In earlier days, the power of connectivity was familiar through various meetings in physical and when the internet became prominent it was the value unlocking. Now, with connectivity through the internet, people hold the power to revolutionize the change. The connectivity has ensured integration across people, corporations, and government.
Reliance is looking to indulge in various businesses by acquiring, and entering into partnerships and joint ventures as their oil business is cash-generating and the industry’s future looks bleak. Diversifying is the only way for growth to be intact and stay in that trajectory for the foreseeable future.
Reliance on Energy, Data, Telecom, and Retail are making significant inroads and poses a challenge for businesses in that industry. In this article, we will look at how by disruption they entered the field, competition, investors incoming, diversifying, and integrating each business to hold an edge over its competitors.
How Reliance Disrupted The Telecom Industry
There were many players in the market. Airtel, Vodafone, Idea, Tata Docomo, MTS, Virgin Mobile, Aircel, Reliance Communications, and so on, and some prominent players in the telecom market while some charging a pack of 1GB internet for a month for Rs. 350 odd. Then to disrupt the space, Reliance owned by Mukesh Ambani released the Jio Brand.
Later, he started to acquire customers by providing free cost of internet and mobile services which garnered huge attention. This led to rapid cuts in prices for their competitors to match their competitor Jio.
Reduction In Competiton
With Jio’s entry into the telecom market, many existing players faced huge losses and high costs, leading some to exit. Jio’s free services forced competitors like Airtel to reduce prices but also innovate. Vodafone and Idea merged to strengthen their position amid intense competition. The telecom industry is capital-intensive, making it difficult to survive without steady income from prepaid customers. This led to recharge plans that ensured users stayed engaged.
Over time, the market evolved into an oligopoly dominated by Reliance Jio, Bharti Airtel, Vodafone Idea, and BSNL. BSNL struggled with mounting debt, limiting its growth. Vodafone Idea also lost subscribers and faced high spectrum fees, accumulating further debt and narrowing competition to a duopoly. In response, Airtel developed services like Airtel Black and improved connectivity to retain customers.
Jio’s low internet prices positioned India as one of the most affordable places for internet access globally. This pricing strategy not only benefited consumers but also sparked growth in online businesses, marking the beginning of the digital age for many companies in India. The telecom landscape has transformed significantly, with fewer players but increased reliance on affordable connectivity.
Onboarding Prominent Investors And Fostering Partnerships
Amid covid crisis, many prominent investors like Facebook (Meta), KKR, Silver Lake, General Atlantic, Vista Equity Partners, Mubadala Investment Company, Abu Dhabi Investment Authority (ADIA), Google, Qualcomm, and so on invested in Jio Platforms. These investments instill confidence and growth prospects in the company. These might create a strategic collaboration and can benefit companies that are involved in it.
Can Jio Financial Services Replicate Telecom’s Disruption Success?
Jio Financial Services was de-merged from Reliance Industries in a stock split ratio of 1:1. It has entered into a joint venture with BlackRock to enter into India’s asset management space. This can open opportunities to diversify the investments into various fields like Alternative Investments.
JFS has converted itself from an NBFC to a CIC (Core Investment Companies) and acts as a holding company for its subsidiaries. Their subsidiaries include Jio Finance, Jio Leasing Services, Jio Insurance Broking, Jio Payment Solutions, Reliance Industrial Investment Holdings, Jio Payments Bank, and JV with Blackrock. There are established players in the financial space and based on the product and execution lies the disruption into this space.
How Much Revenue Does Jio Telecom, Digital Services, And Jio Financial Services Contribute?
Reliance Industries FY24 revenue grew 2.59% YoY to Rs. 9,14,472 crore. Digital services, mainly driven by Jio Telecom, increased its contribution from 11% to 12% to the top line. Jio Infocomm’s net revenue rose 10.41% to Rs. 1,00,891 crore, with profits up 12.61% to Rs. 20,607 crore. Major expenses include network operations (26%), depreciation (18.13%), and license fees (7.76%).
Jio’s ARPU increased from Rs. 178.80 to Rs. 181.70 year-over-year in Q4. The customer base reached 481.80 million, while data consumption surged from 30.30 billion to 40.90 billion GB. These figures highlight Jio’s significant growth and increasing importance within Reliance Industries portfolio.
JFS has a total income of Rs. 1,855 crore in FY24 which is an increase from Rs. 44 crore in FY23. Net profits stood at Rs. 1,605 crore in FY24 an improvement from Rs. 31 crore in FY23. The company has investments of Rs. 1,33,292 crore as of 31st March 2024. The majority of the revenue comes from Interest followed by net gain on fair value changes, dividend income, and fee commission income.
What Is The Next Leg Of Growth? 5G? Renewable Energy? Financial Services?
The next leg of growth in India’s telecom sector is expected to be driven by the extensive connectivity and the use of 5G technology. 5G has already made inroads and has been adopted across industries. This is expected to improve industries by supporting Internet of Things (IoT) devices, smart cities, and automation. It is thereby driving significant demand for high-speed, low-latency networks.
In the Renewable energy space, the company in AGM 2021, announced an investment of over Rs. 75,000 crore ($10 billion) into the ecosystem of New Energy and New Materials in India. Significant investments can bolster its energy mix.
Without debt the economy would not grow and Financial services are the way. Reliance with the recently demerged company of JFS has made JV with Blackrock and there might be further value unlocking which has not taken place.
According to the broker MOFSL, JFS plans to expand its product portfolio and come up with innovative financial solutions that will ensure its growth. Lately, this company has been offering EMI options on credit/debit cards as well as embedded finance products such as Brand EMI.
Vendor finance, mutual funds debt, and device lending were introduced with JFS a subsidiary of NBFC. It has started beta-testing home loans; also loan against securities awaits the next turn before diving into plans that include an engaging digital-first strategy for customers.
Reliance De-Merger – Value Unlocking For Shareholders
The company is looking for a demerger of its business invested and owned across various industries. This would be a value unlocking for various businesses and different valuations for its companies. Telecom, Retail, and other businesses if demerged can help investors buy the company’s share and can own a part of the business that they need.
It helps for strategic focus for each company and can remove the decision-making from the parent company which is better for the shareholders.
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