This is an audio transcript of The Morning Brief podcast episode: Reliance AGM 2022 - The TMB Takeaways 

BG 0:01  

This is the morning brief from the economic times. 

Kalpana Pathak 0:12  

For a company that started the equity culture in India, its annual general meeting with shareholders has always been an event as large as its operations. Always a family affair.

Mukesh Ambani 0:27  

It is his vision, Dhirubhai's vision and values that have guided us in this magnificent journey of Reliance

Kalpana Pathak 0:41  

where every member of the family plays a critical role from the adults to even the GenNext 

Isha Ambani and Akash Ambani 0:48  

Good afternoon everyone. I am Isha Ambani and I am Akash Ambani.

Kalpana Pathak 0:56  

Always dramatic with even some of the top global CEOs making cameos.

Mukesh Ambani 1:02  

We have with us a special guest, the CEO of Google Indian icon, Sundar Pichai. I have with me today, the CEO of Qualcomm, Mr. Cristiano Amon. I am delighted to welcome Yasir Al-Rumayyan chairman of Saudi Aramco

Kalpana Pathak 1:24  

Tips down the memory lane, nostalgic, sometimes Highwood, melodrama and value systems.

Mukesh Ambani 1:31  

For the first 25 years I sat by the side of my father, who tutored me with boundless affection, attention and hope. I can feel as if he is sitting here, smiling and talking to me and to all of you.

Kalpana Pathak 1:50  

And off late, a platform to make mega announcements AGM's have never been so high voltage for any Indian corporate. It's Thursday 1st September from the economic times. I'm your host, Kalpana Pathak, and you are listening to Reliance AGM 2022 the morning brief takeaways.

Kalpana Pathak 2:08  

In this episode, we asked three of our colleagues Writankar Mukherjee, Kalyan Parbat and Arijit Barman, what's their key imports from the AGM announcements for the three main verticals, retail, telecom and energy? Writankar is ET's in house expert on retail Welcome to the Morning Brief. What does RAS announcement about expanding into the FMCG segment mean for the company and the sector.

Writankar Mukherjee 2:40  

So Reliance has been trying to expand the retail business beyond the core area of organized retail. They have been telling us that organized retail is just eight to 10% of the Indian retail market. And they have that much space to grow. Whereas if they can enter into the wholesale business, or eventually FMCG, that would be a much bigger part of the market. So as you know, they have already tried to make an entry in to the wholesale segment. And they've already started with Kirana's and also for electronics and apparel. So that pie they have already done in the last two years. And FMCG is going to be the focus area now. So they would initially sell through their own stores. And also they have around 15 lakh Kirana's into the network right now who source products from their network. So they look upto them. And eventually they would have a proper distribution setup reaching out to multiple kirana's. But that is still work in progress. So it's basically a strategy to scale up the retail business and maybe have a larger pie of the market than just organized retail.

Kalpana Pathak 3:50  

So what is Reliance retail market share right now,

Writankar Mukherjee 3:53  

going by the revenue they are no doubt the largest and the nearest competitor would be D Mart which is Avenue supermarts. They would be around 1/3 The size of RIL in the core retail business. So they are three times bigger than the nearest competitor. And the rest of the companies are much much smaller in terms of revenue or profit.

Kalpana Pathak 4:14  

And what does Reliance retail FMCG expansion mean for the HUL's and ITCs of the world.

Writankar Mukherjee 4:19  

Now getting into FMCG and competition with pure FMCG players like HUL ITC or Godrej consumer would be too far fetched to compare right now because FMCG is a very different business. It requires a distribution network It requires understanding of consumer behavior as well as investments and marketing and brand building. So it's a long term play, as we know that ITC has tried to do that in the last 10 15 years and they are just still now just a 50,000 Crore company in FMCG. far behind the target to reach one lakh crore revenue by 2030. Even if the pandemic was not there I think that was an ambitious target. So it's a very different ballgame. There are already the players like HUL, which are here for lots of years, Nestle and all these companies have a far deeper distribution system and its distributors are very loyal. So they're unlikely to change brands. So we should not compare their FMCG play with some of these large brands. I mean, Reliance is obviously going to be aggressive, but it's a different ballgame.

