January 13, 2020 by Sujay Seetharaman

(Originally Posted in Pipecandy Newsletter #101)

Heard of Reliance and Mukesh Ambani? No? A while ago, he had Hilary Clinton dance at his daughter’s wedding.

The point is, Reliance and Mukesh don’t do any half measures. It runs in their blood. The Indian stock market was re-invented by his dad, Dhirubhai who founded Reliance. At a time when the stock market was an option for an elite few (in the early ’80s), he convinced 58,000 middle-class families to invest in his stock. My dad did and so did many. 209,900% is the returns from the day it hit the IPO! Not bad, eh?

Daddy built a zoo

Reliance bets big and delivers. They are legendary for their project management skills. India’s energy, telecom and increasingly, internet infrastructure runs on Reliance’s assets. The firm accounts for about 3% of the Indian GDP of $9.4 trillion. Now, Reliance wants to own Indian eCommerce. Daddy Mukesh built an entire-effing-zoo in the middle of nowhere when his baby son wanted to be with animals. Now daddy himself wants eCommerce and he is in a building and buying spree.

India runs on Jio

India is known for Reliance Jio’s highly successful O2O model. Indian eCommerce is roughly about $50B in 2019. India’s internet economy is worth about $150B. Commerce is one-third of overall internet activity. Indians pay bills, recharge their phones (huge pre-paid market!), watch cricket on Hotstar (India’s Netflix is not Netflix) and send a lot of “Good morning” messages to each other. The last one doesn’t pay but you get the drift. India has taken to the internet on mobile like how Trump has taken to the idea of waging a war on Iran.

Jio, which is Reliance’s telco play is built for India’s mobile-first user base. It’s a connectivity company. Reliance doesn’t do half-measures, remember?

In the last couple of years, it bought full or controlling stakes in Hathway cables (broadband and cable provider that reaches 5.5M homes) and Den which reaches about a million homes. Both these acquisitions will help Jio accelerate the launch of Jio GigaFiber services, which already has 15M registrations! For some time, all registrations with annual contracts would get a 4K LED television and a 4K set-top box bundled. Indians love freebies!

So, wired broadband? Checked!

Jio has 5M mobile subscribers which it gained in under 3 years. The national carrier BSNL has roughly 1.5M subscribers and is being dismantled little by little to leave the ground open for private players. Both Airtel and Vodafone, the country’s top telco players each have close to 5M subscribers but both aren’t growing at all, thanks to the aggressive pricing of Jio. For less than $3 a month, subscribers get about 1.5GB a day. No, it’s not an error. That’s how cheap connectivity is in India.

Because Jio boldly went where no company has gone before when it comes to O2O, it is bleeding Airtel and Vodafone to death.

Wireless connectivity? Checked!

Between 2018 and 2019 Reliance did close to 50 acquisitions for Jio. They span from logistics to AI-based chatbots to music streaming to local language translations. Reliance is feverishly building or buying content, tech and the infrastructure required to bring a billion Indians online. They are becoming the WeChat of India. While not a super-app, Jio is becoming the all-encompassing super-business that is connectivity-first.

How about the physical infrastructure and retail presence?

As if the carriage-connectivity-content-commerce onslaught is not impressive, their retail presence is driving a noticeable change in the conglomerate’s revenue composition. While profits are rising steadily, it is transforming into a dominant, mass consumer-oriented franchise. The massive physical store network is another plus for implementing an O2O model that’s flying well with consumers in the West.

Reliance has about 10,644 stores spread across 6,700 cities and towns selling groceries, toys, and jewellery. Apart from this, it also has about 650 Reliance Digital and 7,500 Jio Stores. The latter is the smaller size Jio Stores spread across the rural markets which sell the Jio connections.

Retail is already an $11B enterprise within Reliance.

Where does that leave Amazon and Walmart?

Well, before Reliance signaled its interest in eCommerce, it made some nifty moves at the policy side of things, making life a tad more difficult for Walmart and Amazon.

A new notification brought into effect by the government in February 2019 expects online marketplaces to not enter into any exclusive deals for selling products on their platform. More importantly, they cannot have a single vendor who will supply more than 25 percent of the inventory, besides, also placing some curbs on deep discounts. Ergo, making the field a level playing one for Reliance until it steamrolls by cross-subsidizing everything it owns – from gas for vehicles to insurance to streaming content!

eCommerce GMV of India would be in the neighbourhood of $20B in 2021.

Between Amazon and Flipkart (Walmart), they own less than 50% of this market as of 2019.

Reliance is used to entering markets dominated by duopolistic competition. Airtel and Vodafone owned the Indian telecom space until they didn’t.

Reliance is going where the real India is

O2O Retail in India is likely to be a trillion-dollar market in a couple of years from now. eCommerce is a rounding-error. eCommerce is still big because a country of billion+ people can support a market worth a few billion dollars even when it is a niche. Thanks to how successful O2O is, the real India shops offline. Reliance knows that and that is why it has launched the JioMart app. On the face of it, it’s a grocery app that one can use to buy ‘online’.

But powering the app in its full glory would be 30M offline merchants that dot the hinterlands of India. When they need working capital, connectivity, insurance, warehousing or even sourcing Reliance has all of them, often, available on a click!

The question to ask in 2020 is not about who will win India between Walmart and Amazon. It will be about who will survive Jio in the next 5 years.

Here is a trivia to end to the story – ‘Jio’ is the reverse of ‘Oil’ which is where everything started for Reliance. ‘Jio’ also means ‘live’ which is the reverse of ‘evil’. Well, sounds like it, at least for Amazon and Walmart!

 

Sujay Seetharaman

Market Analyst @ PipeCandy

Currently donning the Researcher's hat. Talks to himself.