360degrees of separation
Mukesh clearly has the edge after two years. Can Anil play catch up?

The elder brother Mukesh is thundering ahead – fuelled by gas, refining & retail – while Anil still appears vulnerable in the power sector. Of course, the jury is still out on the race between the two
After Dhirubhai, who’s the real Bhai?


It is early 1991. The threat posed by the erstwhile V. P. Singh government in Delhi has been eliminated with the collapse of the regime. What better way to celebrate such good news than organise a grand wedding for the second son? Virtually every major South Bombay hotel worth its name is booked, as Dhirubhai Ambani invites the who’s who of India to the marriage between Anil Ambani and former actress Tina Munim. The VIPs are put up in fancy places like Oberoi and Taj while the lesser known invitees and many hacks make do with the President Hotel in Cuff e Parade. There is a huge baraat and a lavish wedding in the forenoon, followed by a reception that attracts almost 50,000 people. Watching a huge throng of people queuing up to greet the groom, bride, father & elder brother on the dais, a classically cynical hack asks, “Did anybody see Mukesh dance?”

Sixteen years after the event, neither Mukesh, nor Anil has the time to shake a leg. According to breathless corporate analysts and those who follow power games of the high and mighty, the two brothers are seemingly locked in almost mortal combat. And the gossip surrounding the conflict between the two is not all gas, since a key point of contention is gas – the huge reserves of gas discovered in the Godavari basin in Andhra Pradesh and controlled by Mukesh Ambani. So when the Mumbai High Court recently granted some sort of relief to Anil by asking Mukesh-controlled Reliance not to sell the Godavari gas to a third party, it looked as if the two brothers had crossed another milestone in their race to claim the legacy of Dhrubhai Ambani. And gas promises to pay a decisive role in the future (more of that later).

What never fails to interest and fascinate analysts is how the two brothers stack up and who is ahead in the race. Can Anil catch up with the blistering pace of growth that has been set by elder brother Mukesh? Can he deliver that one big ticket unveiling of a Greenfield project like Mukesh has done with the petroleum refinery and Reliance Retail? Anurakt Jain, Associate at Indus View Advisors, sums up the current situation, “In terms of performance, RIL is better than ADAG because of the simple reason that RIL is in those industries that have done better. On the other hand, ADAG is in consumer-related industries that take their own time to flourish.”

That the two brothers indulge in a bit of sibling rivalry may be an understatement. Equally true would be a perception that there is not much love lost between the two. There have been numerous tales of one-upmanship games between those loyal to Mukesh and others at the Knowledge City in New Mumbai that went to Anil Ambani after the split between the two in June 2005. Equally fascinating for gossip mongers are tales of how Mukesh is building a new residence in South Mumbai. Both seem to share an appetite for private jet aircraft s. Both have big plans for the media sector. Even as Anil Ambani is consolidating his plans for the entertainment sector after the acquisition of Adlabs, Mukesh throws his hat into the ring with speculation that he might finance Bollywood projects and production houses. Even as Anil struggles to launch the various power generation projects he has announced, Mukesh announces an ambitious power project for his Haryana Special Economic Zone (SEZ). Yes, both are in a race to set up SEZs across the country. If Reliance Retail is bulldozing its way across urban India, Anil is also said to nurture retail ambitions through his Java Green Coffee shops that can be found at Reliance Infocom outlets spread across the country. The electoral defeat of Mulayalam Singh Yadav in Uttar Pradesh might have been a setback for Anil (the new Mayawati government has asked for a review of the ambitious SEZ in Dadri, near NOIDA); it just might be so that when it comes to clout at access to the powers that be, Mukesh enjoys an edge at the moment. Yet, no sensible analyst can afford to conclude that Mukesh has gone so far ahead in the race that Anil will well nigh find it impossible to play catch up. Says Jain of Indus View, “Mukesh gets a larger base to grow than Anil. In terms of being bullish, I would rate both of them on an equal platform. RIL has traditionally done well and has been riding high due to the gas pricing. Their foray into retail, SEZs, et al has firmly set them in the market and are bound to grow. ADAG, on the other hand, is into consumer entertainment, financial services and healthcare, which are high growth sectors and are bound to grow in the medium term in future.”

What has been the strategy adopted by the two brothers after the split of June 2005? And how different have they been from each other? Mukesh clearly appears the more focused of the two – at least outwardly. Within weeks of the split, when he lost the lucrative Reliance Infocom to Anil, Mukesh and his team of strategic advisors drew up a blue print to launch an Indian version of Wal-Mart called Reliance Retail. More than Rs.250 billion was kept aside for the project. The launch has been on target, and despite many hiccups, teething problems and complaints of the consumer dissonance, there will be hundreds of Reliance Retail outlets across urban India even before the Bharti-Wal-Mart strategic alliance launches its first store sometime in 2008. The scale of this project is truly staggering; something that father Dhirubhai Ambani would have been proud of. It took Reliance more than 30 years to cross the milestone of generating Rs.1 trillion in annual revenues; and that too with the help of petrochemicals, petroleum, refining and intermediates. With Reliance Retail, Mukesh wants to cross the Rs.1 trillion annual revenue mark in just five years!

Not that he is relying merely on retail to fuel growth. With Reliance Petroleum, Mukesh has demolished this myth about his relative weakness in the arcane area of finance. The new refinery at Jamnagar will be the cheapest green field refinery in the world and the second largest. The new refinery, along with the Godavari gas, promises to generate another Rs.500 billion in revenues every year, by 2010. The third prong of his growth strategy is the slew of SEZs that Mukesh is launching across the country. The SEZs will not merely take advantage of liberal tax breaks to generate huge amounts of cash flow. They will also be Mukesh’s way of controlling valuable real estate across the country in clusters that are close to urban agglomerations. Can Wal-Mart ever hope to match up to this? If things pan out as planned, Mukesh could well be controlling a global business empire that generates more than $70 billion in revenue every year. Can Anil match that?

