Which are the Top Loss-Making Companies in Reliance?

Now, when you hear the word "Reliance," what comes to your mind? For many, it's one of India's biggest corporations: Reliance Industries Limited (RIL)! After all, it is not just India's largest private company; it's also a proud member of the Fortune 500 list.

While Reliance is known for its wealth and power, not every part of the company is doing great. Some of its businesses are actually losing money.

How can a company like Reliance have businesses that are losing money? It's a question worth exploring. So, let's take a closer look!

Table of Contents:

1. Network18 Media & Investments Ltd.
2. Reliance Brands
3. Reliance New Energy Ltd.
4. Reliance Strategic Business Ventures Ltd.
5. Reliance Polyester Ltd.
6. The Indian Film Combine Pvt. Ltd.
7. REC Solar Pte. Ltd.

Reliance's Loss Making Companies

RIL has an impressive market capitalisation of ~₹17.21 lakh crore! And its presence spans across 6 sectors:

1. Energy
2. Petrochemicals
3. Retail
4. Digital Services (Jio)
5. New Energy
6. Media & Entertainment

But despite its position, the company is no stranger to losses. Keep reading to find out about Reliance's struggling ventures, the reasons behind the losses and how much they're really losing!

Network18 Media & Investments Ltd.

First up is Network18 Media & Investments Ltd., a name that you might recognise if you're a fan of news or entertainment. Network18 runs a wide variety of channels, offering a wide range of products (print magazines, merchandise, etc.) and services in the media and entertainment industry, including:

1. News:

• General: Operates News18 India, the top Hindi news channel for most of the fiscal year
• Business: Runs CNBC-TV18 for business-related news
• Regional: Has 14 regional news channels with over 1,200 reporters across India
• Digital News: Offers a website, News18.com

2. Entertainment: Channels like Colors, MTV, and VH1
3. Sports: Offers Sports18, Sports18 HD, and Sports18 Khel channels
4. Moneycontrol: A successful digital platform focused on finance news

But, even with such an impressive portfolio, the company's financials have been a bit shaky. In fact, Network18 posted losses in the last 2 years:

So what's going wrong?

The primary culprit here is the rising operational costs, which went from ₹8,358 lakh in FY23 to ₹38,135 lakh in FY24. While revenues have been growing, operating expenses have been outpacing that growth. In particular, high-interest costs and depreciation expenses have squeezed profits. Network18 is investing heavily in new content and expanding its digital platforms, which, while necessary for long-term growth, have led to short-term losses.

Reliance Brands

Next on the list is Reliance Brands, a subsidiary of Reliance Retail Ventures Ltd., focused on the fashion and lifestyle sector. With a strong presence in the apparel and footwear business, Reliance Brands caters to segments of:

• Luxury: Offers high-quality, exclusive products that are often expensive and cater to a wealthy clientele. In India, brands like Sabyasachi and Manish Malhotra represent luxury fashion.
  Bridge-to-luxury: Provides a more affordable entry point to luxury without compromising on quality. For example, Ritu Kumar and  Anita Dongre offer stylish yet accessible fashion. These brands attract middle-class consumers aspiring to own luxury products at a lower price.
• High-premium: Delivers exceptional quality and craftsmanship at a higher price point than mass-market brands but lower than luxury ones. Titan is renowned for its premium watches, while Fabindia offers high-quality ethnic clothing made from traditional fabrics. These brands cater to consumers looking for superior products without the luxury price tag.
• High-street Lifestyle: Focuses on trendy, fashionable items that are more affordable and widely available. In India, Zara is popular for its stylish clothing, while H&M offers a variety of fashionable apparel at reasonable prices. These brands appeal to young, fashion-conscious shoppers seeking the latest trends without breaking the bank.

It is also a leading luxury retailer, bringing in 85 international brands to India. The company is behind big-name brands like Shoppers Stop, Superdry, and Tommy Hilfiger and operates in everything from luxury retail to sportswear.

However, it's been struggling to make a profit. While the company is growing, the losses have been piling up.

What's causing the trouble? High finance costs are a major issue. With Reliance Brands expanding rapidly (opening new stores, acquiring brands, and investing in retail infrastructure), the company has taken on a heavy debt burden.

In FY24 alone, finance costs amounted to a whopping ₹453.64 crore. The company's aggressive expansion strategy requires heavy upfront investments in Property, Plant and Equipment (PPE), physical stores and branding, which are essential but not immediately profitable.

However, in the long term, things might turn positive for the company if the expansion proves successful.

Reliance New Energy Ltd.

In recent years, Reliance has made a big push into renewable energy through its wholly-owned subsidiary, Reliance New Energy Ltd. The company is involved in integrated renewable energy power projects, solar photovoltaic technology, all types of energy storage technologies, and batteries. It also acquires companies in the renewable energy space.

Its investments include entities like:

• Sterling and Wilson Renewable Energy (40% equity stake)
• Faradion Limited (100% equity stake)

This focus on alternative energy comes from the company's aim to achieve net-zero carbon status by 2035. But as with any new, capital-intensive industry, the losses are mounting.

