the world. It has a unique portfolio of businesses spread across polymer and polyester, even including aromatics and advanced materials. Being the largest global producer of polyester yarn, the company services sectors ranging from apparel and agriculture to housing, automotive and healthcare uses.
The most powerful unit remains the petroleum marketing and refining business, with its Jamnagar manufacturing division the world’s largest refining hub. The group has the capacity to produce about 1.24 million barrels a day from this site, which when combined with its other main asset, the sixth largest in the world, means that Reliance is a key player in providing India’s growing economy with the cost-effective energy source it requires.
The final unit is by far the most exciting, with the Jio Platforms business resembling a venture capital or private equity arm. The group has invested more than US$50 billion ($64.1 billion)to create the “largest and most advanced digital and connectivity ecosystem in India.” Its services span connectivity through its mobile network, along with cloud, digital commerce, financial services, gaming, healthcare and agricultural operations. Jio stands to benefit from both the continued urbanisation of the Indian economy, similar to that of China in previous decades, along with the increasingly wealth and technologically enabled capital cities. In terms of the scale of the opportunity, Smartphone penetration in India, according to Newzoo, was just 37% in 2019, compared to 80% for most developed countries.
It has been a strong 12 months for Reliance Industries, with its diverse network of businesses able to navigate the pandemic and massive outbreaks in India better than most. The company reported a 12.5% increase in net profit despite a 22% fall in revenue, with the digital Jio arm the highlight, adding 15.5% in profit. Not unexpectedly, the energy division saw revenue fall 30%. Despite the strength, analysts are increasingly calling for more transparency into the underlying operations of each of the business units, in what must be considered a complex structure.
While India is often talked about as a great opportunity for investors, gaining access to its stocks is fraught with risks. Direct investments remain difficult and research hard to come by, and similarly, there are a limited number of India-centric options available to retail investors. The company appears to be of global quality and hence has formed an important part of many Asia-focused portfolios including those of GQG Partners, Platinum and ETF Securities at various times.
