Reliance bags another investment, is it slowly turning into a digital monopoly?

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The imposition of nationwide lockdown to contain the coronavirus caused COVID-19 has forced people to stick to their screens and be dependent on online services more than ever before. This has given a major boost to the e-commerce business, especially to the Mukesh Ambani lead Reliance Industries.

Which is the latest market deal bagged by Reliance?

To answer this question, one does not have to look into the history; just lift up the weekly update and boom, you’ll have a headline about reliance cracking another major business deal.

Quite expectedly, the latest transaction by Mukesh Ambani led Reliance Ltd. was

on Tuesday, 6 October. The other party involved is the Abu Dhabi Investment Authority or ADIA. The plan is that ADIA will invest ₹5,512.50 crores in Reliance’s retail arm. This investment would give ADIA a control of 1.2% stake in Reliance Retail Ventures Ltd. the deal has been settled at an equity value of ₹ 4.285 lakh crore.

In a regulatory filing, the company said that the investment made by ADIA will translate into a 1.2% equity stake in Reliance Retail on a fully diluted basis.

What is Reliance Retail and what is its business?

Reliance Retail Limited is a subsidiary of Reliance Retail Ventures Limited, which is in turn, owned by Reliance Industries. RRL has its reach throughout the Indian subcontinent as it operates as the country’s largest and most profitable retail business. The company is one of the fastest-growing brands in India with serving nearly 640 million customers every day across 12,000 stores spread in various parts of the country.

The predominant factor in the growing influence of the firm is its New Commerce Strategy which has pioneered a transformational digitalization of small and unorganized merchants. According to the company official, Reliance Retail looks at expanding the network to over 20 million small merchants which would enable them to use technology advancements efficiently and smoothly to formulate an effective supply chain infrastructure. This system would bring convenience and would deliver a superior value proposition to their own customers.

For the year ended March 31, 2020, the company has reported a consolidated turnover of ₹ 162,936 crores with a net profit of ₹ 5,448 crores. 

What do the past records say?

Only a week ago, Abu Dhabi-based sovereign wealth fund Mubadala invested in the Mukesh Ambani lead company which made it an owner of a 1.4 % stake in the Reliance’s Retail business. The deal amounted to Rs. 6,247.5 crore.

The investment by ADIA adds another name to Ambani’s already long list of investors.

Taking into account this investment, the firm has cumulatively raised Rs. 37,710 crore, all in the past few months. These investments come from seven global investors which are:

  1. Silver Lake
  2. KKR
  3. General Atlantic
  4. Mubadala
  5. GIC
  6. TPG
  7. ADIA

Why is ADIA’s investment a market-moving step for Reliance?

Abu Dhabi Investment Authority is a globally-diversified investment institution established in 1976. The organization prudently makes investments on behalf of the Government of Abu Dhabi. The funds are invested through a strategy that focusses on long-term value creation and monetary gains.

Hamad Shahwan Aldhaheri, executive director of the private equities department at ADIA, said that the investment is made after exhaustive brainstorming and research which concludes that the retail arm of reliance industries has constantly established itself and is still growing to become one of the leading names in the retail segment of India’s consumer market. It has leveraged not only its digital supply chains but also made the best out of its physical supply chains which makes it a top-notch firm in terms of future growth potential.

ADIA has been looking at investment opportunities in market-leading businesses in Asia which are linked to consumption-driven growth as well as humungous technological advancements. The investment in reliance comes under the same umbrella cover.  

This particular investment in Reliance Retail endorses the ever-growing potential of the company’s performance as well as the inclusive and transformational New Commerce business model that it is rolling out.

Mukesh Ambani, chairman and managing director of Reliance Industries said the Reliance is delighted to partner with ADIA and is looking forward to setting further benchmarks with the current investment made by ADIA and continued support and hope to benefit from its strong track record of over four decades of value creation globally.

What is the current position of e-commerce in Indian retail markets?

When a vendor sells physically in the markets, he incurs a lot of additional expenditures that can successfully be eliminated by the usage of widely available digital platforms.

E-commerce, though gaining rapid momentum, still has a far way to go in Indian markets. E-commerce sales accounted for only 1.6% of the total retail sales in India in 2019 against the 14% share recorded globally. E-retail takes a back seat when it comes to accessibility. Only 504 million Indians are active internet users. This accounts for only 36.5% of the total population of the country. Moreover, the majority of these users are young and belong to the male gender settled in urban areas.

After this boom in the online commerce industry due to the pandemic, the first question that pops up in one’s mind is that will e-commerce be able to form a monopolistic market as it slowly stretches its arms into the retail sector? Well, there is a high possibility of that happening. Last year, Amazon announced that it will make a billion-dollar investment in India with the aim to lift up the small and medium-sized vendor or businesses by extending them a helping hand to easily get their services listed online. In simple terms, after this, the small businesses will be assisted to sell their products or services on Amazon’s own platform. Moreover, Amazon is also framing out plans to turn the neighborhood shops into e-commerce delivery centers.

Facebook has also invested in Reliance Jio with the view to extend the online business facility to vendors across the country via WhatsApp. Not to forget, the $10 billion investment made by under Google for India Digitization Fund will also support the acceleration of India’s fierce entry into the global digital economy. A significant amount of this plan was invested in Jio as well.

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