Legacy

Dhirubhai Ambani, who gave birth to Reliance, started his mission in 1957 with a small 500 sq. ft. office. He developed a little yarn trading business but always dreamt of establishing India’s largest company.

In 1977, Reliance Textile Industries’ IPO was subscribed over 7 times thus, giving a major financial and morale boost to the company. Following the idea of backward integration, Reliance set up its first mega manufacturing plant at Patalganga under just 18 months. Reliance Industrial Infra was also launched in 1988.

With the idea to reap benefits of backward integration, the Hazira plant was started in 1991 which made them the world’s largest integrated producer of polyester. A huge breakthrough was found in 2000 as Reliance built the world’s largest grassroots refinery in Jamnagar, that too in just 36 months!

The year 2002 witnessed the launch of Reliance Communications as Reliance Infocomm Limited. The same year witnessed the death of Dhirubhai Ambani. From there on, reports of disagreement between the two brothers, Anil Ambani and Mukesh Ambani came to surface. When the feud became public in 2005, their mother Kokilaben intervened to split the Reliance empire.

Mukesh Ambani led Reliance got the soul of the business: Reliance Industries, along with IPCL. On the other hand, Anil Ambani got the responsibility to command Infocomm, Reliance Energy and Reliance Capital.

The oil & gas business took a massive upturn in 2009 when Reliance commenced production of hydrocarbons in its KGD6 block. This helped them to develop the world’s fastest green-field deepwater oil development project. After penetrating the retail business, Reliance Retail becomes the largest retailer by revenue in 2014.

Mukesh Ambani led Reliance ventured into the digital revolution of the country by launching wireless broadband 4G services and Jio. In just four decades, the company has grown from a small start-up to one of the biggest companies around the world. It has been some journey!

Reliance is dominating the current Indian market. Thus, it is no wrong that everyone is talking about this company. Yes, it is a huge empire, but do you know where the revenue and profits come from? Everything below will explain to you how the company makes money from and which segment helps them to achieve this consistent growth.

Revenue and Profit Distribution

Reliance reported a consolidated turnover of Rs 6,59,205 crore for FY20, a rise of 5% over the previous year. Consolidated net worth also increased by 15% to reach Rs 3,75,734 crore. Reliance operates in several markets. From trading yarn to oil and now to digital transformation, Reliance has ventured in many spaces. The tables below show which segment has contributed more to revenues and profits over the past four years.

2017201820192020
Refining63.7%56.4%50.9%47.8%
Organized Retail8.6%12.8%16.9%20.1%
Petrochemicals23.5%23.1%22.3%17.9%
Digital Services0.2%4.4%6.3%8.4%
Crude Petroleum2.7%2.3%2.9%5.2%
Percentage contribution of different segments to Total Revenue
2017201820192020
Refining65.5%49.4%33%30.1%
Organized Retail2.0%3.8%7.7%11.3%
Petrochemicals34%40%46.7%36%
Digital Services-0.1%6.1%12.6%20.3%
Crude Petroleum2.8%3.2%1.7%3.1%
Percentage contribution of different segments to Net Profits

Digital Services

Jio is an entire ecosystem which aims to help Indians enjoys digital life to the fullest. It aims to cover 90% of India’s population in the next year. Under the music stream, it acquired Saavn and turned it into Jio Saavn. To counter zoom’s dominance, it launched video conferencing app JioMeet. Reliance Jio became the number 1 ranked mobile telecom operator in the country by both Adjusted Gross Revenue (AGR) and subscribers.

India has around 450 million unique smartphone users, second only to China in the whole world. This gives them additional motivation to turn this segment into a cash cow and utilize the already dominated market.

Jio has been the driving force behind RIL in the past four months. With the world under lockdown, the oil & gas domain faced a drastic decline in demand. In these extreme times, sale of stake in Jio Platforms helped the company become net-debt free much before their targeted time.

Revenue from this domain has increased by a CAGR of 226% in the past four years. In 2017, the digital services made just 0.7% of the total revenues. This has increased to 8.4% in FY20, according to the recent annual report of the company. Digital services were accruing losses in 2017. But a well-planned strategy has made this segment the crown jewel of Mukesh Ambani. Jio contributed around 20% of profits for RIL this year.

Source: Author’s own creation

Refining and Marketing

Reliance R&M helps in making a wide range of products like Liquified Petroleum Gas, Propylene, Gasoline, Jet fuel, sulphur etc. These products are used widely as domestic and industrial fuel, transport fuel, feedstocks for fertilizer and pharmaceuticals, etc.

The global oil industry has been in turmoil since the spread of COVID-19. The demand for oil worldwide fell to the lowest level since 2011. From 2018 to 2019, this domain registered a growth of 29% but things were way different this year. FY2019-20 revenue from this segment fell by 1.6% y-o-y to 3,87,522 crore. Crude oil prices fell massively. This made the production more expensive for the company. Thus, their gross refining margin (GRM) fell to $6.3 per barrel from $8.1 per barrel.

The problem in this segment is not in the top line, but actually in the bottom line. Even though the revenue is decreasing at a gradual pace, the profits contributing to the total profits is decreasing even faster. In fact, in the space of four years, profits % contribution has fallen by more than half. Good time to switch from oil to telecom maybe?

Source: Author’s own creation

Retail

Reliance Retail is the retail segment of the Reliance group. The retail serves under the food and grocery, consumer electronics and fashion & lifestyle category. Reliance Trends, Trends Women, Reliance Fresh, Reliance Smart, Reliance Footprint and Reliance Jewels and some of the stores under which Reliance operates.

The general perception is that growth in digital services is helping the company to thrive. Here’s an eye-opener. The retail business of Reliance has grown with a CAGR of 382% during financial years 2017-’20. This is in contrast to digital services’ 226%.

The company has focussed on store expansion and increasing the number of product mix so that the consumers can consider it a one-stop-shop. Roll-out of the Digital Commerce initiative will further increase customer’s awareness and customer’s accessibility.

Recently, Reliance Retail and WhatsApp entered a partnership to support small businesses on WhatsApp via JioMart. And as many reports suggest, Reliance is inching closer every day to acquire Future Retail as soon as possible.

Source: Author’s own creation

Petrochemicals

Reliance is among the top ten largest producers of petrochemicals in the world and the biggest in India. Petrochemical is a chemical which is obtained from refining of petroleum and chemical. These chemical compounds are later used to manufacture a range of products which comes is the daily use of people. Few products are resins, synthetic fibres, plastics, detergents and pesticides. With the power of chemistry and innovation, the Reliance focuses on making several products across agriculture, automobile, housing, industrial and healthcare. The company produced a range of polymers, aromatics, polyesters, etc.

The disturbed global factors related to oil echoed in petrochemicals performance this year. Their overall contribution to the revenue decreased from 22.3% last year to 18% this year. Due to lower price realization and lower sales, revenues from this segment has decreased by 15.5%.

Last year, revenues amassed from petrochemicals was Rs 1,72,065 crore. This year, it fell to Rs 1,45,264 crore. Petrochemical has been the second most revenue generated area for a while but this changed in FY20. Organized retail leapfrogged the petrochemicals by almost 3% when it comes to revenue contribution.

Petrochemical has always been one of the biggest contributors to total net profits for Reliance. From 2017-19, it has increased from 34% to 46.7% but with the pandemic affecting half of the financial year, expenses shot up due to trade barriers. This has resulted in a decrease in contribution from 46.7% to 36%.

Source: Author’s own creation

Shortly, we will be knocking on your doors to explain each and every segment in detail. Until next time.

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