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How Reliance made chaos into a ladder

The Nutgraf is a 10-min newsletter sent at 10 AM IST every Saturday. It connects the dots and synthesizes one big event in business, technology and finance that happened over the week in India. In a way you’ll never forget.

Just 10 mins long Synthesis not analysis Sometimes memes

The world may be falling apart, but India’s mightiest company has never been in a stronger position

Read this edition online
A paid 🔒 weekly emailer that explains fundamental shifts in business, technology and finance that happened over the last seven days in India. In a way you’ll never forget. Someone sent you this? Sign up here
Good Morning Dear Reader,
 

The past couple of weeks have been extraordinary. 

 

At The Ken, I’ve watched my colleagues with awe and admiration as they went about their jobs of painstakingly sourcing, analysing, and publishing one blockbuster story after another. First, there was the story about a surprising new telecom entrant, followed by an account of what’s going on inside Zilingo’s battle with its ex-CEO, Ankiti Bose. Then, there was the extraordinary tale of why Amazon India is unhappy about paying US$100 million annually to send SMSes. And earlier this week, we broke the internet (and our website) with our piece on why Deloitte, which audits Byju’s, hasn’t yet signed off on the edtech’s 2021 financials. 

 

Anyway, I felt that my colleagues deserved a shout-out this week because investigative journalism is much harder than you can imagine. There are several reasons why other business publications, print or digital, don’t publish stories like this. And I think we all know what those reasons are.   

 

Meanwhile, the rest of the world seems to be falling apart. The effects of a slowdown are being felt, and inflation is at a multi-decade high in India. The war in Ukraine continues to grind on. The pace of companies laying off employees is rising, and crypto… well, the only thing I can say for certain about crypto is that everyone in there is going to have a worse day than the rest of us for the conceivable future. 

 

Anyway, amidst all of this, one company seems to not just be unaffected, but is in its strongest position ever. 

 

And that company is Reliance. 

 

Stock prices are an imperfect way to measure sentiment, but consider this. In the year till date, both major indexes, the Sensex and the Nifty 50, have plummeted by double-digit percentage points. Meanwhile, for the same period, as of yesterday, Reliance is up by nearly 18%. 

 

To me, this is extraordinary. Because for a while now, I’ve believed that Reliance was one of those companies that seemed to be vulnerable on multiple fronts. 

 

I’ve written about this in detail, like how it was supposed to launch the next version of the JioPhone last year and why that hasn’t happened. In online retail, it’s working hard to displace not one, but two e-commerce giants. In offline retail, it has to figure out how to get FDI funding. Then, it has plans to go big in media and OTT, a sector where incumbents seem to be struggling. 

 

And if you are a longtime reader of The Nutgraf, you’ll know why telecom is one of the most unforgiving businesses in India. I’ve told you that many times already, anyway. 

 

On top of this, a cratering economy (which reduces consumer spending power) and rapid structural instabilities like war, inflation, and a disrupted fuel market seldom work in favour of large incumbents like Reliance, who thrive on stability and established relationships. 

 

And yet, I was wrong. 

 

The world is in chaos, and Reliance has made chaos into a ladder. 

 

Let’s dive in. 

Reliance's four victories 
If I had to step back and look at why Reliance is in a great position in 2022, I suppose it’s fair to attribute it to a combination of factors—like its ability to bring financial might to the table, and swiftly find a way to take advantage of a dynamic situation (something it usually does well); the fruits of all the hard work it has done over the last few years; old-fashioned street fighting; and some luck. 
 

Here’s how it panned out, one by one. 

 

Jio’s inexorable crawl to pole position in telecom 

 

The story of India’s telecom sector goes something like this. Once upon a time, the sector was dynamic and vibrant with over a dozen players. Then, Jio entered the scene, and things were never the same again. Cut to five years later and there were three major telecom players (no, BSNL doesn’t count), and one of them, Vi, seemed like that exhausted, sleep-deprived person at the party who just wants to leave but is being persuaded to stay for just a little bit longer.  