Kalpana Pathak 5:28  

So what do you think would be RIL's strategy for the FMCG space given its formidable private labels presence?

Writankar Mukherjee 5:34  

So what we understand from the management is that they have a private level presence, which they would take out to the open market to kirana's. And that apart, they are looking at multiple acquisitions, which would be local regional brands, or brands, which were popular at one time and now has probably died or not that relevant. They have tried that in electronics, they have licensed two brands, which were very popular at one time, BPL and Kelvinator. It's their own licensed brand. And they have relaunched the bands with a lot of new products, and they have been quite successful. And now they're also started selling those in other electronic stores. So they have tried and tested that model. And they want to replicate that in FMCG, as well, what we understand is that they are already in negotiation with two dozen search local and regional brands. And they have already signed the deal with at least three of them, including one of the legendary soft drink brand Campa, or Campa Cola, to remember the 70s. And so they've already signed that brand, they have acquired the brand and they will relaunching the brand. And they are in negotiation with multiple such brands. So that's a strategy they would look at, apart from taking their own private levels, which are doing reasonably good in their own stores, accounting for 20 to 30% of the categories service be your groceries, your soaps or shampoo or even your grooming products. So it will be interesting to see how they do it. But again, whether a consumer would prefer a Lux soap or soap launched by Reliance, that's something we need to watch out for, unless they acquire soap, which is popular in the market and which consumers are aware of. So it will take some time till they build a proper portfolio and take it to the market. So it won't be just private label but even third party brands, and that would be very critical for their success.

Kalpana Pathak 7:37  

Mr. Ambani told shareholders that he will share an update on the planned IPO of Reliance retail NGO in the annual general meeting next year. How do you think these strategies will strengthen Reliance retail when it hits the market for an IPO in future?

Writankar Mukherjee 7:51  

So these strategies have whether it's the b2b retail, which they're looking at which they call new commerce, or FMCG will be vital because that will add scale to the company. So we know that new commerce and E commerce as in both b2b and b2c e commerce together accounts for around 20% of the revenue and this is just in one and a half years. So FMCG will again play a role in scaling up but FMCG is also a business where you need to do a lot of category investment in the beginning. So a lot of money is required for investment that impacts your margins. So it would be interesting thing how the balance the margin play, whereas trying to get a higher share of the top line, but they might be postponing it for one or two years just to ensure that the scale of the business increases much more with both FMCG and new commerce or wholesale as they call it.

Kalpana Pathak 8:46  

Another cog in Reliance's Growth Wheel is Reliance Jio which is betting big on the 5g segment. Reliance will invest rupees two lakh crore in Jio by 2025 and deploy the latest version of 5g called standalone 5g. Kalyan Parbat, who has been tracking telecom for two decades tells us how important is 5g and standalone 5g For reliance.

Kalpana Pathak 9:17  

Kalyan Welcome to the Morning Brief 

Kalyan Parbat 9:18  

pleasure pleasure, 

Kalpana Pathak 9:20  

Kalyan if you could help me understand why is geo betting so big on 5g. 

Kalyan Parbat 9:24  

So basically, the industry is down to essentially two strong players and one week struggling telco, the opportunities are enormous. The use cases are just starting to develop the handset ecosystem for 5g is also developing pretty rapidly. So it's a perfect time to get into 5g to, you know launch networks and make the most of the use cases and the ecosystem that's evolving and Jio as the undisputed telecom market leader with over 40 percent revenue market share with a countrywide arsenal of over 400 billion 4g customers is just perfectly geared to take the plunge and further consolidate its you know, mobile broadband play.

