Portfolio

RIL’s financial services assets spike; indicate big plans are in the works

Anand Kalyanaraman BL Research Bureau | Updated on August 09, 2020 Published on August 09, 2020

Reliance Industries Chairman Mukesh Ambani   -  THE HINDU

From ₹13,150 cr as of June 2019, they have grown to ₹83,827 cr as of June 2020

Is Reliance Industries (RIL) planning a big splash in the financial services sector? The company had identified ‘financial services’ as a separate business segment from the March 2020 quarter. While no specific roadmap was laid out in the recent AGM or in the June 2020 quarter results, the sharp jump in the segment’s assets in the recent June quarter suggests that ambitious plans may be at play.

Dramatic restatement

The assets of the financial services segment have shot up to ₹83,827 crore as of June 2020 from ₹68,368 crore as of March 2020 and from ₹13,150 crore as of June 2019. Interestingly, the segment’s assets as of March 2020 were restated upwards sharply – it was shown as ₹25,258 crore in the March 2020 quarter results but nearly three times higher (₹ 68,368 crore) in the June 2020 quarter results. The reason for this significant deviation is not clear; RIL did not respond to queries on this.

The financial services segment’s assets have increased to about 7 per cent of the company’s total assets, but its liabilities (₹73 crore), revenue (₹690 crore) and operating profit (₹380 crore) in the June 2020 quarter are still relatively quite small – 0 to 2 per cent of the total. This could change in the coming quarters as RIL leverages its digital and retail businesses to push growth in financial services.

The company’s annual report for FY 2019-20 states that based on an internal reorganisation of its business segments, RIL identified ‘financial services’ as a separate business segment.

It says, “The anchor ecosystem of Jio (387.5 million customers), and Reliance Retail (11,784 stores) provides a strong distribution channel for financial products. The strategy of the financial services business centres around creating tailor-made financial products and offering them as extensions of other products that are being offered to customers in the anchor ecosystem of Reliance’s consumer businesses. This synergistic relationship will benefit both the financial services and the anchor ecosystem businesses.”

It adds, “This segment (financial services) principally comprises management and deployment of identified resources of the company to various activities including non-banking financial services, insurance broking etc. Accordingly, identified assets and related income which were erstwhile lying in “unallocated” have been transferred to the financial services segment.”

RIL also has a tie-up with SBI in Jio Payments Bank and holds 70 per cent in this venture. The collaboration with Facebook-controlled WhatsApp that plans to launch its UPI-based payment platform could also help RIL’s financial services segment.

 

 

This is not RIL’s first foray into financial services. Following the scrapping of the non-compete agreement with the Anil Ambani group late last decade, RIL had entered the segment in 2011 with a joint venture with global investment management firm D.E. Shaw. But this partnership was called off a couple of years back. The new thrust seems to be a largely in-house integrated digital-retail-financial troika approach.

Consumer business share up

Growth in the financial services segment will aid RIL’s goal of its consumer businesses achieving an equal footing on profit contribution with the energy business. Already, in the recent June quarter, despite the retail segment slipping, the strong show by the digital segment and weakness in the energy segments saw the consumer businesses overtaking the energy businesses on profit contribution. The consumer businesses (digital, retail, financial services) accounted for 49 per cent of RIL’s consolidated operating profit (EBITDA) in the June 2020 quarter, compared with the 44 per cent share of the energy businesses (refining, petchem, exploration); others (media, textile, SEZ development, etc) accounted for the rest.

The share in profits of the consumer business has risen to nearly half in the June 2020 quarter from about 32 per cent in the June 2019 quarter. The trend could continue in the coming quarters. Digital is likely to stay upbeat, retail could recover with the gradual lifting of the lockdowns, while the energy businesses may remain on the back-foot due to concerns about economic growth. Growth in financial services, when it happens, will add to the weight of the consumer businesses.

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Published on August 09, 2020
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