Ambani's empire faces Trump, US rival risks

By Andy Mukherjee

Things aren’t going too well for Asia’s richest tycoon. Having gone all out to put a lock on India’s 1.4 billion consumers, Mukesh Ambani can’t afford to have Donald Trump smash open the latch with a sledgehammer. But that is how the threat is unfolding. 

The concern in New Delhi is that any retaliatory trade action by Washington will cover broader ground than just India’s “massive tariffs,” as the US president characterized them Friday. American firms do “very little business inside” the most-populous nation, Trump said. 

Indian conglomerates enjoy varying degrees of protection from foreign competition. While nearly all of them are at risk from concessions to avoid a trade war, Ambani’s empire appears to be unusually vulnerable.

Retail and digital services, which have guzzled $50 billion in investments since 2020, are key to the group’s $200 billion market value. Both units, currently a part of the flagship Reliance Industries Ltd., are nearing their much-awaited public floats, though they aren’t exactly ready. The sprawling retail business, as Bloomberg News reported last week, is undergoing an overhaul amid sagging analyst estimates of its worth.

At this critical juncture, Elon Musk entering the market with Starlink Inc., or Washington dictating tweaks to domestic policies that have kept Amazon.com Inc. and Walmart Inc. at a disadvantage on Ambani’s home turf, could be destabilizing. 

Ambani’s Jio Platforms Ltd., which has nearly 500 million subscribers, has joined India’s other major terrestrial wireless carriers in opposing Starlink. Musk’s satellite broadband service will probably get an entry pass without having to bid for telecom spectrum in government auctions. Losing high-paying customers to a new player with lower regulatory costs could put a lid on pricing.

Jio’s average revenue per user has grown 12% over the past year. But for a splashy public listing, it isn’t enough to earn just $2-plus every month. Using the telco as a core offering, Ambani has put together a media juggernaut. JioHotstar, his online streaming app, is offering data customers Hollywood movies, HBO shows and the annual Indian Premier League — a compelling offer in a cricket-crazy nation — for a little more than $1. It is a costly route to acquiring eyeballs, and the last thing Ambani would want is a breach into his moat.  

Apart from carriage and content, the billionaire also needs to worry about commerce. Before the inauguration, Trump met Doug McMillon, the Walmart chief executive officer, at his Mar-a-Lago estate. That meeting didn’t go unnoticed in New Delhi, whose restrictive policies have been a bane for Walmart’s Flipkart and Amazon’s local marketplace — and a boon for Reliance Retail. Despite those obstacles, McMillon is getting ready for an initial public offering of Flipkart next year.

The American-owned platforms are hamstrung by foreign-investment regulations that don’t allow them to carry their own inventory or offer deep discounts. Those restrictions, ostensibly put in place to protect millions of mom-and-pop shops, don’t apply to homegrown players like Reliance. In addition to more than 19,000 stores, the country’s largest retailer also has its own beauty and clothes apps, and JioMart, an online grocery service. Any promise extracted by Trump’s negotiators on altering the regulatory landscape could erode Ambani’s advantage.

Reliance’s consumer pivot is backed by its legacy cash cow: oil-to-chemicals. Geopolitics, a key driver of that business, is something Ambani managed deftly during the first Trump administration, when he lobbied to keep Venezuelan crude flowing to his refinery despite US sanctions. Still, Trump 2.0 may be different. It’s unclear how much more profit Reliance can extract from Russian oil, which has gone from being a negligible part of India’s import to nearly a third since the start of the war in Ukraine.

Here, too, Trump may wade in. The south Asian nation will be purchasing “a lot of our oil and gas,” the US president said after meeting Prime Minister Narendra Modi last month. But a barrel of American oil costs $7 to $8 more than the Russian variety. “The increased intake of US crudes will likely impact refining margins” for Indian firms, according to Kotak Institutional Equities. With Chinese supplies flooding global petrochemicals markets, the sub-9% profitability at Ambani’s unit may struggle to rise to last year’s 11% level.

Three large franchises, and three separate headaches emanating from the same source in Washington. And to top the list, control of the family’s crown jewel, Reliance Industries, is passing to Ambani’s three children as part of a planned succession.

The youngest, Anant Ambani, heir apparent of the energy business, made headlines globally for his $600 million, five-month-long wedding celebration last year. More recently, he was in the news for hosting Modi at his animal sanctuary. What investors would want from the younger Ambani is an update on the $9 billion earmarked for solar modules, hydrogen electrolyzers, and energy storage batteries. For one thing, the investment outlook for clean energy has soured globally. For another, the battery factory has missed a performance milestone, and the government has claimed damages because the unit enjoys a taxpayer-funded incentive.

Considering that the group once silenced naysayers by completing the first phase of the world’s largest refinery complex in a record 33 months, even a small delay in execution a quarter-century later isn’t a good look. Despite all the disappointments, analysts’ consensus opinion is for the Reliance stock to gain 24% over the next 12 months. For that, Ambani will need to regain control of a narrative that’s slipping away from him.