Reliance Industries Ltd (RIL), the oil-to-yarn and retail-to-telecom conglomerate, announced its earnings for the fourth quarter and financial year ended March 31, on April 18, and as expected the corporate juggernaut rolled on by reporting impressive growth in revenue and profitability.

RIL’s earnings reaffirmed the merits of diversification as weaknesses in the refining and oil and gas production businesses were offset by growth in petrochemicals, retail and telecom. The company, led by India’s richest billionaire Mukesh Ambani reported consolidated revenue of ₹6.22 lakh crore, 44% higher year-on-year and a net profit of ₹39,588 crore, up 13.1% over the same period.

However, there are two takeaways from RIL’s earnings statement, which might hold a key to the RIL management’s thought process – that partnerships are the way forward.

First, a closer inspection of the company’s earnings for the quarter ended March 31 indicates that the leverage on RIL’s books is beginning to have a bearing, even if minor at the moment, on its financials. For the January-March 2019 period, RIL reported a 19.4% year-on-year growth in consolidated revenue to ₹1.54 lakh crore and its net profit rose 9.7% in the same period to ₹10,362 crore. Sequentially, however, revenue shrank 9.7% and net profit grew a marginal 1.1%.

Now, much of the sequential weakness in RIL’s earnings is a function of a subdued market for crude refining and marketing, which was impacted due to weak margins for products like light distillates (petrol and naphtha), as well as lower crude throughput due to planned maintenance. But one could argue that if RIL’s overall interest costs weren’t as high as they were in the quarter under discussion, it would have had further cushion to offset operating weakness.

RIL’s earnings statement says that finance cost for the quarter was at ₹4,894 crore, as against ₹2,566 crore in the corresponding period of the previous year, up almost 91%. “The increase is primarily on account of commencement of petrochemical projects at Jamnagar and digital services business. Higher loan balances also contributed to the increase in finance cost,” the statement read.

RIL’s outstanding debt as on March 31 was ₹2.87 lakh crore. The company also had cash and cash equivalents to the tune of ₹1.33 lakh crore, which implies a net debt of ₹1.54 lakh crore. This level of debt has largely been a function of an ambitious capital expenditure programme worth ₹3.30 lakh crore that RIL undertook to augment capacity across businesses including refining, petrochemicals, retail and telecom.

Sure, the debt may not be worrisome considering the size of RIL’s balance sheet and its debt servicing capabilities, given its annual earnings, but the company is undoubtedly exploring ways and means to reduce its leverage. It isn’t surprising then that media reports earlier this week suggested that RIL might be looking to raise capital by selling a stake in its largest business –refining and petrochemicals – to Saudi Aramco.

In March, RIL announced that Canadian investor Brookfield Asset Management’s India infrastructure trust would acquire RIL’s East-West pipeline (meant for gas transportation) for a consideration of ₹13,000 crore. In December 2018, RIL’s telecom and digital services arm, Reliance Jio Infocomm also approved a plan to hive off the telco’s telecom towers and optic fiber cable assets into two separate units. Analysts read this development as preparations for a stake sale in these assets.

The second key insight that can be gleaned from RIL’s earnings statement is details of a slew of agreements that RIL has entered into with smaller companies, mostly to acquire capabilities and service lines for its fledgling new commerce venture – which will be at the cusp of telecom, technology and retail – through which RIL wants to challenge the might of Amazon and Flipkart in the country.

There are as many as six such companies, based out of India and the U.S., in which RIL has agreed to acquire a majority stake ranging from 76-81%. These companies include Radisys Corp (a U.S.-based telecom technology provider); Reverie Language Technologies (a Bengaluru-based firm that makes digital services available in Indian languages); Bengaluru-based software firm C-Square Info Solutions; Grab A Grub (a Mumbai-based logistics company); SankhyaSutra Labs (A Bengaluru-based software simulation services startup); and EasyGov (a cloud-based solutions provider that lets people discover their eligibility for social welfare schemes and digital apply for citizen services, headquartered in Bengaluru).

According to the details provided by RIL in its earnings statement, the company would be spending as much as close to ₹1,300 crore in upfront acquisition costs and future investments on these six deals, which have been announced in a single quarter. Earlier this month, RIL announced that it would be acquiring an 87% stake in chatbot firm Haptik Infotech for ₹700 crore. Such deals have been announced in the past as well, like with the integration between music streaming platform Saavn and JioMusic, and it is certain that many such associations will be forged in the quarters to come.

The key commonality between RIL’s debt reduction plans and its quest to acquire new capabilities for new businesses seems to be its willingness to form partnerships.

Partnerships weren’t something that RIL was necessarily known to be good at during its growth years. As the company’s founder Dhirubhai Ambani and his sons Mukesh and Anil (the two have since split) went about building RIL into an oil-to-yarn behemoth through backward integration, they might have leaned on global companies specialising in various technologies as vendors, but never as equity partners. The Ambanis always believed in being fully in control.

That changed in 2011 when RIL brought on board British energy firm BP as a 30% equity partner in its oil and gas business in a $7.2 billion deal. Not that it has helped the fate of RIL’s struggling oil and gas business much till date, but the RIL-BP combine has ambitious plans for ramping up gas production and setting up a downstream gas marketing venture, which it is working towards.

But the pace of forming such partnerships has significantly accelerated over the last couple of years as Ambani plans to double RIL’s turnover by 2025 and ensure that new businesses like retail and digital services account for an equal share of revenue along with legacy businesses like refining and petrochemicals.

It is unlikely that we will see RIL become a minority partner in any venture anytime soon, but its willingness to let professionals that have demonstrated scalability at their ventures continue running the show is evident. JioSaavn is still being helmed by the founders of Saavn, even as Jio continues to benefit from the music streaming app’s content and user community. Similarly, it is interesting to note that RIL hasn’t acquired 100% of any of the startups in which it announced investments in the fourth quarter of FY2019. Chances are that the rest of the ownership lies with the founders and senior management of these businesses who will continue running operations, albeit at a larger scale thanks to RIL’s capital.

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