Kalpana Pathak 10:14  

Could you help us understand what is a standalone launch and what is the difference between standalone versus a non standalone

Kalyan Parbat 10:20  

in this case, a standalone 5g network is one that purely runs that is not dependent on existing 4g network infrastructure, you know, or spectrum or any of that. It is a network which is totally dedicated to 5g mobile broadband communications. So that's what a standalone network is. But as a non standalone network typically rides on existing 4g infrastructure and spectrum and uses some 5g airwaves as a combination as an add on to you know, generate the kind of 5g like speeds on a basic 5g infrastructure. So that's what non standalone is. And worldwide majority of the 5g action that you see currently is on through the non standalone mode, which is popularly known as NSA, in the sense that over 90% of the 5g traffic that you have worldwide is all passing through non standalone 5g networks, so that may stand alone is still in its infancy, and will take some time to really catch on, although it is reckoned to be a superior form of 5g,

Kalpana Pathak 11:25  

 and how will it be a standout feature for Reliance Jio,

Kalyan Parbat 11:28  

they're the guys who have invested in you know Pan India 700 megahertz spectrum which they're planning to use purely for their standalone net 5g network, Jio is of the view that with 700 Pan India spectrum, they would be able to offer a real 5g Kind of an experience speeds superior in building coverage, superior coverage in rural areas, which would typically instance you would require fewer number of towers in rural India to rollout of 5g networks, which would be effective from a cost perspective. And on top of that, they've got Pan India 700. So they're in a position to do what they call carrier aggregation, which is, you know, they can combine all the airwaves, disparate airwave brands that they have to offer a cocktail a unified you know, high octane data highway offering.

Kalpana Pathak 12:26  

It is pertinent to mention here, that when Reliance nounce, its intent to venture into Telecom, the industry was skeptical. After four years of scrapping the non compete agreement with his younger brother, Anil, Mukesh, Ambani in 2014 founded the telecom startup Reliance Jio Jio launched services in September 2016. And within a year had 100 million paying customers Ambani told the shareholders that Jio has broken one world record after another and prove the skeptics wrong. kalyan do you see a similar script being played out with Reliance's 5g bet here will SA help Jio gain more market share? And what about competition?

Kalyan Parbat 13:09  

Clearly, SA is expected to be a superior form of 5g which will allow Jio to offer real low latency applications particularly and very strong in building coverage in urban zones, which would obviously give any telco a head start and acquiring top end customers because if you can offer superior broadband coverage in building broadband coverage inside buildings in densely populated zones, that is a huge driver for market share expansion.

Kalpana Pathak 13:43  

So when Mr. Ambani says that 5g standalone is the best do we have the handset ecosystem to match that? Or is there a disconnect there?

Kalyan Parbat 13:52  

It's not gonna happen overnight the devices ecosystem around 700 is still developing the handset ecosystem does not exist as of now. 

Kalpana Pathak 14:01  

Yeah,

Kalyan Parbat 14:02  

 if the devices ecosystem you know sort of matures it will be if it evolves rapidly, you know, standalone you on the 700 band can become a very powerful value proposition from in the 5g sweepstakes.

Kalpana Pathak 14:17  

Can you give me some color on what is the competition doing with regard to 5g and what is the Jio X Factor?

Kalyan Parbat 14:24  

Jio is typically looking at using a standalone network to do machine to machine communications network slicing Metaverse Metaverse you know, it's going to be the new age business and a virtual world which is going to be driven by 5g technologies such as augmented reality Virtual Reality blockchain. And insofar as what competition is doing Airtel has announced pan India plans first wave of launches will happen in October, and Pan India, launch is expected by March but I would say Airtel is keeping the faith on the NSA non stand alone mode, because that is the one which is more evolved globally with over 90% of worldwide 5g traffic running on such networks, Airtel is also convinced that NSA 5g architecture would be more cost efficient, it would have it will, you know, typically offer the advantages of sweating, its 4g assets better, it will also leverage a more globally established network of gear makers to be the early bird in the 5g space because you have the benefit of the ecosystem, unlike a 700 system, which is still to mature from a handset ecosystem perspective. But you know, the Jio has always been a disrupter. And there are very strong parallels with their 4g entry. If you remember when they came in with 4g in 2016. The older players like airtel, then the standalone Vodafone idea, and standalone idea cellular they were all doing 2g and 3g, but Jio went ahead and came in with a Pan India 4g network. They came out with a completely different technology. And regardless of the fact that they were over 300 to 400 billion 2g users at that point of time, so they didn't really care. So they took a very contrarian stance. Now we see similar parallels emanating this time round two, they're coming out with a standalone 5g network, they are betting big on a standalone 5g network. So which is why they are betting on a technology of the future. They have a very integrated holistic 5g game plan. So obviously there's it's totally thought out. 

