India’s Richest Man wants You—to Invest in Retail

After collecting USD 20 billion for stakes in its telecom, Reliance is hawking its retail business, too.

By guest author Jacky Wong from Wall Street Journal

Caption and graphic courtesy by Wall Street Journal

India’s richest man managed to raise USD 20 billion for his telecom unit Jio Platforms in less than three months during a pandemic. Now Mukesh Ambani, chairman of USD 216 billion conglomerate Reliance Industries, looks close to pulling off another fundraising bonanza for its retail arm—with 12000 stores, India’s largest retailer.

California-based private-equity firm Silver Lake last week paid USD 1 billion for a 1.75% stake, valuing the whole at USD 57 billion. It is also among more than a dozen investors that since April poured money into Reliance’s Jio, India’s largest telecom operator—USD 20 billion, around half of it from Facebook and Google. That helped fuel a 55 % gain in Reliance’s share price this year despite the struggles of its refining and chemical businesses, which account for nearly half of its earnings.

There is clear potential for growth in a country with 1.35 billion people and a fragmented retail industry: According to Bernstein, unorganized mom-and-pop stores made up 88 % of India’s nearly USD 700 billion retail market in 2018. Reliance spent USD 3.4 billion last month to buy retail and logistics businesses from its indebted rival Future Group, further bolstering its presence in grocery and fashion retailing.

But investors’ clear focus is on e-commerce: Reliance’s JioMart, launched in May, aims to connect mom-and-pop stores with customers online. Jio’s partnership with Facebook is expected to bring JioMart to Whatsapp’s more than 400 million users in India. Investors may be willing to pay a high price to get in early.

Current market leaders in India, like Amazon and Walmart’s Flipkart, may also be happy to have the country’s richest man jumping into e-commerce, especially as the government turns even more protectionist and nationalistic. In the name of protecting data and competition, regulations have been introduced forcing foreign e-commerce companies to rework their supply chains. Foreigners are eager to tap into Reliance’s political clout and strong local networks in this largely untapped market.

For India as a whole, though, the rise of nationalism and protectionism could eventually backfire. If big, entrenched companies like Reliance increasingly become the gatekeepers to the market, a lot of small, innovative companies that could have benefited from foreign investment may wither on the vine.