Jio, Retail and Renewables: How Reliance is shaping India’s future
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Today on The Daily Brief:
Is Reliance doing well?
Why do I never get an IPO allotment?
Nobel Prize
Is Reliance doing well?
We’re all familiar with just how big of a force Reliance is across almost every corner of India’s economy. Whether it’s energy, telecom, retail, or even the emerging green energy sector, Reliance has a presence everywhere and often dominates these spaces.
Reliance’s reach is huge. The scale they operate at not only shapes India’s market but also influences global trends.
From the petrol you fill up with, to the internet on your phone, to the groceries at your local store, Reliance plays a role in it all.
Recently, Reliance released its quarterly results, and given their size, there’s always something interesting to learn. Let’s break it down in simple terms.
Reliance’s Overall Financial Performance
They reported total revenue of ₹2,60,000 crore this quarter, which is about 1.2% higher than the same time last year—a small improvement. However, their EBITDA, which measures profitability, dropped by 1.7% to ₹44,500 crore. Their profit after tax also fell by 3.2% to ₹18,700 crore. So, while sales inched up, profits took a hit.
Oil-to-Chemicals (O2C): Navigating Global Market Pressures
Reliance’s largest business, Oil-to-Chemicals (O2C), saw revenue grow by 4.8% to ₹1,58,300 crore. But their EBITDA for this segment dropped by 22.5% to ₹12,000 crore.
Why did this happen? One major issue is that their profit margins have been squeezed.
Let’s explain. There’s something called “fuel cracks,” which is basically the difference between the price of crude oil and refined products like petrol or diesel. That margin fell by a whopping 45% compared to last year due to weaker demand globally and an oversupply of oil products, which pushed prices down.
Another big factor is the slowdown in China’s economy. China is a huge buyer of oil, but with their economy slowing down, demand has dropped. Plus, electric vehicles (EVs) are catching on fast in China, cutting into fuel demand. If you’d said two years ago that EVs would have such a big impact, many would have thought you were joking.
Jio: Steady Growth Despite Subscriber Losses
Next, let’s talk about Jio, Reliance’s digital services arm. Their average revenue per user (ARPU)—essentially how much each customer spends—rose by 7.2% to ₹197.5, thanks to price hikes. For comparison, Airtel’s ARPU is at ₹210, so Jio is close behind.
However, Jio lost 1.1 crore subscribers this quarter, bringing its total user base to 48 crore. Why? Mostly because price-sensitive customers left after the recent price hikes. But here’s the silver lining—Jio is focusing more on customers willing to pay for better services, helping them increase their ARPU despite losing subscribers.
Jio’s 5G rollout is moving quickly. With 15 crore users now on the 5G network, making up 35% of their total data traffic, Jio also launched JioAirFiber, a new broadband service that’s already reached 3 million homes in just six months. This could be a game-changer in areas of India with limited internet access.
Reliance Retail: Steady Despite Challenges
Reliance Retail saw a slight revenue dip of 1.3%, earning about ₹76,000 crore this quarter. The fashion and lifestyle segment faced challenges due to weaker consumer demand. But the overall retail business remains strong.
They opened 470 new stores this quarter, bringing the total number to 19,000, while also closing 430 underperforming outlets to streamline operations. AJIO, their online fashion platform, is growing rapidly, adding 20 lakh new customers and expanding its product range by 30%. Adding popular international brands like H&M and Zara is helping attract younger shoppers.
Reliance Retail is focusing on both big cities and smaller towns, positioning itself for long-term growth. So, AJIO and JioMart will play key roles as they expand their digital and physical retail offerings.
Oil and Gas Segment: A Boost Despite Revenue Drop
Reliance’s Oil and Gas segment, while smaller than O2C, had a solid quarter. Revenue dropped by 5.5% to ₹6,300 crore, but EBITDA jumped by 12% to ₹5,500 crore. This growth came from higher production in their KG-D6 basin, which helped balance out lower gas prices. This segment, though smaller, is becoming an important part of Reliance’s energy strategy.
Green Energy: Building the Future
Reliance is also making big moves in the green energy space, which is central to its future plans. They expect their new energy business to become as profitable as their O2C business in the next 5 to 7 years, and they’re investing ₹75,000 crore into this sector.