 

So that left Airtel and Jio. 

 

After a long, bruising war that lasted for nearly half a decade, Jio finally surpassed Airtel to become India’s largest telecom player with the most number of active users. But then came 2020 and 2021, and Jio felt stuck. That’s because even though Airtel was trailing Jio, it had the better users. So it had a much higher average revenue per user (ARPU) than Jio, which was fighting to keep the users it had acquired. 

 

As we wrote last year, Airtel was perfectly happy being #2. 

 

And Jio found itself stuck in what we called a K-shaped conundrum. It was struggling to add new users. 

That was 2021. 
 

Here’s what’s happening in 2022. 

Telecom market leader Reliance Jio held on to its active user base in April 2022, even as nearest rivals Bharti Airtel and Vodafone Idea (Vi) reported heavy losses on this score. Both Airtel and Vi were stung by a combination of 4G tariff hikes taken last November and costlier entry-level smartphones.
 
Jio’s active user base in April was virtually unchanged at 379 million, while Airtel and Vi lost 3.1 million and 3.8 million active users, reducing their active users count to 353 million and 222 million respectively, latest customer data put out by Telecom Regulatory Authority of India (Trai) showed.
Jio extended lead over Airtel in April on active user base, The Economic Times
And the money quote appears a few paragraphs later. 
Analysts, though, said Jio’s steady active users scorecard indicates its prolonged clean-up of low-paying and dormant users is finally over.
I feel like this is significant? You’d expect tariff hikes to affect Jio more than Airtel (which it probably did the previous quarter), but it looks as though the roles are reversed. Now, Airtel is the one that seems to have a few lower-end users it’s trying to shed, while Jio has the right set.

 

Right now, Airtel still has the better ARPU, but some analysts feel that Jio is in a position to make strides on this key metric later this year. There’s some history here. In the previous quarter, Jio’s ARPU went up by an astonishing 10.5%, which was the highest growth rate in the industry.

 

If you are a telco competing with Jio, I imagine it feels like one of those Terminator movies. Jio is coming for you. Slowly. Inexorably. Unrelentingly. And there’s nothing you can do about it. 

 

And with 5G auctions around the corner, it looks like 2022 is the year that Jio grows even stronger. 

 

In retail, Reliance has got its cake and eaten it too

 

Remember how Reliance beat Amazon and took over Future Group? 

 

If you don’t, then there’s no way I can explain all those twists and turns in a few sentences. Instead, just read what I wrote a couple of months ago. It’s really a phenomenal story. 

 

Basically, Future Group’s creditors are trying to liquidate the company. Amazon is an equity investor and does not want that to happen. So Amazon’s lawyers spend days and weeks in all kinds of courts and drafting increasingly threatening letters to Future Group’s directors, calling them all kinds of names. Words like fraud and collusion are liberally used. 

 

And what is Reliance doing? 

 

Well, after taking over Future Group’s stores overnight, it’s now in the process of setting them up.

Reliance Retail is still in the process of opening the stores it took over from Future Group towards the end of February. In all, it had taken control of 947 stores of Future Group, and planned to open them within 45 days. While some stores are functioning under the banner of Smart Bazaar -- a grocery retail outlet of Reliance Retail -- others remain shut as Reliance Retail is yet to take a call on their business viability.
 
According to various sources in the know, Reliance Retail has taken stock of the Future Group stores and is in the process of taking a decision on eliminating some stores that may be of similar formats and in vicinity of its own stores. For example, Reliance Trends and Future Group's Central and fbb operate in the apparel and lifestyle fashion segment. fbb stands for Fashion @ Big Bazaar.
Reopening 'Future' stores a work in progress for Reliance Retail, Business Standard

Somehow, Reliance seems to have walked away with Future Group’s stores but with none of its financial liabilities. And poor Amazon has shifted from fighting with Reliance to now battling Future Group’s lenders, which includes the Bank of India.  

 

I mean, if this isn’t a good outcome for Reliance, then I don’t know what is. 