Yet again, on the surface at least, the strategy adopted by the younger brother appears to be slightly helter-skelter. After the split, Anil was left with one large entity (Reliance Infocom), many smaller entities (Reliance Energy, Reliance Capital, Reliance Natural Resources Ltd. et al) and tonnes of cash. So he went on an acquisitions spree that seemed peculiar. He picked up a controlling stake in the former AMP-Sanmar Insurance Company. He bought into AdLabs that is into movie distribution and screening. He even picked up a stake in the courier company DTDC! And now he has picked up a stake in TV Today, the network promoted by media baron Aroon Purie. Along the way, he has aggressively bid for the infrastructure projects like the airport revamp program at Delhi and Mumbai, albeit unsuccessfully. And, he is betting heavily on power generation. In five years, he wants to overtake the public sector NTPC that reported revenues of Rs.327 billion for 2006-07.

When compared to elder brother, the strategy adopted by Anil does invite an exceptionally generous dose of skepticism. You might well ask how a controlling stake in a small courier company called DTDC will help his long term strategy? Yet, discerning analysts have managed to see some method behind this seeming madness. According to them, Anil too is following a three-pronged strategy for long term growth by focussing on telecom, media & entertainment (in order to cash in on the promise of convergence in the future); financial services & power. The first two seem to be working quite well. Telecom, media and entertainment are all sunrise areas and there is little doubt that Anil Ambani will be one of the biggest players in the future. Reliance Infocom is already the second largest operator in the private sector behind Bharti Telecom. Even in financial services, he is aggressively expanding and promises a conglomerate by 2010 that will be much smaller compared to behemoths like ICICI; but a serious player, nevertheless.

It is in the power sector that Anil appears most vulnerable. There is the uncertainty hovering over this sector because of the inability or unwillingness of state governments to reform and revamp the state electricity boards. Without this revamp, power generation remains a financially risky proposition because bankrupt boards simply do not have the cash to pay for the power that they purchase. But a bigger strategic threat, as mentioned earlier, is gas. When the brothers split, it was agreed that Mukesh-controlled Reliance will sell Godavari gas to Anil-controlled RNRL at $2.8 per mmbtu. The Ministry of Oil & Gas has put a spanner in the works (Anil camp loyalists say it was done at the prompting of the Mukesh lobby) by ruling that the price is too low. Reliance estimates that the market price of the gas is $4.8 per mmbtu. Though the matter is under litigation and charges fl y thick and fast, there is little doubt that Anil’s power sector ambitions will get completely derailed if he doesn’t get gas at a discounted price. Till the matter is settled in his favour (if it is), the third prong of Anil’s growth strategy will remain weak. Meanwhile, Mukesh continues to showcase his audacious growth strategy. In corporate jargon, you could well say that he wants to be both the Exxon Mobil and Wal-Mart of India, rolled into one. Anil, in turn, seems to be aiming to become the GE of India (GE is a big player in financial services, media and power, apart from other things). At the moment though, it does look as if the elder brother has the upper hand.

The art of splitting hair?

As long as there is property, inheritance, money, ego and ambition, business families will continue to split. Given their size and the profile that they enjoy in public imagination, the Ambani brothers have been getting more than their fair share of publicity and gossip. If one looks at the whole issue objectively, there is no doubt that stakeholders have benefitted immensely after the two brothers agreed to a split arranged by ICICI Bank boss K. V. Kamath and morally presided over by the matriarch of the family Kokilaben Ambani; the widow of Dhirubhai. Around the time the two brothers split, the Reliance Industries share was hovering in the range of Rs.700 or so for a while. There were many so-called pundits who sniggered when it was suggested that a split between the two and a clear division of functions and ‘assets’ will lead to unlocking of shareholder value. As usual, the pundits were wrong and the Reliance share that was worth about Rs.700 in 2005 is worth more than three times that figure! No wonder, the Ambani brothers, despite their personal feuds, have retained the loyalty of the stock market investors in the country and beyond. Something totally different seems tobe happening with the proposed split in the Bajaj family; a controversy that has been raging for many years now. Just recently, after many battles with Sishir Bajaj that have been made public, Rahul Bajaj announced a separation offunctions and responsibilities between even his own sons Sanjeev and Rajeev Bajaj. In effect, the Bajaj patriarch announced that one son will lead the automobile business while the other one will control the financial services business. Despite this seemingly pragmatic separation imposed well on time by the elder Bajaj, investors in the market have not taken well to the split, nor do they see any unlocking of value in the near future as Sanjeev and Rajeev go their own separate ways. In fact, the share price of Bajaj Auto has dropped after the split was announced recently! Ranbaxy is yet another inheritance that has seen bruising and controversial battles between inheritors. This is a battle in which uncle is pitted against nephew; with the genesis of the battle going back to the early 1990s, when Dr. Parvinder Singh, who spearheaded the rise of Ranbaxy, orchestrated the ouster of his own father Bhai Mohan Singh from the company, when the latter opposed Dr. Singh’s plans to take Ranbaxy global. Bhai Mohan Singh bequeathed many of his assets to the other son Bhai Analjit Singh, the uncle of Malvinder Singh, who now heads Ranbaxy. Indeed, Indian business families have had quite serious split personalities!