Mukesh Ambani's Reliance Will Rely On Its $200 Billion Balance Sheet, Capture The Cost Of Capital Gains - Here's How

 

Consumers' digital footprint could help unlock Mukesh Ambani's financial services ambition and shareholder value.

To record all the words spoken by mankind, five exabytes of storage would suffice. Indian tycoon Mukesh Ambani's telecom customers used nearly six times as much data in the last quarter. As the billionaire businessman targets his 428 million customers with a new 5G service and seeks to attract another 300 million feature-phone users to smartphones, the challenge has changed. When he was starting out six years ago, the big issue was how to sell data in a developing country. What to sell next to someone who already has the data is now the question.

One answer is financial services. People will always need credit. Whether they're worth it -- and how much -- or so is left to traditional credit-scoring models that exclude a broad group of the unbanked population. Or, as Ant Group Company in China and MercadoLibre Inc. in Argentina. Credit can also be obtained from transaction data of buyers and sellers on large online platforms, as demonstrated by

That's where Ambani wants to go next - "consumer and merchant lending businesses based on proprietary data analytics to complement and complement traditional credit bureau-based underwriting", his chief Reliance Industries Ltd said in a Friday press release.

A successful fintech lending platform draws on what the Bank for International Settlements calls a self-reinforcing "DNA loop" for data, networks and activity. The digital marks people leave on e-commerce or social media sites can be used to force them into a strong network, which can be used to encourage lending activity, Thereby, more data is obtained on consumer behavior.

This loop already exists for Reliance. Apart from owning India's largest telco, the group also runs the country's largest retailer, with over 250 million transactions from 50 million square feet of store-front space in the last quarter. Ambani also connects customers with neighborhood shoppers so that they can order grocery and everyday items online using Meta Platforms Inc's WhatsApp messaging service.

However, Reliance's growing popularity among data-raising consumer businesses isn't setting the stock market on fire. The stock topped two years ago at nearly 30 times forward earnings; They are currently trading at a multiple of 20. An unexpected Indian tax on transportation fuels and weak refining and polymer margins are hurting the group's legacy petrochemicals and energy operations.

This is why Ambani is winding up Jio Financial Services Ltd - to double down on the consumer business and bring back some of the sizzle in the stock. For every share held in Reliance, investors will get one share of the new firm. Jio Financial Services' stock-market listing will probably happen very quickly if the idea is to pre-empt rival billionaire Gautam Adani as well. Adani's shadow lender, Adani Capital, is targeting an initial public offering by 2024.

Will the rapidly growing consumer and merchant loan book be enough to impress shareholders? This has not worked for Paytm to a great extent. The Indian online payments firm took on eight times more loans in the June quarter than a year ago, sourcing and servicing customers on behalf of lenders, and yet its shares are down 70% of the price at which they were in the past India. were sold in the largest IPO. november.

This is where Reliance will rely on its $200 billion balance sheet, and take advantage of the capital gains being a notch higher than the Indian government. Eventually, with a presence in everything from payments and insurance to digital broking and asset management, the group's financial services business will seek to be a conglomerate in its own right. But the basic building block credit would be:

Jio Financial will hit the ground running by introducing high-end loans to Reliance's vast network of consumers and merchants. Now that the Covid-19 moratorium on loan repayments is in the rearview mirror, the time is right. Bajaj Finance Ltd, the leading Indian non-bank lender, is once again back to report 20%-plus return on equity, with growth in all segments and fixed credit costs resuming.