December 22, 2024

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GROWING BIG ON TECH

WHEN RELIANCE INDUSTRIES Ltd (RIL) launched its Jio mobile telephony service in September 2016, it was like a cyclone making landfall. Existing rivals had no strategy (read: money) to stand before its initial free-for-six-months offer or its astute decision to go for a nationwide launch of the latest 4G VoLTE. The rivals were stuck with 3G, for which they had paid a bomb to get spectrum, or still testing 4G VoLTE in pockets. Then, at the commercial launch in March 2017, when the "free" period ended, Jio offered rock-bottom tariffs for data. All this for the convenience of pre-paid connections, meaning no fixed monthly rentals. (Jio launched its first post-paid service only in June 2021.) It was a rout. RIL had been putting together a strategy for the group's second entry into telecom for quite some time. It was fascinated by the story of China, where China Mobilehad launched 4G services across the nation. When RIL launched 4G VoLTE nationwide, it did not give customers the 3G option. Rivals were still offering a choice of 3G or 4G SIM cards, which required users to upgrade their handsetsVoLTE, or voice over long-term evolution, sends voice calls over the internet in packets, which makes it great for video calls or just talking while your social media apps refresh contentFor RIL, the Jio gambit was just another way it leveraged technology across businesses. In its traditional polyester business, it worked with DuPont to understand the nuances. If it was VoLTE for telecom, taking the standalone 5G (a network that stands alone without depending on existing infrastructure) was intentional since it leads to lower latency, better use of spectrum, and wider coverageAI IT IS Technology has been a key driver at RIL right from its days as a textiles company and later in petrochemicals and other sectors. Those who know RIL well say it is today "a technology company". Tech drives its traditional oil-tochemicals (O2C) business, the largest revenue contributor at 56% (almost `5.65 lakh crore out of over `10 lakh crore). Technology also drives its retail business, now at `3.07 lakh crore. RIL's tech business has hit `1.33 lakh crore in less than a decadeAt RIL's August 2024 annual general meeting of shareholders, Chairman & Managing Director Mukesh Ambani mapped the path ahead: it was to be "a deep-tech and advanced manufacturing company." What stood out was the repeated mention and emphasis on artificial intelligence (AI). Jio's vision, as Ambani put it, was AI everywhere for everyone. "To achieve this, we are laying the groundwork for a truly national AI infrastructure. We plan to establish gigawatt-scale AI-ready data centres at Jamnagar, powered entirely by Reliance's green energy, reflecting our commitment to sustainability and a greener future," he saidAmbani said Reliance was "the only company with such access to green power" and uniquely positioned to lead the transformation. The plan is to create multiple AI inference facilities across captive locations to scale up and support growing demand. Simultaneously, Reliance will partner with "leading global technology companies and innovators to bring the most advanced AI models, solutions, and tools to India." Four sectors--agriculture, education, healthcare, and small businesses--are expected to benefit the most from AI. It could be farmers using intelligent tools to conserve water, making accurate weather predictions, teachers personalising learning experiences, AI doctors being accessible everywhere, or small businesses using it to achieve high levels of innovation and productivityIf 4G has transformed voice and data, 5G will be big in IoT. Company trackers say RIL can compete with information technology majors. Almost everyone has access to technology, but the challenge lies in adapting technology for one's business. For RIL, getting it right is just one part of the story. The other part is scale, the real differentiator. "It produces the network effect, makes data ubiquitous, and, with lower costs, drives down unit economics. In the absence of scale, all this is not easy to achieve," they sayAt the AGM, Ambani said Reliance was targeting "doubling its

RECIPE FOR SUCCESS

IN JULY 2022, just a year after debuting in the stock exchange at `115, Zomato's share price nosedived to below `50. Its future seemed uncertain. A nonprofitable start-up hitting the stock market was a bold move—and, to some, even reckless. Investors braced for losses, shaking their heads at what felt like the bubble ready to burst. Fast forward to 2024, and the tables have turned. In December 2024, Zomato's stock price soared to an all-time high of `304.5 per share. It is because of its remarkable turnaround that secured its entry into the Top 50 in the BT500 list of India's Most Valuable Companies. Who could have foreseen that what began as Foodiebay, a modest online restaurant directory, would evolve into one of India's most coveted start-ups, shaping the nation's business landscape under Founder, Managing Director and Chief Executive Officer Deepinder Goyal? THE GROWTH STORY Zomato's resurgence wasn't a game of chance. It was the result of strategic acquisitions and a willingness to diversify. “Zomato took some brave steps. From acquiring Blinkit [formerly Grofers] and foraying into quick commerce to event-ticketing and going-out businesses, the company is growing by adding more services,” says Aakash Agrawal, Head-Digital and NewAge businesses at Anand Rathi Investment Banking, a financial services platform. Zomato's B2B venture, Hyperpure, a supplier of ingredients and kitchen products to restaurants, has also added to this ecosystem of growth. In August 2023, Zomato hit a major milestone—it turned profitable for the first time in 15 years, reporting a net profit of `2 crore for the quarter ended June 30, 2023. This was a marked improvement over the `186 crore loss it had reported the previous year. The operating revenue also saw a 70% increase year-on-year (YoY), reaching `2,416 crore. Akshant Goyal, Zomato's CFO, reflected this optimism in a recent letter to shareholders, noting that the company expects 40%+ annual adjusted revenue growth over the coming years, driven by its established customer base and diversified business model. Bolstered by a strong ecosystem, Zomato's financial outlook has garnered interest from major players in the finance industry. Shrikant Chouhan, Head of Equity Research at Kotak Securities, an investment and trading platform, projects Zomato's revenue to grow at a compound annual growth rate (CAGR) of 49% from FY24 to FY27. He expects significant profitability gains, with earnings (consolidated net profit) rising from about `350 crore in FY24 to an estimated `3,320 crore by FY27. EPS, or earnings per share, is expected to hit `2.5 by FY26 and `3.6 by FY27. Kotak has assigned a 'buy' rating on the stock, setting a fair value target of `310. As Agrawal points out, “The challenge was proving to traditional investors that Zomato's investments in customer acquisition were akin to fixed assets, as marketplace businesses gain momentum over time.” Zomato's average market capitalisation between October 2023 and September 2024 was `1.55 lakh crore, with its stock hitting an alltime high of `298 during the period. MODUS OPERANDI Zomato owes its success to the 'flywheel' effect—a business model where small wins accumulate over time, making one's venture profitable eventually. “There's a strong hook and a solid flywheel effect in this marketplace model, especially when the first or second player dominates, as we've seen with Zomato and Swiggy,” says Agrawal. Zomato's acquisition of Blinkit has cemented its leadership in the quick commerce market. Accord