Can Mukesh Ambani pull off his biggest gamble yet?

In the coming months Reliance Industries, an Indian corporate colossus, will spin off Jio Platforms, its telecoms arm, in what is set to be the largest initial public offering in its country’s history. The flotation, expected to value Jio at $130bn-150bn and raise around $3.5bn, comes after a decade of huge, capital-intensive bets that have turned Reliance from an oil-and-chemicals company into a business empire woven into much of life in India.

Even by the standards of the country’s sprawling conglomerates, it is immense. Only the Tata Group, made up of a network of 26 listed businesses, is more valuable. Reliance, which is worth some $200bn, runs the world’s biggest oil refinery, with roughly 1.5% of global processing capacity. It also accounts for around a third of India’s natural-gas production. Jio, in which it will maintain a majority stake, is the world’s second-biggest mobile operator, measured by number of users, and runs the second-biggest streaming platform as well. Reliance’s retail business, which spans formats from neighbourhood grocery shops to large stores peddling clothes and gadgets, is among the world’s five biggest by store count and the largest in its home country.

But Mukesh Ambani, the conglomerate’s boss, is not done yet. Already he is onto his next big gamble, this time on artificial intelligence, with enormous investments planned both in infrastructure and software. Meanwhile, investors are beginning to ask what happens after Mr Ambani, who is 69, steps aside. Whether he pulls off the next transformation of Reliance will matter not just to the company’s shareholders, but to India’s economy too.

It would not be Reliance’s first reinvention. Founded in Mumbai in the 1950s by Dhirubhai Ambani, Mukesh’s father, it began as a small commodities trader, dealing first in spices and polyester yarn before opening a textile mill. Over the following decades it moved into petrochemicals, refining and oil-and-gas production.

Mr Ambani, who took over in 2002 after his father’s sudden death, has developed his own distinctive method for entering new markets: spend lavishly to build first-rate infrastructure, subsidise costs to acquire customers and sit on losses while rivals bleed. When it launched Jio in 2016, India’s mobile industry was fragmented, with more than ten operators. Smartphones were not yet widespread, data was expensive and most users relied on voice services. Jio upended the market by offering free data for months and sharply lower prices thereafter. It also bundled in live television, films, music and cloud storage at little or no extra cost.

The result was a bloodbath. Bernstein, a broker, estimates that mobile-data prices in India fell by 95% between 2016 and 2019. By then the industry had shrunk to three main providers and Jio’s subscriber base had surged from nothing to more than 370m. Since Jio’s launch, Reliance has poured more than $50bn into telecoms infrastructure. It now commands over 45% of the market.

Mr Ambani took a similar approach to retail. Although the conglomerate began dabbling in the industry in 2006, its efforts began in earnest in the years after its entry into the telecoms business. Since March 2017 Reliance has spent more than $21bn building a nationwide network of stores, increasing their number roughly six-fold, to over 19,000. In 2020 it sold a stake in the retail division to investors, including General Atlantic, an American venture-capital firm, and Saudi Arabia’s Public Investment Fund, a sovereign-wealth vehicle.

Since 2021 Reliance has also been building a renewable-energy business. In Jamnagar, a city in the western state of Gujarat, the group is building “gigafactories” to make solar panels, batteries, green-hydrogen equipment and more. The output will supply a solar park in an arid tract north of Jamnagar that stretches over 550,000 acres, roughly three times the size of Singapore. Reliance has already pledged to invest around $10bn of capital in clean energy. That may prove to be only the start: India remains hungry for power and is reliant on fossil fuels.

Mr Ambani’s willingness to place capital-intensive bets has reshaped the group. A decade ago oil-and-gas production, refining and petrochemicals accounted for nearly all Reliance’s operating profit; they now make up less than half (see chart). Huge investments mean that the group’s return on capital is modest, at less than 8% a year over the past decade, well below its cost of capital. Yet investors have been indulgent. As one fund manager puts it, most would rather see Mr Ambani reinvest the cash than return it.

Their confidence is now being tested by Reliance’s biggest bet yet: this time on AI. Mr Ambani’s conglomerate has been edging into the field over the past few years; in September 2023, for example, it unveiled a partnership with Nvidia, a chip titan, to build an AI model trained on Indian languages. But the effort has been gathering pace since last August, with the launch of Reliance Intelligence, an AI-focused subsidiary. Meta, an American social-media giant, took a stake of roughly one-third in the business in December.

In February Reliance announced that it would splurge $110bn on data centres over the next seven years. In Jamnagar it is already in the process of building one that it says will eventually have a capacity of several gigawatts; 120 megawatts are due to come online later this year.

Reliance’s ambition is to make AI cheap and accessible for India’s masses, just as Jio did with mobile data. A partnership with Google gives eligible Jio subscribers 18 months of the American search giant’s premium AI plan at no cost. Reliance also hopes to sell AI tools to Indian businesses. As before, it is betting that scale comes first and profits later.

This time, however, may be harder. One reason is timing. The surge in oil prices caused by the war in the Gulf is a problem for Reliance’s refining and petrochemicals businesses, which depend on imports of the fuel and remain important sources of cashflow for the group.

The deeper question is whether the conglomerate can become more than just an infrastructure provider in AI. Retail offers a cautionary tale. The group has been far more successful at rapidly building a store network than it has at developing shopping apps to compete with rivals, including India’s booming quick-commerce industry. Jio’s success has likewise rested mostly on Reliance’s ability to erect telecoms infrastructure quickly. (Its streaming operation owes its scale to a merger with Hotstar, previously owned by Disney, an American entertainment firm.)

Mr Ambani talks of transforming his conglomerate into a technology company. That vision is a long way off. A venture capitalist in Bangalore reckons it will struggle to attract top developers to its AI venture. The hierarchical management that suits refineries, retail chains and telecoms operations may be less suitable for activities that depend on scarce talent and a tolerance for failure.

The longer-term worry is what happens after Mr Ambani retires. His father’s death resulted in a public feud between Mukesh and his brother, Anil, which split the empire in two. Anil’s half—including a power utility, a financial-services business and an earlier telecoms operation—has floundered. This time Mukesh Ambani has been more careful. In 2023 he handed each of his children a domain: Akash was given telecoms, Isha retail and Anant renewable energy. Sougata Ray, a professor at the Indian School of Business, says that although a clear structure is in place, the real test will come only when Mr Ambani’s children have to operate independently, without guidance from their father.

Despite its size, insiders say that Reliance’s big decisions still pass through Mr Ambani. Whether his children share his knack for pulling off big bets remains unclear. Mr Ambani has also cultivated strong ties with India’s politicians—a vital asset, and one that may not transfer to his offspring. For now, though, Mr Ambani is still in charge. And as long as he is, investors seem willing to believe that one more giant wager will pay off. ■