Reliance's Ambitious Plan to Double Jio and Retail Revenue: Expert Analysis

Reliance plan to double Jio, Retail revenue in next 3-4 years not very ambitious? Deven Choksey explains

Deven Choksey, MD, DRChoksey FinServ Pvt. Ltd, says Reliance has identified four verticals in which they are talking about providing application-based solutions. On one hand, they have got a complete backbone, starting from data centres to fibres to mobility and on the other hand, they are providing different kinds of applications for the ome users as well as enterprise users. Also, those applications are AI-driven. The demand and the take would be extremely high and that is where probably the growth of over 25% CAGR for the next three to four years in these verticals is not at all surprising. Reliance has announced that they are going to double their revenue and EBITDA in the next three to four years for Jio as well as retail. Now, both these big verticals are coming in for the company. Do you think these targets are rather ambitious or is the company well on path to achieving them? Deven Choksey: No, I do not think that they are very ambitious targets. They are given targets, frankly speaking, because of the underlying infrastructure that they have built in both these businesses. If I have to summarise, I find that the Jio platform, they are enabling the technology backbone. Earlier, they were only dependent on broadband. Now, from broadband, they are swiftly moving to AI and they are creating applications based on AI, be it in the area of education, be it in the area of agriculture, or for that matter, SME, or even healthcare. They have identified four verticals in which they are talking about providing application-based solutions on this particular platform. Now, imagine that on one hand, you have got a complete backbone, starting from data centres to fibres and to mobility and on the other hand, they are providing different kinds of applications for the home users, for the enterprise users and those applications are AI-driven. Obviously, the demand and the take would be extremely high on this and that is where probably the growth of over 25% CAGR basis for the next three to four years in these verticals is not at all surprising to me. As I see it, it is probably a little conservative. The growth is going to be faster because we are going to leave behind a lot of competition and probably going to grow these businesses exponentially in times to come. In retail business too, with omni-channel activity, with 30 crore registered customers on the digital channel and also the footfalls into the 19,000 plus stores, given the kind of supply chain logistics and AI used over there, probably not only these businesses will grow but they will grow profitability. As against conventional profitability of around 3-3.5% for the major stores across the globe, this company is talking about 7.5% to 8% kind of EBITDA margin. So, in my viewpoint, this is fundamental. So, growth is getting doubled, absolutely understood. In retail, their brands are contributing a larger share in every vertical. So, it is a more profitable business. Between Jio platform and retail, they contribute about Rs 90,000 to 100,00 crore worth of EBITDA in the books of Reliance out of Rs 1,60,000 crore and in three-and-a-half, four years' time, from now this Rs 90,000 to 1 lakh crore will become Rs 2 lakh crore is given. So, the size of these two businesses is growing very well and that is giving confidence that these consumer-facing businesses are here to stay and will grow very well from here on. The business vertical that Anant Ambani is going to handle going ahead is new energy. They have some lofty plans here in terms of the commencement of production of solar modules by the end of this year. They are expecting this business to be as profitable as O2C in the next five to seven years. What is your outlook on the new energy arm? How much do you think this is going to contribute to Reliance's overall top line? Deven Choksey: Currently, the O2C business is contributing about Rs 62,000 crore worth of EBITDA. And if you go by the statement made by the chairman in the AGM, they are talking about overtaking O2C business of today in the next five to seven years. That means we are talking about creating Rs 60,000-70,000 crore worth of EBITDA making proposition out of renewable business, the Giga Complex. The detailing part provides higher confidence because on one side, they are investing Rs 75,000 crore capex into Giga Complex and taking care of solar, green hydrogen and also the entire battery manufacturing ecosystem, starting from lithium refinery onwards till battery packs that are being supplied for the use of the consumer in the storage space. The important part here is that it is a completely integrated facility. On one side, on the wasteland, they are putting up solar parks. Using that particular power, they are firing their refinery, the petrochemical complex. Using that power, they are also converting water into green hydrogen and take it further. I believe that this is a complete ecosystem that they have developed and put it across and that gives confidence. Plus, the entire electrolyser technology that they are adopting with the multi-gigawatt facility, is going to bring down the cost of the power for use to around Rs 3 to a unit as against conventional power cost of around Rs 9 to Rs 10 per unit. So, this business is becoming more profitable. Certainly, it is a game where you will have to wait for the fruits because implementation is a key part. It is not that they are implementing in a hurry. They are implementing with absolute conviction about growing these businesses into a different territory.

