MUMBAI (Reuters Breakingviews) - Mukesh Ambani looks set to preside over India’s first $100 billion-plus company. The tycoon’s Reliance Industries is likely to attain a twelve-digit market capitalisation in 2018. His refineries may be at the mercy of oil prices but Ambani’s bid to dominate Indians’ digital lives could earn his unconventional empire a more Silicon Valley-style valuation. A mooted 2019 listing of his upstart telecom operator, Jio, will add to the upward momentum.
At about $90 billion, the refining-to-telecoms conglomerate is already India’s most valuable company. Its shares have surged even as Jio has waged a ruthless price war since its launch a year ago, which has pushed rivals into mergers and defaults.
Almost all of Reliance’s profit before interest and tax still comes from petrochemicals and refining. Yet India’s richest man is reinventing his company. There is growing focus on Reliance’s other businesses, which span everything from mobile payments to online fashion; recent investments include a stake in a film and television production house. These can all serve millions of consumers who are coming online for the first time through their smartphones.
Reliance even has a built-in advantage to existing e-commerce players: it is already India’s largest retailer by stores and revenues. That provides a major head start on those that might want to eventually imitate the hybrid “online-to-offline” model that Alibaba and Amazon are aggressively pursuing.
Loss-making Jio already boasts almost 140 million subscribers. In October, Nomura estimated Jio, plus a retail arm and other investments, were worth about $31 billion. Bharti Airtel, the country’s largest operator which has around twice the market share, is worth just $33 billion. If Jio’s financials improve and it keeps winning customers, its mooted value could grow.
An old-economy energy business does not deserve a high-tech valuation, and Ambani’s eclectic range of interests deserves an overall “conglomerate discount”. Reliance fetches around 14 times forward earnings, compared to 29 times for Alibaba and 148 times for Amazon. Yet as Jio emerges, and as Ambani joins the dots on his digital vision, a frothier overall valuation might follow. Data, after all, is the new oil.
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