Reliance, an Indian Bellwether, Keeps Thinking Big
MUMBAI, India: In the tumult of the past few weeks in India, as a new government was put in place, the stock of Reliance Industries was a good gauge of expectations about the prospects for continued economic liberalization.
It registered each low and high point in the political process. It plunged at the incumbent prime minister's surprising loss and chugged upward as fears of a sharp leftward swing abated and a new prime minister, Manmohan Singh, an economist who began the liberalization of India's economy, was named.
Reliance Industries, the country's largest private business enterprise, is just one - albeit the biggest - piece of India's largest conglomerate, the Reliance group of companies. The group, a behemoth with interests in many businesses like energy and telecommunications, is in many ways the face of India's industrial renaissance. Its sales equal 3.5 percent of gross domestic product, more than the combined global sales of all of India's outsourcing companies. Its $3.6 billion of exports make up 6.1 percent of India's total. Last year, foreign investors bought $900 million of Reliance Industries shares, an amount that constituted 13 percent of the total foreign inflows into Indian equity.
"Reliance is a great indicator of India's corporate growth, the bullishness of its reforms and the robustness of its consumer market," said Rahul Singh, an analyst at the Mumbai-based equity research firm SSKI Securities.
Reliance Industries, an integrated giant with numerous products, including oil and textiles, has big American customers. It sells ingredients to detergent makers like Unilever and the plastic resin for Coca-Cola and Pepsi bottles, for instance. Its business muscle is the envy of competitors as well as a magnet for complaints of abuse of power. It is 34 percent owned by the Ambani family, mainly by Anil and Mukesh Ambani, who have been running the show since the death of their father, the group's founder, two years ago.
In an interview one recent morning in the corporate headquarters in Mumbai, Anil Ambani, the vice chairman of Reliance Industries, spoke proudly of his heritage. "We are rooted in India but have set our sights on becoming a world-beating company," he said. That is no mere pipe dream. The Reliance group - five listed companies and an undisclosed number of unlisted ones, with complex ownership structures and with interests that also include energy distribution, mobile and broadband services, insurance and financial services - reported net profit of $2.8 billion for the fiscal year that ended in March. Sales were $22.6 billion, more than Coca-Cola or Halliburton reported for 2003.
Reliance is frequently compared to General Electric for its ambition and drive. And the Ambanis are likened to the Rockefellers for their political and financial clout. "If most Indian business houses have corporate lobbies, theirs is the strongest," Singh, the analyst, said. "If other Indian business groups fund political parties, Reliance holds the most powerful of strings."
"Think big" is the group's unofficial motto, and expansions, these days largely by acquisitions, are often aimed at controlling all aspects of a business. Reliance Industries, which accounts for 30 percent of the total profits of India's private sector, runs the world's third-largest refinery, in Jamnagar, in the western state of Gujarat. The $6 billion refinery accounts for about 28 percent of India's refining capacity. Reliance Energy struck the world's largest gas find of 2002, in the Krishna-Godavari basin in eastern India. In January, it announced plans to build the world's biggest gas-fired power plant, in northern India, with a $2.2 billion investment.
Like the country's other prominent business families, Dhirubhai Ambani, the group's founder, started with a textile business. In 1977, when he floated a public stock offering in what was then Reliance Textile Industries to finance his expansion plans, thousands of investors bought in, setting off an equity market boom among India's middle class. The Reliance group companies now have more than 3.5 million shareholders, and the Ambani brothers have a combined personal wealth estimated at $6 billion.
The Ambani brothers seem to be good foils for each other. Anil, 44, Reliance Industries' vice chairman, is an outgoing man, a financial whiz married to a former Bollywood movie star. Mukesh, 47, the company's chairman, is a quiet man, an engineer who is a stickler for detail. Though both received master's degrees from American business schools - Anil from Wharton, Mukesh from Stanford - people at the company said their skills were honed in the "Dhirubhai Ambani School." They inherited their father's tenacity, his intuition in consolidating businesses, even his ability to work India's convoluted bureaucratic system to their advantage. With a $4 billion plan to make the mobile phone ubiquitous, even among the poor, in India, the world's second most populous country, Reliance Infocomm introduced a rock-bottom-priced wireless service in 2002, drawing on the cost advantages of Qualcomm's code division multiple access, or CDMA, technology. From a subscriber base of 500,000 in 2002, Reliance had 7.8 million mobile customers by the end of March , more than 20 percent of the total market, leapfrogging the previous leader, Bharti Tele-Ventures.
In January, Reliance Infocomm acquired its first operation abroad, London-based FLAG Telecom, a bandwidth supplier with underseas cable linking Asia, Europe, the Middle East and the United States, in a $211 million deal.
Reliance has come in for criticism for its back-door entry into the wireless market. While global system mobile communications companies, with international investors like AT&T and Singapore Telecommunications, bid for cellular licenses that have averaged hundreds of millions of dollars each, Reliance got limited-mobility rights along with fixed-line licenses sold by the government at a fraction of the cost.
By interconnecting different circles of limited-mobility services, Reliance has assembled a nationwide network comparable to that of the GSM operators' system. Cellular operators accused Reliance of breaching regulations on limited-mobility phones. But Reliance turned the commercial dispute into a technological one, settled out of court and became the prime beneficiary of a changed regulatory regime. "Reliance managed a de facto national license for a bargain price," said Mahesh Uppal, director of Telecommunications and Computer Information Systems, a consultancy based in New Delhi. "It is a company of amazing dimensions; it works on all different planes."
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