Reliance Industries (RIL), India's largest private company by market value, has initiated a re-amalgamation process within the company by spinning off assets and balance sheets to form an umbrella of independent companies. The move is targeted to facilitate the planned strategic investments in group businesses - Reliance Jio, Reliance Retail, refining and petrochemicals.
A couple of months back, the retail business firms of RIL - grocery, lifestyle and fashion, digital, and the e-commerce business JioMart - have been parked under Reliance Retail Ventures Ltd (RRVL) as part of the restructuring. Mukesh Ambani-controlled firm has created a subsidiary in October last year to bring together all the digital and mobility businesses under a company, called Jio Platforms Ltd (JPL). RIL has been planning to bring strategic investors in these businesses.
JPL has become the parent of Reliance Jio Infocomm, and applications like MyJio, JioTV, JioCinema, JioNews and JioSaavn, besides content-generation ventures. But it will be a direct subsidiary of RIL. Thus, Reliance Jio will become a step down subsidiary of RIL. For making JPL debt-free, the parent company has infused Rs 1.08 lakh crore in it. They want to build JPL like Alibaba and Google, which claim high valuations in the stock markets.
RIL is planning the initial public offering (IPO) of RRVL. The core earnings margin of retail has improved to 9.6 per cent from 8 per cent in the third quarter due to higher operational leverage, sourcing benefits, better store economics for smaller towns and increasing private label contribution. Continued investment in the Tier 2, 3 and 4 cities should drive retail business momentum going forward, said Bank of America Merrill Lynch in a report.
On Monday, RIL has announced the merger of TV18 Broadcast, Hathway Cable & Datacom and Den Networks with Network18 Media & Investments, which will be an integrated media and distribution company with a revenue of Rs 8,000 crore.
In the last shareholders meeting, Mukesh Ambani talked about Saudi Aramco's strategic investment plan in RIL's oil to chemicals (O2C) business - which will be another vertical formed by RIL in refining and petrochemicals businesses. Aramco plans to pick a 20 per cent stake in O2C, besides 10 per cent stake in the RIL-BP plc petroleum retail joint venture. The overall acquisition value is estimated to be Rs 1.1 lakh crore. The exploration and production (E&P) will be a separate vertical in which British giant BP plc owns 30 per cent stake.
"RIL reorganises various assets to create a better shareholder value through a leaner listed entity," said an analyst. "The move will force businesses to find their own growth capital, besides servicing debt liabilities from their own cash flows," he added. These companies will have separate governance structures.
Mukesh Ambani-controlled RIL has been using cash flow from its flagship petroleum refining business to build the telecom and retail subsidiaries as well as acquiring shale gas in the US and media assets. RIL spent about Rs 3.5 lakh crore to build Reliance Jio and invested about Rs 1 lakh crore for expanding the petrochemicals business in the last five years.
"In the new structure, all companies are expected to be independent entities under a holding company. They will have separate balance sheets, earning filings and governance structures. The liability of one company will not affect the other. They cannot cross-utilise cash flows. The investor will get the freedom to choose the sector they want to be in, rather than investing in a bouquet of companies," said sources. However, it's not clear whether RIL will become a holding company like Tata Sons or not.