An elephant with the agility of a tiger — that’s Reliance: Manish Chokhani

Manish Chokhani, Director of Enam Holdings | Illustration: Moneycontrol

Enam Holdings director Manish Chokhani, in a conversation with Network18, described Reliance Industries as an "elephant that moves with the agility of a tiger". He shared his views on the mega-conglomerate's journey, its future, and the leadership provided by its current chairman and managing director Mukesh Ambani.

Here are the edited excerpts from the interview:

Network18:

Manish Chokhani of Enam Holdings, thank you for your time. It's been a spectacular journey at Reliance Industries, and newer businesses are getting added pretty much every couple of years. The latest push, of course, is in Reliance Retail, in a very large way. Your thoughts?

Manish Chokhani:

Many people will know that I was the first analyst covering Reliance way back in 1991, when they were just going to launch their GDR (Global Depository Receipt) issue. I think the Reliance’s profit that year was Rs 150-odd crore, which at the exchange rate then was worth $50 million. From that to a $10 billion-plus run rate of profit is just a staggering journey. It's 200 X growth in the span of 30 years.

Whatever one says about Mukesh Ambani will not do justice to him and his achievements, including where he has led this company even before taking over as CEO.

The refinery and all the petrochemical units that came up and transformed Reliance from what was essentially a polyester manufacturer to a petrochemical firm, and then to refining and E&P (exploration and production).

Eventually, they will get into green hydrogen and so on, and transform the energy landscape of the country. It's just a staggering journey. The late Dhirubhai Ambani would say that we have to change orbits and not be satisfied with the orbit one was in. I'm in awe of both the company and the person who has led it for more than two decades now.

Network18:

Do you know of any other petrochemical company that has so neatly moved into cutting-edge mobility, communications, FMCG, retail, etc.?

Manish Chokhani:

In a nation's history, sometimes you get a Rockefeller, sometimes you get a Carnegie, sometimes you get JP Morgan. We've been fortunate to get all this combined in one entity called Reliance, where they've constantly changed orbits and gone to newer and newer things.

They've always operated on first principles and they drill down to the lowest atom or unit of production. I remember working with them on what was the earlier avatar of Jio, Reliance Infocomm, in 2001-2002. The vision of the company and the person was to transform the way the telecom business was conducted. They were clear, as far back as 2001, that voice was history and the future was data. Dhirubhai had actually said, "A call must cost as much as a postcard." That was the mission.

When you think of Reliance as moving from commodities to new-age businesses, I don't know if people know about the way the Reliance refinery was built with the fluid catalytic cracker. They would not have been able to produce a lot of the products that come out at the top of the refining barrel if they hadn't had that complete grip over technology.

So, whether it was opting for PTA when DMT was the prevalent technology, which Bombay Dyeing was running in those days, or going the CDMA route when GSM was the prevalent technology, or today, when we are already using 5G much ahead of rest of the world, it's all because they worked on first principles.

If we did not have the Reliance refinery (now probably a third of India’s refining capacity), we would not be growing the way we are currently, especially with what's going on in the geopolitical arena.

During Covid, we would have shut down if it wasn't for Jio, which provided the bandwidth the whole country ran on.

Looking ahead, we have spoken about the 1-1-1 aim which has been laid out for the green hydrogen, green energy initiative, which can again transform our country by the end of the decade. So, just as I said, complete awe and admiration for the level of thinking, the vision, the detailing, and the sheer class of execution.

Network18:

Mukesh Ambani has seeded so many businesses. Jio, retail, new energy, and financial services, which is soon going to be listed. Which ones are you most excited about, that could be transformational over the next 10 years?

Manish Chokhani:

There was a very famous AGM where the late Dhirubhai was present. A shareholder got up and said that wherever Dhirubhai digs you will find oil because he has that knack. I think Mukeshbhai also has that knack. Whatever business he chooses to enter, he does it very, very thoughtfully.

He has a fantastic leadership team in Manoj Modi and others, which has been built over the years. He has a knack for building leaders, empowering them. Therefore there is no one business I’m excited about because it’s a constellation of stars.

Jio is more powerful because of Reliance retail, and retail is more powerful because of Jio. The financial services will obviously be a play alongside what has been created on the retail side, and so on. So I don't think one should try to pull apart the elephant and see whether the trunk, or the leg, or the tail is better. This is a powerful elephant that moves with the agility of a tiger. It's a very rare combination. We are lucky to have witnessed the journey of this company and are excited about what lies ahead for them.