Kalpana Pathak 16:37  

Mr. Ambani mentioned private networks in the speech and that's where Adani is also making plans or tech players or to want the same so we'll standalone 5g gives Jio an an edge in this particular segment. 

Kalyan Parbat 16:50  

Yeah, so definitely private networks smart factories is going to be a huge use case one standalone networks truly evolved and the ecosystem matures. So like I said all these things including machine to machine communications or driverless cars within complexes like boards, which Adani is typically looking at all these things would become very realistic euros use case once the ecosystems around standalone 5g matures. That is like I said, that is still some distance away.

Kalpana Pathak 17:22  

Right point taking. Jio has taken digital mandate to the villages, no doubt. But what about the ARPU's to sustain one's 5g investments?

Kalyan Parbat 17:31  

That's a great question. In fact, Jio is putting in two lakh crores and that's what Mukesh Ambani Reliance Chairman announced. Now Goldman Sachs has apparently said that Jio will need to boost its annual operating income and revenue to the extent of 32,000 crores and 50,000 crores to generate double digit returns post tax. So, now, that's not going to be a very that's not going to be a cakewalk right. And Goldman Sachs also estimates that Jio would need to boost its monthly ARPU's by at least another 100 rupees a month, they need to rise from 176 to 276. Jio will be facing a tough opponent in Airtel, which has a strong balance sheet with a low leverage ratio.

Kalpana Pathak 18:20  

So tell geo actually increases the ARPU who cross subsidizes the ARPU's

Kalyan Parbat 18:25  

 clearly one of the biggest challenges for Jio is going to be to monetize to generate double digit returns on its two lakh crore, 5g investment worldwide. 5g Mobile hasn't really generated meaningful incremental ARPU's for telcos, telcos around the world are banking on enterprise solutions. So I don't see very dramatic ARPU growth in the near term happening. My sense is, unless the 5g Enterprise revenues turn meaningful, all the telcos are going to be looking out for regular opportunities to hike Mobile 5g Mobile Broadband tariffs. So consumers like you and I will end up paying more to you know, generate the ARPU's for the telcos,

Kalpana Pathak 19:20  

as part of Reliance's pivot from fossil fuels to New Energy, last June, the company decided to spend rupees 75,000 crore in setting up for giant factories in the renewable energy segment. This year, it committed another's rupees 35,000 crore in petrochemicals. What does it mean for the company? Let us hear from Arijit. Arijit Welcome to the Morning Brief. Let me begin by asking you how do you see this years announcements on the energy front

Arijit Barman 19:57  

Good morning. Thank you for having me. Well, this year's announcements on New Energy, I would say were nearly top ups, the foundation has already been laid or was laid last year. So these would be, you know, the additional toppings to a pizza. So there is one more giga factory now for power electronics, clearly to offset the overwhelming influence of China in the global supply chain. So one more giga factory in addition to the four Giga factories, the management also came up with some timelines, such as production of battery packs by 2023, and up to 50 gigawatts per hour capacity by 2027. Stiff timelines. But now we have more clarity that the clock is really ticking and ticking fast. Finally, they also made an announcement, which I would say again, more of a top up that the commencement or the beginning of the transition from gray to green hydrogen, which is gray means hydrogen, which is comes out of LNG, or gas to green hydrogen, which is hydrogen, which is fired from renewable sources that will begin by 2025. So all in all, I would say, more incremental. 