By the end of this year, Reliance plans to start producing solar photovoltaic modules with a capacity of 10 gigawatts. But they’re not stopping there—they’re building an entire ecosystem, handling everything from raw materials to finished panels.
They’re also constructing a large battery manufacturing facility in Jamnagar, set to start operations next year, with a capacity of 30 gigawatt-hours. Their green hydrogen project is also on the way, with an electrolyser plant expected to start production by 2026. All of this shows their commitment to becoming a major player in renewable energy.
Media Business: Hits and Misses
Reliance’s media business saw a slight dip this quarter, with revenue down by 2.5%, mostly due to lower movie revenues, which can be unpredictable. But their digital platforms are growing steadily. JioCinema, their streaming service, gained 1.5 crore subscribers just 100 days after launching its paid subscription model. A new deal with Disney is expected to strengthen JioCinema’s position in India’s competitive streaming market.
In summary, Reliance faces challenges, especially in its core oil businesses due to tough global market conditions, but they’re tackling these issues by focusing on growth areas like digital services, retail, and renewable energy. The company is making serious investments, pouring ₹35,000 crore into expansion this quarter alone, showing its commitment to long-term growth. However, their debt has increased to ₹1,17,000 crore, so that’s something to keep an eye on as they continue to expand.
With these updates, we can see how Reliance is adjusting to changing market conditions while betting big on new growth areas. It’s a company that’s always on the move, and its actions often set the pace for the entire Indian economy.
Why do I never get an IPO allotment?
When a company goes public, its shares are divided into different groups of buyers. Big institutional investors typically get 50%, regular retail investors get 35%, and high-net-worth individuals (HNIs) get 15%.
However, if the company hasn’t been profitable for the last three years, this split changes: institutional buyers get 75%, retail investors only get 10%, and HNIs still get 15%.
The number of shares you get depends on how many people want to buy shares in each group. If one group doesn’t use up its shares, those can go to a group with more demand.
Now, if there are more people wanting shares than there are shares available, things get a little trickier.
Let’s focus on retail investors, which is where most of us fall. There’s a portion of the shares saved for retail investors. The number of shares you can apply for depends on something called a "lot size." A lot is simply the smallest number of shares you can buy at once. In India, one lot is typically worth around ₹15,000.
Here’s an example: If there are 1,000 shares available for retail investors and each lot has 10 shares, that means there are 100 lots available (1,000 divided by 10). If fewer people apply than there are lots, each investor will get at least one lot.
But more often than not, IPOs get oversubscribed. When that happens, the allotment switches to a lottery system. This means the available shares are randomly given out, with each lucky investor getting at least one lot.
For HNIs, it works similarly. They’re split into two groups: those investing between ₹2 lakh and ₹10 lakh, and those investing more than ₹10 lakh. The shares for HNIs are divided with one-third going to smaller investments and two-thirds going to larger ones. If there are any leftover shares, they’re spread out on a pro-rata basis, which means bigger investments get a bigger chunk.
Institutional investors have a different system, where they get shares based on the size of their investment. But we’ll leave that for another day.
So, in short, whether you’re a retail investor or an HNI, when an IPO is oversubscribed, getting shares often comes down to luck. The process is set up to give a fair chance to as many investors as possible.
Nobel Prize
Here’s why three economists—Daron Acemoglu, Simon Johnson, and James Robinson—won the Nobel Prize, and why their findings matter to all of us.
This year, the Nobel Prize in Economics went to these three economists because they tackled a big question: why are some countries wealthy while others struggle? Their answer points to the systems that run a country—things like its laws, government, and who holds power.
Now, you might be wondering, why should we care about this? Well, their work sheds light on issues that affect our daily lives, like inequality and the gap between rich and poor nations. The economists argue that the way a country’s systems (or institutions) are set up plays a major role in whether it thrives or struggles. By understanding their findings, we can see how better leadership and fairer governance could create a more equal and prosperous world for everyone.
Their research shows that countries with strong, inclusive institutions tend to do better. Inclusive institutions allow most people to have rights, feel safe, and take part in the economy. This includes things like owning property, having fair governments, and giving people chances to improve their lives. In contrast, countries with extractive institutions—where power is controlled by a small group and the rest have fewer rights—usually face more challenges.
