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Ambani brothers in race to make up for lost time

By Surajeet Dasgupta & Kausik Datta
June 17, 2006 12:58 IST
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The skirmish that rocked India's most valuable business group seems a distant memory now, and the Ambani brothers seem to have only one thing in common these days - both are vigorously trying to make up for lost time.

In the one year after mother Kokilaben's announcement (made on June 18 last year) of the formula to split up Reliance, Mukesh and Anil Ambani have announced some of corporate India's most ambitious plans.

Mukesh's Reliance, for example, has plans to invest Rs 100,000 crore (Rs 1000 billion) in the next three years. It invested the same amount in the last 30 years.

For Mukesh, annual general meetings are great platforms for big-ticket announcements. Last year in August - it was his first public meeting after the split in June - he unveiled his plans in the oil sector. He will use this year's AGM on June 27 to make mega announcements on retail.

Consider the speed at which the group is working. In January this year, it announced its foray into retail with an initial investment of Rs 3,250 crore (Rs 32.5 billion), and the launch of a wholly owned subsidiary, Reliance Petroleum, to set up a $6 billion refinery at the special economic zone at Jamnagar.

Three months down the line, Reliance Petroleum launched its IPO and Chevron picked up 5 per cent in the company with a right to scale it up to 29 per cent.

Sources close to him say the elder Ambani conceived the idea of foraying into retail even before the split was announced, as he knew that he would have to give up telecom.

A confident Mukesh is now riding the increased spending capacity of consumers and the groundwork done by established retail players (Pantaloon and Shoppers Stop).

The plan is to do a Wal-Mart in India by developing a low-cost supply chain model, which will involve massive economies of scale. The strategy is to set up a chain of supermarkets, hypermarkets, speciality chains and convenience stores in 800 cities across the country.

In short, the largest retail chain the country has ever seen. The idea is to do things differently. For example, Reliance would sign an MoU with the Harsh Neotia-controlled Bengal Ambuja towards the end of this month wherein they will hand-hold each other.

This kind of partnership is unheard of in the industry. For example, the broad contours of the agreement (it is not yet signed) suggest that Reliance will set up anchor shops at Neotia's malls in West Bengal. Neotia will also have screens at the properties of Reliance. Neotia will be Reliance's vehicle for growth in east and north-east.

Then there is his plan for special economic zones. RIL is setting up SEZs as large integrated world-class townships spread over 100,000 acres in Maharashtra, Bengal, Punjab, Haryana and Andhra Pradesh.

At least four time of that money would come in from third party investors wanting to set up projects. For example, companies like Exxon-Mobile etc would set up projects at Reliance Petroleum's Jamnagar SEZ.

If Mukesh is going great guns, brother Anil isn't far behind. Industry watchers say he wants to be the number one private telecom player in the country in the next three to four years straddling both GSM as well as CDMA technology.

He also wants Reliance Capital to be a one stop financial services house and is targeting to become a large scale infrastructure player, which will not be limited only in power but straddle newer areas like bidding for metro rail projects (it has won the Mumbai metro), roadways (it is undertaking a project in Tamil Nadu), airports and even SEZs (it has a project in Punjab in 5,000 hectares of land).

And he is spending over Rs 700 crore (Rs 7 billion) - one of the largest makeover budget in the country - to create a new identity and logo.

The change is clearly reflected in the telecom business - the junior Ambani does not want to be only an integrated telecom player (like Mukesh did) but converge it with the world of entertainment. In the last one year, Reliance's subscriber base has virtually doubled to 27 million.

In the same year, Anil's strategy of convergence of telecom with entertainment was unravelled with his acquisition of a majority stake in Adlabs - its key entertainment vehicle.

Reliance Communications is also planning a bevy of services - from IPTV on the broadband, mobile TV, video on demand services. It has a fibre optic backbone, which can be used to distribute movies to the multiplexes.

On the energy front, the company is looking at setting up power projects in neighbouring countries like Nepal and Bangladesh and even in West Asia; it is scouting for partners to bid for gas exploration overseas and even look at acquisition of coal mines in global locations, which will feed the power plants in India.