Kalpana Pathak 21:21  

How do you see RIL's New Energy push versus peers and especially when RIL is talking about a manufacturing ecosystem being in place? 

Arijit Barman 21:30  

That's the difference. You yourself said that. So far in India, most of the renewable companies have been IPPs or independent power producers. Look at ReNew, look at Greenco. Look at even Adani first push was to generate solar or wind power. Now here was Reliance that was actually talking about manufacturing. Now, I would guess and they haven't openly said that the reason why they were talking about manufacturing and not so much of generation and generation only for captive requirements is because generation means tremendous government overlays. Whether it's a central government, whether it's a state government, remember power is a concurrent subject. So state has a say the center also has a say, and often we've seen the state and the center has been at loggerheads discoms, a key buyer of power from this generation companies are all bankrupt. So why get into PPAs which could potentially get reneged, why get into this tussle of free power and the politics involved around power, instead focus on manufacturing, because that was also coinciding with the manufacturing push that the Prime Minister Modi's government was actually catalyzing. So, the difference fundamental difference is not so much generation, but more manufacturing. And at the same time, as I said, it's not shying away from the generation 20 gigawatts, it is still generating that same huge amount of solar power generation. But as of now, all that they're saying is it's only for their own needs at Jamnagar, which is the mega refinery and for the Mega, or the Giga factories

Kalpana Pathak 23:19  

very well. But do you think it lacks expertise? Because I mean, Ral spreading itself too thin with solar green hydrogen, battery, bioenergy and now offshore wind as well.

Arijit Barman 23:31  

Yes, that indeed, if you ask me is a challenge. Although, nobody can doubt Reliance's ability to execute mega complex projects. But still, this is virgin territory. Also, because the technologies involved at the back end to make it all work. They are fast changing. So unlike Telecom, where it had some experience in the past, this is more like they followed something very similar to retail, which is you build but you also buy. It's taking divergent bets, cutting across technologies, buying an investing in companies with competing technologies. So it's investing in lithium companies, which are into lithium ion batteries. It's also investing in companies like Faradion, which is into sodium cell. Now sodium and lithium they compete. So it's more like a venture capital play. You spray and you pray multiple funds. For one clicks. It's bonanza.

Kalpana Pathak 24:33  

So talking of battery Arijit, you've already touched upon that but I wanted to ask you of all the technologies in battery that RIL is backing, which one do you think is the most exciting and why? 

Arijit Barman 24:44  

Well, to me the most exciting is sodium. So reliance is expecting to start production of battery packs from next year onwards. Now, why is sodium so exciting? lithium ion battery is ubiquitous. and omnipresent. It's from smartphones to Tesla's cars. Lithium ion batteries are everywhere. So here is Mr Ambani, one of the richest man in the world who made a small bet 136 million to back a startup from Oxford, UK, that is working with the humble sodium, sodium, se namak bantha hai. It's the basic chemistry behind salt. So it's, it can't get more basic than that. Now, why do I say it's more interesting is because for one thing, sodium is abundantly available. I was reading in a Bernstein research that the Earth's crust has 300 times more sodium than lithium. Now, the global adoption rate of electric vehicles is currently so high. And it's so fast that it's not just lithium, but high grade nickel, cobalt. practically anything that goes into the evey battery ecosystem is getting scarce. So the first time ever, battery packs are more expensive in 2022. So coming back to sodium, it makes sense to back a technology that's as cheap as the traditional lead acid batteries and requires ingredients that are so easily available, easy to source. To put it simply Mr. Ambani is not getting into a space where the Chinese are already up. He's getting into a relatively newer play, where the Chinese have not yet mastered or cracked the formula. And there are no other serious deep pocket players anywhere in the world, including in India. This is why sodium is strategic. And this is why sodium is to me the most exciting story

Kalpana Pathak 27:04  

as Reliance aims to grow. Ambani and his team is leaving no stone unturned in grooming daughter Isha and two sons Akash and Anant. And even as the three learn the ropes, the company and the family are set to be putting in place a limited liability partnership structure considered an efficient way of succession planning, tax planning and wealth preservation. Arijit for the first time, Mr. Ambani officially indicated what the roles for next gen will be at Reliance. How do you read that? 