Network18:

It's not just created wealth for their group but also for shareholders. A 2021 report by Motilal Oswal said that Reliance Industries had generated Rs 10 lakh crore for shareholders in the last five years, the largest by far compared to any other group. Do you think that it can keep this legacy intact over the next 5-10 years, given how dynamic the environment is?

Manish Chokhani:

You're asking someone who is an ardent admirer. If you compound at 20 percent per annum for 20 years, on a larger and larger capital base, it will tell you where the group is headed.

While we may look two, three, four years ahead, this is someone who's used to looking 10 years ahead. I remember a meeting where he famously said that if the profit he makes is, say, Rs 100 in a year, he will make Rs 400 over four years, and he could leverage it, say, 0.5:1. So he needs Rs 600 worth of projects at any given time, only at that scale is the compounding substantial.

Today, the projects under implementation are, if I'm not mistaken, worth about $75 billion. When they invest $1, they know how to create 2, 3, 4 Dollars of market value from that. So from about a $200 billion market cap today, if that 75 billion gives you the next $150-200 billion, you can already see the trajectory of this company double. So yes, I remain confident of what they will achieve in the coming years.

Network18:

What do you think is going to be the trump card going forward? Look at the number of acquisitions. Justdial, Saavn, Hamleys, Metro. And so many smaller companies in AI, cutting-edge software technologies. What will Reliance look like? Will it be a software leader? Will it be a retail leader? Will it be a green energy, green hydrogen leader? What's your guess?

Manish Chokhani:

Reliance has transformed into a conglomerate. While we think of it as one company, it's more useful if you think of it as, say, the Tata group. Tata makes trucks, and they're also in IT, as also consumer products like the erstwhile Tata Tea.

The issue in emerging markets like ours is management bandwidth. In the U.S. you may go deep because markets tend to be deep. Here, our consuming economy is still fairly narrow at the top of the pyramid. And therefore, you can't really go very deep, because per capita income really falls dramatically once you've crossed the first 28^th percentile of consumers. Hence, you use that expertise to go across various verticals. And because they work with first principles, and they do not ape what someone else has done in the US or what someone might be doing in India. That's how they conquer sector after sector.

They also have the vision to do things which are meaningful in size. They do not take small bets and trying to extract a little juice out of it. At the scale at which they are a lot of the acquisitions you see are really a string of pearls, completing the array of the product / consumer offerings that they have in retail, broadband, and now finance, etc. The big task for the company now is to transform old energy into new energy, where you have solar power, hydrogen, and battery technology coming together to transform not just Reliance, but also India's energy landscape.

It's useful to think of Reliance as a conglomerate going down three or four different fronts, but eventually converging around the consumer in India, who will need energy, who will need shopping, and who will need finance, with retail kind of being the front end for all of this.

Network18:

Do you see more monetisation avenues for Reliance Industries? We've been talking a lot about how Reliance Retail is looking to list overseas. That game plan is in motion now. What are the other monetisation avenues according to you?

Manish Chokhani:

If they bring in investors who pay top Dollar and share their outlook for five, seven, eight years, that will be good. Historically, they have gone and raised funds after the execution risk is out, because that's when you really attract top dollar.

I think at some point in the future, you will see someone coming in on the whole energy play as well. There are so many assets sitting inside which are monetisable. The whole is greater than the sum of parts that we are able to perceive today. There is Reliance Life Sciences. There are many other initiatives which one will not be aware of as a public investor.

Network18:

You spoke about the whole being greater than the sum of the parts. One of the big differences between Reliance Industries and Adani is that the Adani Group has multiple listed entities, while Reliance Industries has only one. I know they have plans to list some of the other businesses, but they've gone slow on it. Do you see that changing in the next couple of years? What are your thoughts on the fact that they've decided to keep all the diverse businesses under one entity?

Manish Chokhani:

There's no right or wrong answer. A lot of what Mr. Adani has done is incredible. Their assets are fantastic. But to give you an analogy, there are a number of companies of the ICICI group that are listed. While no companies of the Kotak group are. And both are fantastic corporations. Both are run by fantastic leaders. Both are wealth-creating entities. One takes an approach depending on one's style.

It has been a matter of great speculation in the markets that eventually each of the Reliance scions may get to lead one of their businesses. They may choose to do it as separate entities, or they may choose to run it as part of a conglomerate. A number of their businesses are separately listable, separately valuable. It's a question of whether they see greater value by listing separately, or by keeping it as part of the conglomerate?

Right from the 1980s people like Michael Porter and Michael Jensen have debated this. Whether to stay private, because then you get patient capital and a more long-term view of things, or go public to extract top dollar, but also expose the firm to the vagaries of the market? I don't think there’s a right and wrong answer here.