Look at Reliance Industries Ltd. It is amongst the largest companies in India on several counts. With Annual Revenues of about Rs.4.50L crores, Net Profit of over Rs.23K crores & a Market Cap of over Rs. 3L crores, it certainly is a Mega corporation. But look at it's current businesses. Over 90% of the company's revenues and about 80% of profits come from Refining & Petrochemicals business. And these businesses are not posting any handsome growth for the last many quarters. At best these businesses will grow in single digits or low double digits in the coming quarters.
A few years ago Reliance Industries Ltd stepped into new businesses of Oil & Gas production and Modern Retail. As we all know the Oil & Gas production business of the company has been a big disappointment mainly because the initial estimates & projections were very large & exciting, but the actual numbers have been quite lacklustre in comparison. Nevertheless this business is chugging along & profitable too. But it is difficult to predict if this business will grow to a much larger scale or not. Reliance's Retail business did have a false start initially, but the company has done well to make a smart comeback over the last 2-3 years. Reliance is now India's largest Retail company, having overtaken Future Group a few quarters ago. Eventhough the Retail business is currently contributing only about 3-4% of Reliance's annual turnover, it is growing at a healthy pace of about 15-20%. And the better news is that the business has reached break-even too at the operating level. With further expansion the economies of scale will further help the company improve profitability and sooner or later it will start posting Net Profit too. Reliance Retail already has over 2000 stores operational across all formats and cater to millions of customers across several large cities.
Now lets come to the most interesting part of Reliance's large investments: Broadband. Many of us have been hearing about Reliance Jio Infocom (RelJio) being the only company to hold broadband wireless spectrum across the country. We have been hearing this for the last over 4 years now, but we haven't seen any launches happening. As per regulatory requirements, RelJio needs to launch it's services in all service areas latest by second half of 2015. What was the company doing sitting idle with all that spectrum for nearly 20% of the license period?? Frankly I think it was an intelligent move. 4 years back the LTE technology was still at an experimental stage and all it's equipment were very expensive. Thanks to this delay, RelJio will be able to install equipment which is better evolved and at much lower prices. The technology is still very new even at a Global level, but availability of it's equipment is now much much better than what it was 4 years back. Over the last 3-4 quarters, the activity at RelJio has shot up with the company first signing up agreements with almost all Tower companies & then signing agreements with Equipment Vendors for implementation of BTSes across the country. The company has been laying it's own OFC across most of the important cities as it is anticipating a huge load of data traffic on it's Wireless Broadband network. The company had paid something like Rs.12K crores for the Broadband spectrum, but it is investing well over Rs.50K crores to setup all the related infrastructure across the country. These numbers are not too short of what any other Mobile Operator has invested in Infrastructure for a nationwide rollout. Going by these numbers, RelJio is planning to launch it's services in thousands of cities & towns and lakhs of villages in the very first year itself. To make things even more interesting RelJio has bagged 1800 MHz spectrum in 14 important circles, which can help the company jump right into regular mobile service competition as well.
I am expecting RelJio to launch it's services on 28th December'2014, Dhirubhai's anniversary and the phased rollout will happen over the first half of 2015. As per my estimates RelJio will be targeting to achieve Quarterly turnover of Rs.4K crores within the first 4-6 quarters of launch. RelJio could be posting a turnover of about Rs.10K crores in FY'2015-16 itself and will be close to breaking even at EBITDA level. Within a few months of RelJio's launch we should see a price-war in the Data business. If RelJio's service experience is good, then even a price-war cannot stop the company from capturing substantial incremental as well as existing market share from all other operators. RelJio could touch 10% market share figure in the Data business within the first 4 quarters itself, provided the initial customers are happy with the company's services. If there is a neutral-to-positive word-of-mouth about RelJio's services in the first 2 quarters, we could see many customers jumping from other operators to RelJio's networks to enjoy faster speeds and larger usage limits. The first 2-4 quarters from launch are going to be crucial.