Arijit Barman 27:34  

Well, there was a lot of speculation that this time not only will he spell out the succession plan, but he will also give an indication of a demerger. I would say there were in both cases there were enough and more hints, but the dice was already rolled way back in June. You know if you remember end June, Mukesh Ambani actually stepped down from the board of Reliance Infocomm limited, which is the group's telecom arm to make way for his son Akash. Right to take over as chairman. So that to me, was the first chapter. Now, this time around, he's clearly said Akash with the first amongst equal very carefully worded speech, he was very, very clear he they are they are the first amongst equal because Reliance is also trying to portray itself as a professionally run company. Daughter, Isha more the super boss of retail and youngest of them all Anant to spearhead the new energy business. The old legacy oil to chemical business basically now runs on autopilot Anant already oversees that new energy will be the additional one. But he didn't go all out to you know, give the brass tags or go granular and it's unlikely that Isha Ambani is going to take over as the chairman immediately, probably maybe towards the end of this fiscal Isha definitely will get straight into the holding company of retail because retails corporate structure is similar to that of telecom since October 2014 Akash and Isha are formally given the business roles, but there is no Ambani family member on the board of the operating retail company. I'm not saying this Roc data says this and that is unlikely to change in the future as well. There are people who are close aides of Mr. Ambani Mr. Subramanyam Venkatachalam Who's the MD the MD of Reliance retail ventures doubles up as the whole time director of Reliance retail, limited now it's unlikely that Isha Ambani will become the boss of the operating company. Why? Because According to Reliance's officials and people we spoke to, they feel retail is a more sensitive, politically sensitive, there could be lawsuits, there could be several other issues. So, they want to keep the family insulated. So, as per the Companies Act, one cannot become the chairperson of a company without first being a director of the company. And shareholders decided their board of directors and the board of directors in turn decide the chairman of the board. So, what that means you have to become a member of the board first to become a chairman. So, that means Isha is unlikely to become a chairperson of Reliance retail limited, which is the operating company instead, over the next few years, you will see both Akash and Isha getting elevated straight as chairpersons of the telecom and the retail holding companies simultaneously, while Mukesh Ambani takes a more strategic role Anant he's still learning on the job and that's something that Mr. Ambani also said in his speech, oil and gas has always been his forte, his passion he spends half the time in Jamnagar. So naturally as a corollary, he is also getting involved in the new energy because that's an extension of the legacy business.

Kalpana Pathak 31:25  

It has said that when Mr. Ambani inherited the oil and gas business from his father over two decades ago, the blueprint of the expansion into retail and telecom were already laid out. And as India's most valued company, charts out the next course Ambani isn't retiring yet, he has been emphasizing on his vision for the internationalization of reliance, possibly why Reliance has been making bids for overseas deals like it recently did for the British chemist chain Boots. And of course not to forget his call for top notch talent from India and around the world at the AGM on Monday. It however remains to be seen how far will Reliance go with Gen next at the helm? 

You were listening to Reliance AGM 2022 the morning brief takeaways with me Kalpana Pathak, thank you Writankar, Kalyan and Arijit for your insights producers for this episode are Surbhi Modi and Anupriya Bahadur sound editor Indranil Bhattacharjee, executive producers are Anupriya Bahadur and Ariji Barman. If you liked this episode, please do share it on your social media. Morning Brief airs every Tuesday, Thursday and Friday. Do tune into et play our latest platform for all audio content, including the morning breeze. Thank you for tuning in.

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