The richest man in India for eight consecutive years and for a brief time in 2008 a contender for the title of richest man in the world, Mukesh Ambani is the current chairman and managing director of Reliance Industries. He is the eldest son of Dhirubhai Ambani, the founder of Reliance Industries, one of the largest private companies in India, with interests in refining, oil & gas, petrochemicals, telecom, retail and media. Mukesh Ambani owns approximately 45% of Reliance Industries, making his net worth approximately US$ 24 billion. Mukesh and his younger brother Anil had been jointly running the business while their father was alive. In 2005, the business was split between the two brothers, with Mukesh retaining the oil and gas business and Anil holding on to telecom, infrastructure and finance. (For related reading, see:India Is Eclipsing China's Economy As Brightest BRIC Star.)
To understand the might of Reliance Industries, the numbers are a good start. Its crude oil refinery in Jamnagar, Gujarat, is one of the largest in the world, with 2% of global processing capacity. It also constitutes 15% of India’s exports, 4% of its stock market capitalization and 3% of its tax revenues and is the country’s largest private corporate investor. (See article: An Introduction To The Indian Stock Market.) It is also the world’s largest producer of polyester fiber and yarn.
Mukesh Ambani holds a Bachelor’s degree in Chemical Engineering from the University of Mumbai and was pursuing his MBA from Stanford University when he dropped out to assist his father in the construction of a polyester filament yarn plant after it got a license from the Indian government in 1981 to produce polyester filament yarn, beating the likes of other well-known Indian business houses such as the Tatas and Birlas.
Reliance was founded in 1957 by Dhirubhai Ambani as a provider of textile yarns to textile manufacturers. He then decided to enter textile manufacturing in the mid 1960’s and set up his first factory in 1966. The lack of a proper distribution arm, which was necessary to avoid dependence on the existing players and to keep costs low, along with a shortage of funding led Reliance to come out with an IPO in 1977, raising US$ 1.8mn and in the process starting the capital markets culture in India. (See: IPO Basics: Getting In On An IPO.) Mukesh Ambani officially joined Reliance in 1981 and oversaw its backward integration from polyester into textiles and then into petrochemicals in 1986 and later into oil & gas exploration, and more recently into other unrelated sectors.
A new petroleum subsidiary was set up in 1991 and its IPO was launched in 1993, making it India’s largest ever IPO at that time. The company also issued Global Depository Receipts (GDR’s) in 1993-94 in Luxembourg, becoming the first ever Indian company to do so. In 1997, Reliance got permission to build its oil refinery at Jamnagar, which was commissioned in 1999. In the same year, Reliance won 12 oil blocks for exploration in the Krishna-Godavari Basin (KG-D6) in the Bay of Bengal. It also expanded into the telecom sector in 2002 while at the same time expanding its refining operations.
Mukesh’s period at the top saw revenues increase more than 6 times and profits increase around 3 times since 2005. However, the stock of Reliance has been languishing for the past 2 years, partly due to corporate governance issues and its opaque corporate structure, leading to some people calling it the largest wealth destroyer in the country. The expected output from the KG-D6 basin was not as high as expected and this has led to the company's efforts to get a higher price from the government for its gas. (See: How Does Crude Oil Affect Gas Prices?) The company is also losing the public image battle, with accusations of crony capitalism and all the bad press associated with it. There have also been some serious allegations that Reliance is able to use its political connections to rig the system to get favorable deals.
Mukesh’s forays into retail, 4G wireless broadband and media clearly signal areas of future growth for Reliance. It has already started an online service for its brick-and-mortar grocery business, Reliance Fresh. (For related reading, see: Why 'Bricks and Mortar' Retail Remains A Solid Bet.) It has additionally entered the fiercely competitive telecom sector again with its 4G broadband venture. The acquisition of Network 18, a television company in India owning a range of TV channels, created a lot of furor in the country over Reliance’s intentions and whether it wanted to curb press freedom in India by trying to strangle any negative publicity against it in the media. From a business perspective, it fits into its strategy that aims at providing content for its 4G consumers. It has also bought stakes in an online tutoring company to expand the services it can deliver via 4G.
Severe criticism has been levied against Mukesh personally for his 400,000-square-feet home in Mumbai, a palatial house with 27 floors worth US$1 billion, and for showing insensitivity towards the large number of poor people living in India. Though always known to be a private person who shied away from the media, he entered the limelight in 2008 when he a bought a Mumbai cricket team in the newly formed Indian Premier League.
The Bottom Line
Reliance as a company has not been a technologically disruptive organization, but by adopting the most modern technologies and processes and by putting in place proper systems it has been able to build a robust supply chain and achieve significant economies of scale. There is no doubt that Mukesh Ambani has expanded and solidified the business created by his father, to a larger extent than his brother. Dhirubhai Ambani overcame a lot of odds to establish Reliance in a country that was perceived as anti-privatization and favored the status quo. But it is also fair to say that Dhirubhai to a certain extent did benefit from the license system in pre-liberalization India by gaming the system to his advantage. Some of those relationships still benefit Reliance even today, but the future definitely will not favor such businesses. To ensure that Reliance survives and flourishes on a stage that is increasingly global, Mukesh Ambani must make a great effort to improve his and his company’s image.