How Facebook investment helps Reliance Industry shed oil dependence and promote its Digital services

For decades, Mukesh Ambani’s empire has been supported by the energy flank he inherited from his father. But he decided that RIL shares will soon part ways with oil. This time when Ambani faces Reliance Industry Limited shareholders on an annual meeting on Wednesday, he will be speaking on behave of the empire that is trying to break free from its oil-price fortunes. The deals with U.S. based Internet giants such as Facebook and other strong players encouraged Reliance into the e-commerce and technology space. 

Reliance Industry has experience doubled the increase in its stock price since a low in March in Jio platform Ltd. The unit of Reliance Digital services business netted almost $16 billion in a fundraising blitz, at the same time the oil market is fragile even though the prices have recovered after two-decade low. The flurry of deals offered to Jio, gave Ambani’s ambition a strong back which helps him to morph his energy-based empire to an E-commerce giant. 

Ambani has decided to remove oil’s influence on the company’s stock price. Reliance shares have a beta with Brent crude oil of 0.14, which means that if a 1% weekly drop in oil price can cause a 0.14% fall in the share price.

Last Week, BP Plc has completed his deal with Reliance announced back in 2019 to pay a $1 Billion – 49% stake in the company’s fuel retail business. With such initiatives, the company has already started its diversification on the cyclical-energy based business. There is a need for diversification, as the Petrochemical and refining industry who used to bring earning to Reliance, has shrunk to 65% since 2017. However, the companies contribution to digital and E-commerce business has grown three-fold during the period. 

Reliance had ‘net debt zero’ on paper, while 75% of the rights issue funds will come next year. It was estimated that Reliance still has about $16 billion of net debt due to interest-bearing obligations as well as off-balance sheet debts. The stock fell by 0.2% on Tuesday at 10 a.m., though the price remains 13% higher than the average one-year target. 

Jio, which is known as the Ambani’s mission to create an Indian version of Alibaba Group Holding Limited. The deals with Facebook has given the company a Silicon Valley stamps of approval and attracted dozens of investors, seeing the potential of unit to hake up online retails, content streaming, digital payment of more than 1.3 billion people.

Facebook, who bought a 9.99% stake in Reliance Industry Limited Digital Unit Jio Platforms, for $5.7 billion, that is, more than Rs. 43,450 crore. While Facebook also helps Ambani clear off his debts of almost Rs. 3 lakh crores. This deal will also give them access to over 400 million strong WhatsApp user data, as it seeks to jumpstart its commerce business platform JioMart. Facebook has finally succeeded after multiple attempts to get into Indian Telecom System. 

Facebook and Reliance have reached to an agreement to further accelerate business on JioMart. The company would offer access to the nearest Kirana which can deliver products and services after the transaction through JioMart using Whatsapp (also owned by Facebook). This will power nearly three crores small Kirana shops to operate digitally with their local customers, providing a fast delivery system. At the same time, small kiranas can grow their businesses and create more employment opportunities. This deal will open up WhatsApp’s entire user base to Reliance helping him to get data bout the customers on rival telecom platforms. As Whatsapp is tuning in the OTT messaging platform in India, Jio will now have a direct channel to all the customers including their competitors, and promote their other digital services.

For now, the optimism surrounding Reliance’s ambition to morph its energy-based business into digital and e-commerce platforms will likely support the premium.