Will Reliance Jio be a lucky mascot for RIL?

On a sultry Sunday afternoon in 2008, precisely on September 21, Mukesh Ambani took a jar of crude oil (collected from Reliance Industries (RIL)’s deep-sea oil exploration block, KG-D6, in Krishna-Godavari Basin, off Andhra Pradesh coast) in his hands, and raised a toast to the health of India’s booming economy. “The production from the KG-D6 facility will save India an annual foreign exchange outflow of $20 billion,” RIL’s chairman professed, standing next to a garlanded photo of a smiling Dhirubhai Ambani. More than eight years later, the backward integration into the exploration sector, the biggest investment after a bitter family feud split the Reliance empire in 2005, is yet to make any meaningful recovery. It has instead run into losses (Rs 1,584 crore in 2016-17 and another Rs 373 crore in April-June quarter) and half-a-dozen international arbitration cases against the government, including the case on $1.55-billion penalty for extracting natural gas from ONGC’s fields in the KG Basin.

The foray into India’s $350-billion retail sector was another diversification. The organised retail or the network of retail outlets, accounting for just around 4% in the country, was a mouth-watering prospect for large domestic and foreign companies. RIL chairman told AGM in June 2008, “Our retail business will directly generate over half a million jobs in the next five years.” The growth didn’t come easily to RIL as expected. Reliance Retail was forced to downsize operations and shut down hundreds of stores in different formats across the country, while many employees were laid off. Hundreds of Reliance Fresh supermarkets faced logistics-related hardships and protests by traders in several states, and folded up.

Such letdowns didn’t deter RIL. Profits from its ever-booming refining and petrochemical businesses gave it enormous financial muscle to venture into unfamiliar territories, unlike most others in India Inc.

A decade after the family split, in which Reliance’s telecom company, Reliance Communications (RCom), was handed over to Anil Ambani, Reliance Jio shook the telecom market with its aggressive entry in 2016. While big daddies in the telecom market are running for cover, RCom is struggling to pay up its lenders and keep itself afloat. The buzz of Ambani siblings joining hands once again died in the ongoing Armageddon in the telecom market.

The do-or-die battle has also made Indian banks shudder.

On one hand, lenders have an exposure of over Rs 4 lakh crore to the sector, which could come under stress due to the declining telecom revenues. “The stress in the sector has reached highly unsustainable levels after the entry of new players and launch of free services which led to erosion of topline and EBITDA of the telecom service providers,” SBI chairman Arundhati Bhattacharya wrote in a letter to the government, two months ago.

RJio has raised huge debt and invested over Rs 1,80,000 crore, more than one-third of the total capital employed by the company, in telecom business. What makes bankers edgy is that the company is unlikely to post profit for next three-four years even as the new Jio-4G phone hungama draws thousands of semi-urban and rural customers into its fold.

At least for now, data is the new oil for RIL. It has adequately lubricated the stock for another run on the bourses.

The writer is editor, DNA Money. He tweets at @AntoJoseph