Anil Ambani has of course fixed stiff targets. Reliance Energy for instance is already building over 2,850 Mw of new capacity and the target is that by 2011 it would double this to over 15,300 Mw.

In the financial services space, the group was able to raise a staggering Rs 5,759 crore (Rs 57.59 billion) from the market through over 900,000 applications in Reliance Equity Fund -- the largest resource raising effort by a mutual fund ever.

And with over Rs 24,000 crore (Rs 240 billion) of assets under management, Reliance Capital has emerged amongst the top three financial services companies in the private sector

Market capitalisation sweepstakes

The Anil Ambani group has seen erosion of almost one-sixth of the market value of the companies under its fold since January 17, when the demerger of Reliance Industries took effect.

The market capitalisation of the Anil Ambani group on Friday is lower by Rs 12,356 crore (Rs 123.56 billion) from Rs 68,423 crore (Rs 684.23 billion) in the same period.

Reliance Communication Ventures has contributed the maximum to the erosion in market capitalisation of the group. It has lost Rs 15,424 crore (Rs 154.24 billion) worth of market value from its peak level and Rs 8,470 crore (Rs 84.7 billion) after its listing.

The Mukesh Ambani group, on the other hand, has added to its market capitalisation by Rs 59,703 crore (Rs 597.03 billion). Following the listing of Reliance Petroleum, Rs 28,193 crore (Rs 281.93 billion) worth of market capitalisation was added to this group.

The flagship Reliance Industries, too, added to its market capitalisation by Rs 31,636 crore (Rs 316.36 billion). IPCL is the only laggard in the group, losing market capitalisation worth Rs 225 crore (Rs 2.25 billion) after January 17, when the formal split took place.

The newly listed RPL put up a big show on its listing with the stock touching an all-time high of Rs 101.95 against its issue price of Rs 60 and ramping up a market cap of Rs 45,888 crore (Rs 458.88 billion).

The correction thereafter shaved off Rs 17,685 crore (Rs 176.85 billion) market cap of RPL when its market price dipped below the issue price.

On Friday, the market value of Mukesh Ambani group stood at Rs 163,226 crore (Rs 1632.26 billion) with his flagship Reliance Industries accounting for Rs 128,360 crore (Rs 1283.6 billion). The newly-listed RPL has chipped in with Rs 28,192 crore (Rs 281.92 billion) while IPCL and Reliance Infrastructure together added another Rs 6,674 crore (Rs 66.74 billion).

On Friday the Anil group companies aggregate market capitalisation is to the tune of Rs 56,067 crore (Rs 560.67 billion).

Reliance Communication has a market cap of Rs 27,105 crore (Rs 271.05 billion), followed by Reliance Cap {Rs 9,689 crore (Rs 96.89 billion)}, Reliance Energy {Rs 9,442 crore (Rs 94.42 billion)}, Reliance Energy Ventures {Rs 3,963 crore (Rs 39.63 billion)}, Reliance Capital Ventures {Rs 2,575 crore (Rs 25.75 billion)}, Reliance Natural Resources {Rs 2,409 crore (Rs 24.09 billion)} and Adlabs Films {Rs 885 crore (Rs 8.85 billion)}.

The valuation gap between the two groups has been widening. Immediately after the split, the market capitalisation of the Anil Ambani group companies was 66 per cent of the Mukesh Ambani group.

Subsequently, it came down to 40 per cent at peak market values on May 10 when the Sensex hit an all-time level of 12,612 and slipped further to 34.4 per cent on Friday.

The Mukesh Ambani group, which has taken lead in market capitalisation at the ratio of 2.9:1 over the Anil Ambani group, is also ahead in terms of financials like turnover, profits and assets.

The Mukesh Ambani group is ahead of the Anil Ambani companies in the ratio of 10.6:1 in net sales, 5.9:1 in profits and 7.6:1 in fixed assets.

The Anil Ambani group companies have a higher price/earning multiple of 15.29 compared with P/E 13.46 of the Mukesh Ambani group.

Additional inputs: B G Shirsat

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Surajeet Dasgupta & Kausik Datta
Source: source