It was established in 2021, and during its first few years, the company didn't generate any sales revenue, indicating that the company is in a growth phase. It's not surprising that the company is struggling with losses.

Despite the promising future of renewable energy, the reality is that it takes years to see returns on these investments. So, for now, Reliance New Energy is in the red, but its long-term potential could make it a key player in the clean energy sector.

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Reliance Strategic Business Ventures Ltd. (RSBVL)

RSBVL, a subsidiary of Reliance Industries, focuses on strategic investments across different sectors. It plays an important role in supporting other Reliance businesses and trading goods, but like some of its sister companies, RSBVL has been facing challenges in turning a profit.

Here's how it performed financially:

The company generates revenue by trading goods, holding strategic investments, and providing support services to other Reliance companies. Despite this, it faced a major drop in revenue in FY24. The company's revenue from the sale of exempted goods also fell from ₹2,310.69 crore in FY23 to ₹855.63 crore in FY24.

Additionally, the company reported a ₹386.58 crore impairment loss on investments, which means some assets lost value and had to be written off. On top of that, rising finance costs have added to its losses.

Reliance Polyester Limited

Reliance Polyester Limited, once known as Reliance Petroleum Retail Limited, is now all about manufacturing and selling polyester and allied products. It's a niche but essential part of the larger Reliance ecosystem. The company's transformation began with the acquisition of Shubhalakshmi Polyesters Ltd. and Shubhlaxmi Polytex Ltd. in FY23. This move significantly boosted its production scale and operations, but it hasn't been smooth sailing just yet.

The acquisition caused a massive revenue jump from ₹115.37 crore in FY23 to ₹2,500.25 crore in FY24. However, the losses persisted. Why? A mix of external and internal challenges.

Demand for polymers, including polyester, has been sluggish thanks to recession fears in major markets. This weak demand directly impacts prices, squeezing profit margins.
Additionally, due to the acquisition, the company faced:

• Increased borrowing costs
• Expanded production requirements
• Higher need for a workforce  

Add fluctuating raw material costs to the mix, and it’s easy to see why profitability remains elusive for now.

The Indian Film Combine Pvt. Ltd.

The Indian Film Combine Pvt. Ltd. is involved in a major project called the Maker Maxity development, located in Mumbai's Bandra Kurla Complex. The project is divided into 2 phases. Phase I, already completed, includes 5 office buildings. Phase II, which is still under development, is where the company is pouring most of its resources. This phase is a massive hospitality and entertainment complex that will feature:

• Hotels and serviced apartments
• A membership club
• A drive-in theatre
• A multiplex cinema
• Restaurants and bars
• A multi-level shopping centre

The project also includes Jio World Drive (JWD). You might have heard of it or even visited this exciting place that offers shopping, dining, and entertainment. It features 72 top international and Indian brands, 27 global culinary outlets, Mumbai's first rooftop drive-in theatre, an open-air community market and pet-friendly services.

Despite steady revenue growth, the company has struggled with significant losses each year, with the highest recorded in 2022-23.

Revenue for the company is expected to come from various sources within this development. These include:

• Membership Sales Income: From the club within the complex
• License Fees: Generated from tenants or operators in the development
• Common Area Maintenance (CAM) Recovery: Covers the upkeep of common spaces

The company has faced financial challenges due to several factors:

• High Finance Costs: Loans taken to fund development amount to ₹10,476.40 lakh in 2023-24
• Depreciation & Amortisation Expenses: Related to newly constructed properties, totalling ₹9,275.90 lakh
• Substantial Construction and Development Costs: Ongoing Phase II development recorded as Capital Work-in-Progress

Despite increasing revenue, these factors have contributed to continued financial losses.

REC Solar Pte. Ltd.

REC Solar Pte. Ltd., a wholly owned subsidiary of Reliance Industries, focuses on manufacturing & selling solar panels. However, the company has been facing losses despite an increase in revenue over the past 2 years.

*Since it is a Norwegian company, financial statements are for the calendar year in accordance with the Norwegian Accounting Act.

A major concern is REC Solar's heavy reliance on sister companies, which account for 79% of its total revenue. This makes the company vulnerable because if the parent company's business slows down, REC Solar's earnings could take a hit.

It is also losing money because of high costs, like repairs, maintenance, professional fees, and property taxes. On top of that, it has huge finance costs, with interest payments on loans reaching nearly ₹425.24 crore in 2023. The company's revenue took a huge plunge in 2023, and these rising expenses are making it harder for the company to stay profitable.

Conclusion

So, even though RIL is one of the biggest companies in India, not all of its businesses are doing well. Some are actually losing money. This happens even to the best of the players in the business world, right? Even Tata's loss-making companies are raking up quite the damage. The losses come from different things like too much debt, high costs, and investments that haven't paid off yet.

But these losses don't mean the company is failing. A lot of these businesses are still growing, such as the renewable energy projects or the big development at Maker Maxity. These businesses are spending a lot of money now, hoping that in the future, they'll start making money.

So, here's the question: Do a few loss-making companies really affect a group as massive as Reliance? Let me know what you think in the comments!

*Disclaimer: The stocks, companies, and policies discussed above aren't recommendations from Finology Insider and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.