The economists studied history, especially the period when European countries were colonizing different parts of the world. When Europeans took over new lands, they faced different environments. In some areas, the climate and living conditions were good, so they settled down and built communities. They created systems that allowed for economic growth—these are the inclusive institutions, which helped many people benefit.
But in places where the environment was harsh or dangerous—like areas with diseases such as malaria—Europeans didn’t want to stay long. Instead, they focused on extracting resources like minerals or spices and set up systems that gave power to a small group, while the majority of people had little control. These are called extractive institutions because they were designed to take resources without investing in the local population.
The impact of these two types of institutions is still felt today. Countries that were set up with inclusive systems tend to be wealthier because their systems encourage people to participate and improve their lives. On the other hand, countries left with extractive institutions have struggled because their systems concentrated power in the hands of a few, making it harder for the rest to get ahead.
One of their key findings is something called the "reversal of fortune." This refers to how places that were wealthy before colonization, like parts of Latin America, are now poorer, while areas that were less developed back then, like the U.S. and Canada, are now much wealthier. This shift is tied to the types of institutions that were set up during colonization—whether they were designed to help settlers build communities or just extract resources.
Of course, not everyone agrees with their conclusions, so let’s quickly go over a few of the main criticisms:
First, some critics argue it’s hard to prove that institutions are the main reason for economic growth. They point out that institutions don’t develop on their own—historical events and decisions shape them. So, do strong institutions lead to wealth, or do countries become wealthy for other reasons, like natural resources or education, and then build better institutions? It’s tough to say for sure.
Another criticism involves the data they used, particularly settler mortality rates. The researchers relied on this data to show that places where Europeans could settle easily ended up with better institutions. However, critics say the data from that time, especially in regions like Africa, isn’t very reliable, making it hard to draw firm conclusions, even though the researchers tried to address these issues.
Finally, some argue that the researchers overlooked other factors, like the skills and knowledge that settlers brought with them. These critics say that it wasn’t just the institutions that helped certain places thrive, but also the education and expertise of the people who settled there. This makes it tricky to separate the impact of institutions from other factors.
Despite these criticisms, Acemoglu, Johnson, and Robinson’s research has had a big impact on how we think about economic growth. They’ve worked to address issues with their data and recognize that things like education and skills also matter alongside institutions. Even with the debates, their work has shifted how we understand why some countries succeed while others struggle.
At a recent press briefing, Acemoglu also talked about the challenges facing democracies today. Public trust in democracy is low, and political divisions are growing. While democracy hasn’t always lived up to expectations, Acemoglu believes it still offers the best path to shared prosperity and freedom. Democracies tend to do better when they provide fair governance, equal opportunities for all, and good public services. He remains hopeful that democratic systems can renew themselves, even in difficult times.
The key takeaway here is that institutions matter a lot, but so do education, skills, and good governance. A country’s success isn’t just about having good rules—it’s also about how those rules are put into practice and how societies evolve over time.
Jakob Svensson, chairman of the Nobel Economics Committee, said that one of our biggest challenges is closing the huge income gaps between countries. Acemoglu, Johnson, and Robinson have given us a clearer understanding of why some nations prosper while others don’t. They didn’t invent the idea that institutions matter, but they provided strong evidence to show just how important they are, which is why they’re well-deserving of the Nobel Prize.
Tidbits
In the third round of India’s PLI scheme for white goods, 38 companies applied, including Voltas, Daikin, and Orient. The scheme aims to boost local production of air conditioners and LED lights. It’s set to bring in ₹4,121 crore in investments and create 47,851 jobs, helping to increase local manufacturing.
Bharti Airtel has signed deals worth ₹10,085 crore with Ericsson, Nokia, and Samsung. These deals will support the expansion of Airtel’s 4G and 5G networks in India. Airtel plans to add more 4G towers and some 5G stations, which will strengthen its market position and improve revenue per user.
Oyo is planning to raise $200 million to acquire G6 Hospitality, which owns over 1,500 budget hotels in the US and Canada. This move could raise Oyo’s valuation to around $4.5-5 billion. At the same time, Oyo is working on refinancing $450 million of its debt.
India has now surpassed 200 GW of renewable energy capacity, accounting for 46.3% of the country’s electricity generation. Solar and wind power are driving this growth. India is moving closer to its goal of 500 GW by 2030, boosting energy security and creating new jobs.
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