Mukesh Ambani has elbowed past Li Ka-shing to become Asia's second-richest man as investors rallied behind his efforts to arm India's poor with cheap data-loaded phones. Some analysts are beginning to focus on the costs of his ambition. The chairman of Reliance Industries has added $12.5 billion to his wealth this year, according to the Bloomberg Billionaires Index, as shares of his refining-to-telecom company surged to a record. Spurring the rally on is optimism that a new $23 phone launched last month will expand the market for Ambani's fourth-generation mobile network into India's hinterland.
About 90% of Reliance's revenues continue to come from its refining and petrochemicals units, with retail, media and energy exploration contributing the rest. Ambani described Jio as “a jewel” among Reliance assets during the company's annual general meeting on July 21. For Ambani, the gains have swelled his net worth to $35.2 billion, taking him to number 19 in the Bloomberg Billionaires Index from 29 at the end of 2016. He passed Li Ka-shing - whose empire spans telecommunications, retail and ports - for a few days in April and again on July 7.
Jio took just nine months after launching with a free introductory offer to rope in 117.3 million users and become India's fourth-largest operator, according to data compiled by Bloomberg. Optimism about the telecom upstart's prospects grew after Ambani announced initial pricing for the service in February, sparking an almost 50% surge in Reliance shares. The 4G JioPhone fuelled the rally. The handset will run on voice commands in 22 Indian languages and the company expects its cheaper rates and high-speed data access to open up a market of about 500 million customers currently using feature phones on second-generation networks.
Ambani's ambitions aren't limited to a phone service. The company has started offering fixed-line internet connections to households and tied up with AirWire Technologies to offer a device that connects to a car for diagnostics, Wi-Fi and other services. Investments in refining and petrochemicals may start benefiting Reliance from the current fiscal, said Vishal Kulkarni, a Singapore-based analyst at S&P Global Ratings. He expects operating profits from these businesses to grow by 50% in the year ending March 2019. Jio may make an operating profit of $1 billion this fiscal and triple it next year, he said. S&P has a BBB+ rating on Reliance with a stable outlook, two notches above the sovereign's BBBrating, implying it can raise money at very competitive rates.
Still, Kulkarni expects the telecom business to be at least two years from having a mature, paying subscriber base.“There are strong incumbents, which will give a good fight over subscribers or revenue share,” he said. “More than 70-80% of the EBITDA will come from refining and petrochemicals.” For much of the past seven years, new ventures such as retail and telecom have weighed on group earnings, along with a challenged energy exploration business.