 

Reliance is making oil work

 

You’d think that a global oil crisis and war would be bad for Reliance, which has vast interests in oil and gas. 

 

Well, think again. 

 

It turns out, Reliance has found an opportunity here too. 

 

Before the war, Europe bought a large chunk of oil from Russia. Then Russia invaded Ukraine and Europe decided to scale back on oil imports to teach Russia a lesson. Russia then looked around for countries who wanted to buy from it. Enter India, which is currently importing cheap oil (relatively) from Russia at an unprecedented scale. In fact, just recently, Russia become India’s #1 source of oil, displacing Saudi Arabia. 

 

So what does India do with all this oil? 

 

Well, it refines it into petrol, and notably, diesel, and sells it to Europe at a much higher price. It’s both sad and hilarious. I’m used to European countries following this playbook with countries in Asia. Here, it’s the other way around. 

 

And guess who gains from all this?

Ajay Sahai, chief executive at the Federation of Indian Export Organisations, said that “there have been a lot of inquiries that have flowed to India, particularly for import of diesels from India. Those came from European countries.”
 
Nayara Energy, partly owned by Russia’s Rosneft with commodity trading firm Trafigura holding a 24.5 per cent stake, and Ambani’s Reliance Industries are importing the largest volumes.
 
Reliance is responsible for “95 per cent plus” of India’s refined oil product exports to Europe, said Janiv Shah, downstream analyst at Rystad Energy. With Europe’s diesel shortage “here to stay” Reliance is “currently one of a shortlist” of potential refiners that could fill the vacuum left by Russia, said Shah.
Ambani’s Reliance among Indian refiners targeting diesel exports using cheap Russian crude, Financial Times

And then, there’s cricket

 

I could write a lot about this, but honestly, I don’t think I can do any more justice to it than my wonderful colleague, Jaideep, who wrote a stellar piece in his newsletter Moneyball on what Reliance’s wins in the IPL media rights auction mean. 

In a nutshell, Reliance can open up the IPL to hundreds of millions of Jio subscribers for free and allow advertisers to target them based on their likes and preferences, measured by their activity across the Jio ecosystem. Along with that, it can integrate FMCG brands—whether its own or external—and perhaps even restaurants with the live stream, and allow viewers to buy the products while they’re watching the matches.
 
And this is just the Jio ecosystem we’re talking about. Non-Jio subscribers will be able to watch the IPL the regular way—by buying a subscription of Reliance’s OTT platform. Reliance already has a streaming platform, Voot, under Viacom18. But as I had reported in an earlier edition of Moneyball, Reliance plans to launch a separate sports-focused OTT platform later this year. This is most likely to be under the Sports18 brand, which is the sports television network Reliance launched earlier this year.
IPL media rights: the Reliance era begins—and what this means for you, Moneyball by The Ken

You can read the whole thing here. 

 

If there’s one takeaway from Reliance’s victories, it is how it has managed to do all this by taking on giants and still winning. Unlike, say, the Adani Group, which seems to have carved out victory in new sectors helped by the Government of India’s pro-liberalisation strategy. Reliance is something else. 

 

Of course, you can have your theories on how this happened, and whether it’s a coincidence or whether there’s something deeper going on. But the fact is, Reliance seems to be doing it.

 

And that, in itself, is astonishing, and worthy of some admiration.  

The Ken x Pause
In early 2021, we did away with leave limits and rolled out an unlimited leave policy for everyone at The Ken.
 
To make this work, we needed a simple system to manage taking time off. We wanted a tool that would let anyone apply for leave easily, get it approved instantly, and to inform colleagues automatically. That’s why we turned to Pause, made by our friends at Obvious. The Ken was one of Pause’s alpha users, and today we are one of their proud paying customers. It’s integrated right into our Slack and calendars, so just one simple text command, and boom, your leave request is sent, your manager is notified and your calendar is updated. The Pause bot even notifies users if they haven’t taken a break for a while, and nudges them to do so.
 
Watch how it works
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