Reliance plan to double Jio, Retail revenue in next 3-4 years not very ambitious? Deven Choksey explains

Deven Choksey, MD, DRChoksey FinServ Pvt. Ltd, says Reliance has identified four verticals in which they are talking about providing application-based solutions. On one hand, they have got a complete backbone, starting from data centres to fibres to mobility and on the other hand, they are providing different kinds of applications for the ome users as well as enterprise users. Also, those applications are AI-driven. The demand and the take would be extremely high and that is where probably the growth of over 25% CAGR for the next three to four years in these verticals is not at all surprising. Reliance has announced that they are going to double their revenue and EBITDA in the next three to four years for Jio as well as retail. Now, both these big verticals are coming in for the company. Do you think these targets are rather ambitious or is the company well on path to achieving them? Deven Choksey: No, I do not think that they are very ambitious targets. They are given targets, frankly speaking, because of the underlying infrastructure that they have built in both these businesses. If I have to summarise, I find that the Jio platform, they are enabling the technology backbone. Earlier, they were only dependent on broadband. Now, from broadband, they are swiftly moving to AI and they are creating applications based on AI, be it in the area of education, be it in the area of agriculture, or for that matter, SME, or even healthcare. They have identified four verticals in which they are talking about providing application-based solutions on this particular platform. Now, imagine that on one hand, you have got a complete backbone, starting from data centres to fibres and to mobility and on the other hand, they are providing different kinds of applications for the home users, for the enterprise users and those applications are AI-driven. Obviously, the demand and the take would be extremely high on this and that is where probably the growth of over 25% CAGR basis for the next three to four years in these verticals is not at all surprising to me. As I see it, it is probably a little conservative. The growth is going to be faster because we are going to leave behind a lot of competition and probably going to grow these businesses exponentially in times to come. In retail business too, with omni-channel activity, with 30 crore registered customers on the digital channel and also the footfalls into the 19,000 plus stores, given the kind of supply chain logistics and AI used over there, probably not only these businesses will grow but they will grow profitability. As against conventional profitability of around 3-3.5% for the major stores across the globe, this company is talking about 7.5% to 8% kind of EBITDA margin. So, in my viewpoint, this is fundamental. So, growth is getting doubled, absolutely understood. In retail, their brands are contributing a larger share in every vertical. So, it is a more profitable business. Between Jio platform and retail, they contribute about Rs 90,000 to 100,00 crore worth of EBITDA in the books of Reliance out of Rs 1,60,000 crore and in three-and-a-half, four years' time, from now this Rs 90,000 to 1 lakh crore will become Rs 2 lakh crore is given. So, the size of these two businesses is growing very well and that is giving confidence that these consumer-facing businesses are here to stay and will grow very well from here on. The business vertical that Anant Ambani is going to handle going ahead is new energy. They have some lofty plans here in terms of the commencement of production of solar modules by the end of this year. They are expecting this business to be as profitable as O2C in the next five to seven years. What is your outlook on the new energy arm? How much do you think this is going to contribute to Reliance's overall top line? Deven Choksey: Currently, the O2C business is contributing about Rs 62,000 crore worth of EBITDA. And if you go by the statement made by the chairman in the AGM, they are talking about overtaking O2C business of today in the next five to seven years. That means we are talking about creating Rs 60,000-70,000 crore worth of EBITDA making proposition out of renewable business, the Giga Complex. The detailing part provides higher confidence because on one side, they are investing Rs 75,000 crore capex into Giga Complex and taking care of solar, green hydrogen and also the entire battery manufacturing ecosystem, starting from lithium refinery onwards till battery packs that are being supplied for the use of the consumer in the storage space. The important part here is that it is a completely integrated facility. On one side, on the wasteland, they are putting up solar parks. Using that particular power, they are firing their refinery, the petrochemical complex. Using that power, they are also converting water into green hydrogen and take it further. I believe that this is a complete ecosystem that they have developed and put it across and that gives confidence. Plus, the entire electrolyser technology that they are adopting with the multi-gigawatt facility, is going to bring down the cost of the power for use to around Rs 3 to a unit as against conventional power cost of around Rs 9 to Rs 10 per unit. So, this business is becoming more profitable. Certainly, it is a game where you will have to wait for the fruits because implementation is a key part. It is not that they are implementing in a hurry. They are implementing with absolute conviction about growing these businesses into a different territory.