If everything works out fine, we could see RelJio touching the Rs,50K crores turnover mark within the first 5-6 years and by then the company will be generating healthy Cash Profits and Net Profit too. The Retail business expansion alongwith the huge potential in the Telecom business is what will bring the exciting times for Reliance Industries Ltd & it's shareholders. The company's stock has been underperforming for the last many years now. There have been valid reasons for the same. The revival in Indian economy will also help boost demand for RIL's petrochemical products and who knows the company could get back into fuel-retailing in a big way too in the coming couple of years. There are many potentially positive things that could happen with the company. The stock price which has been languishing in the Rs.700 to 1100 range for all of last 6 years, finally could breakout above the Rs.1100 price levels in the coming quarters.
A few years ago Reliance Industries Ltd stepped into new businesses of Oil & Gas production and Modern Retail. As we all know the Oil & Gas production business of the company has been a big disappointment mainly because the initial estimates & projections were very large & exciting, but the actual numbers have been quite lacklustre in comparison. Nevertheless this business is chugging along & profitable too. But it is difficult to predict if this business will grow to a much larger scale or not. Reliance's Retail business did have a false start initially, but the company has done well to make a smart comeback over the last 2-3 years. Reliance is now India's largest Retail company, having overtaken Future Group a few quarters ago. Eventhough the Retail business is currently contributing only about 3-4% of Reliance's annual turnover, it is growing at a healthy pace of about 15-20%. And the better news is that the business has reached break-even too at the operating level. With further expansion the economies of scale will further help the company improve profitability and sooner or later it will start posting Net Profit too. Reliance Retail already has over 2000 stores operational across all formats and cater to millions of customers across several large cities.
Now lets come to the most interesting part of Reliance's large investments: Broadband. Many of us have been hearing about Reliance Jio Infocom (RelJio) being the only company to hold broadband wireless spectrum across the country. We have been hearing this for the last over 4 years now, but we haven't seen any launches happening. As per regulatory requirements, RelJio needs to launch it's services in all service areas latest by second half of 2015. What was the company doing sitting idle with all that spectrum for nearly 20% of the license period?? Frankly I think it was an intelligent move. 4 years back the LTE technology was still at an experimental stage and all it's equipment were very expensive. Thanks to this delay, RelJio will be able to install equipment which is better evolved and at much lower prices. The technology is still very new even at a Global level, but availability of it's equipment is now much much better than what it was 4 years back. Over the last 3-4 quarters, the activity at RelJio has shot up with the company first signing up agreements with almost all Tower companies & then signing agreements with Equipment Vendors for implementation of BTSes across the country. The company has been laying it's own OFC across most of the important cities as it is anticipating a huge load of data traffic on it's Wireless Broadband network. The company had paid something like Rs.12K crores for the Broadband spectrum, but it is investing well over Rs.50K crores to setup all the related infrastructure across the country. These numbers are not too short of what any other Mobile Operator has invested in Infrastructure for a nationwide rollout. Going by these numbers, RelJio is planning to launch it's services in thousands of cities & towns and lakhs of villages in the very first year itself. To make things even more interesting RelJio has bagged 1800 MHz spectrum in 14 important circles, which can help the company jump right into regular mobile service competition as well.
I am expecting RelJio to launch it's services on 28th December'2014, Dhirubhai's anniversary and the phased rollout will happen over the first half of 2015. As per my estimates RelJio will be targeting to achieve Quarterly turnover of Rs.4K crores within the first 4-6 quarters of launch. RelJio could be posting a turnover of about Rs.10K crores in FY'2015-16 itself and will be close to breaking even at EBITDA level. Within a few months of RelJio's launch we should see a price-war in the Data business. If RelJio's service experience is good, then even a price-war cannot stop the company from capturing substantial incremental as well as existing market share from all other operators. RelJio could touch 10% market share figure in the Data business within the first 4 quarters itself, provided the initial customers are happy with the company's services. If there is a neutral-to-positive word-of-mouth about RelJio's services in the first 2 quarters, we could see many customers jumping from other operators to RelJio's networks to enjoy faster speeds and larger usage limits. The first 2-4 quarters from launch are going to be crucial.
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