What does Mukesh Ambani eke out from each of his new investors? Less than $2 a month

By Andy MukherjeeMukesh Ambani has joined the league of world’s richest with the help of a simple formula: assembling admirers for $2 businesses. First he got Facebook Inc. and Google to back his fledgling digital ambitions, and now he may be trying to entice Amazon.com Inc. into his retail venture, already India’s largest.In four years, the Indian billionaire has amassed roughly 400 million customers for his mobile data business. What does Ambani eke out from each of them? Less than $2 a month. The chump change didn’t deter Facebook and Google’s parent, Alphabet Inc. Together with marquee private equity investors and sovereign wealth funds, Silicon Valley tech titans made a beeline recently to invest in Ambani’s Jio Platforms Ltd., valuing it at about $65 billion. That $20 billion fund-raising spree has already met the refining and petrochemicals czar’s goal of making his flagship Reliance Industries Ltd. net-debt-free, giving it enviable financial strength just as the coronavirus pandemic is taking a toll on most other balance sheets. The tycoon wants a repeat performance for another $2 business in his stable: retail. He has offered a 40% stake in Reliance Retail Ventures Ltd. to Amazon, Bloomberg News reported Thursday. It’s unclear if Jeff Bezos will bite. But others have. Menlo Park, California-based Silver Lake Partners, which bought a stake in Jio, has written a $1 billion check for 1.75%. Another Jio investor, KKR & Co., is also probably coming on board.To see how the excitement is rising once again over a princely $2, consider Reliance’s 30 million square feet of retail space. Each square foot, analysts expect, will garner $2 a day by 2022. On an operating margin of 7%, that translates to $1.5 billion in earnings before interest, taxes, depreciation and amortization. All Ambani had to do was to convince Silver Lake that this Ebitda is worth 38 times today. And with that, he unlocked the gates to a $57 billion enterprise.If the Facebook deal for Jio is any guide, Amazon as a strategic partner might get its 40% for a small discount to what Silver Lake paid, though the reported $20 billion price tag is still formidable. Excluding his $38 billion divorce settlement, Bezos hasn’t done a transaction as large as this. There’s another wrinkle. Amazon India, in which he has already committed billions of dollars, competes with Reliance Retail’s physical stores — as well as with Ambani’s version of “phy-gital” retail. But on his own, Bezos must fight with one hand tied behind his back. Foreign-owned e-commerce sites, such as his or Walmart Inc.’s Flipkart, must operate as pure marketplaces for third-party sellers. The law against owning inventory has become stricter, with discounts triggering allegations of favoring connected parties. India’s competition commission received a fresh such complaint from a group of Amazon vendors recently. Being an Indian company, no such restrictions apply to Reliance’s grocery stores, supermarkets, or JioMart, Ambani’s vision of virtually connecting 30 million neighborhood shops with his telecom customers.Although still untested, the latter is his edge. The bulk of the 20-fold growth that India’s online grocery sales might witness over the next five years may go to the Jio-Facebook partnership, Goldman Sachs Group Inc. estimates. The advantage for Ambani could also carry over to higher-margin items, the same way as Costco Wholesale Corp.’s popular $4.99 rotisserie chicken helps the American retailer sell a little more of everything from apparel to flat-screen TVs. Covid-19 has been a shot in the arm for Reliance, despite retail Ebitda of only $145 million in the June quarter, a 47% drop from last year. The carnage from a nationwide lockdown allowed it to swoop on debt-strapped rival Future Group’s retail, wholesale, logistics and warehousing units, acquiring the lot for just $3.4 billion. More importantly, the prospect of getting stuck with sub-5% growth in the post-pandemic economy is making Prime Minister Narendra Modi’s government reliant on an increasingly small number of domestic groups to pull India out of its tight spot. Unlike China, India’s billion-plus consumer market has been open to U.S. tech firms. But when Ambani requested Modi last year to end “data colonization” by global corporations, it became clear that a shift was coming. Any remaining doubts have been removed by the post-Covid surge of economic nationalism. Where does that leave Silicon Valley and Wall Street? With U.S.-China relations deteriorating — most recently over the erosion of Hong Kong’s autonomy — both need an alternative. In a billion-plus consumer market, even a $2 business holds the promise of future riches, and Reliance is demonstrating that it has more than one such opportunity. To get into bed with Facebook, Google, and possibly even Amazon at the same time takes some chutzpah, though. Chalk it up to Ambani’s dominance of the market.

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