After months of hostility, the Ambani brothers ?? Mukesh and Anil ?? seem to have settled their differences over ownership of the Rs 100 billion Reliance empire. The peace “settlement” brokered by their mother Kokilaben has split the largest private entity in the country into two, under independent heads rather than one serving under another. And it seems to be working.
Under the new clearly defined understanding announced on June 18, the flagship company Reliance Industries Limited (RIL) will go to the elder brother Mukesh along with control over IPCL. RIL has interests in oil refining, petrochemicals, oil retailing and oil exploration. The younger and more media-savvy brother, Anil, will get Reliance Infocomm, a leading mobile telecom company; Reliance Energy, involved in power generation and distribution; and Reliance Capital, a non-banking finance company.
As an immediate demerger step, the transfer of holdings across the group companies has been undertaken with the establishment of the Anil Dhirubhai Ambani Enterprises (ADAE) Group. A special purpose vehicle has been created wherein the equity stake of Reliance Industries in Reliance Energy, Reliance Infocomm and Reliance Capital (to accrue to Anil Ambani) is being transferred. Since the shareholding pattern in the holding company will mirror that of Reliance Industries, it will expectedly protect the interests of even minority shareholders.
With ADAE being formed as a distinct entity, Anil Ambani is expected to be ready with a roadmap for Infocomm’s future. Also, according to market sources, there is definite indication of a public offering in the near future once the company is listed. This decision will be aided by the RIL board’s move to allot 287.76 equity shares of a face value of Re 1 each. This will increase Infocomm’s share capital from Rs 4.16 billion to Rs 7.03 billion, as per RIL’s balance sheet of last year. With RIL deciding to convert its preference shares in Reliance Infocomm to equity capital, allotting equity shares at a premium of Rs 31, the equity value of Infocomm is also being valued at over Rs 225 billion. This should stand the company in good stead when it floats an IPO.
Of the three companies in Anil’s stable, Reliance Infocomm is easily the most talked about venture in the country. It has changed the face of telecommunications by taking mobile phones to the masses. Flagged off in end 2003, Infocomm’s “Monsoon Hungama” created waves by offering a connection and phone for as little as Rs 500. In the ensuing year and a half, the company garnered a whopping 11.53 million subscribers.
The other obvious pluses are Infocomm’s pan-Indian presence, high capacity, integrated (wireless and wireline), convergent (voice, data and video) digital network that can offer services across the entire Infocomm value chain. The company also posted its first profit of Rs 510 million for the year 2004-05.
Reliance Infocomm was Mukesh’s pet project. And persuading him to part with it was clearly not an easy task. Despite the controversies it has been involved in, at no point in the long-drawn battle between the brothers did this reduce the company’s attractiveness as a key asset. It was only skilful corporate diplomacy that convinced Mukesh to part with the company, feel market analysts, besides the fact that it was an important element in the equitable distribution of the family resources, taking into consideration the group’s asset base and valuation.
The final parting though was done with good grace. Soon after the settlement, Mukesh sent an e-mail to employees of Infocomm, stating that under the stewardship of his brother the company would scale new heights and play a crucial role in India’s development process.
His younger brother seems determined to make this happen. The timing of his entry could not be better. He has taken charge of the company when most of the issues, such as limited mobility, creating a brand identity, grabbing market share and billing problems, have been ironed out.
Soon after assuming charge as chairman of Infocomm, Anil reconstituted the board after Mukesh had resigned as chairman along with five other directors ?? Anand Jain, Manoj Modi, Bharat Goenka, Y.P. Trivedi and M.P. Modi. He also visited Infocomm’s headquarters at the Dhirubhai Ambani Knowledge Centre (DAKC) in Navi Mumbai, where he addressed employees through a nationwide webcast across the company’s 85 locations in India. “It is a privilege to assume leadership of this great enterprise,” he stated. “We are committed to creating value and leading a billion Indians into the digital era.” Complimenting his elder brother for creating world-class infrastructure at DAKC and providing him an opportunity to lead it, Anil appealed for the support, commitment and trust of the employees to establish Infocomm as a market leader.
Expected to bring in several radical changes, Anil is being extremely focused in his plans for Infocomm. With an employee strength of over 40,000 and huge funding requirements, Infocomm is still considered a big resource guzzler. In fact, even completing its planned rollout will require estimated additional funds of about Rs 140 billion. This is over and above the Rs 160 billion put in so far by the earlier management. Anil is reportedly also scouting for some toplevel executives for the company to move it into expansion overdrive.
With company officials refusing to comment on details, there is a lot of speculation about the future plans of the company, more so as the management styles of the two brothers differ significantly. It is reported that Anil is currently reviewing all operations before taking a final call on whether there is any need to reduce the existing manpower. With the company expanding its networks across the country, any effort to cut manpower does seem a bit unlikely. However, officials agree that some process for rationalisation and realignment of manpower will be put in place in the future.
Meanwhile, it is business as usual at Infocomm. The company recently deployed Veraz’s I-Gate 4000 PRO media gateways, supporting 60,000 ports for international long distance VoIP traffic. Though Veraz, a global provider of softswitch-based, toll-quality packet telephony solutions for traditional and nextgeneration communication networks, has not disclosed the size of the contract, market sources peg it at $7 million. Company officials say that Infocomm selected Veraz’s media gateways for its compression rate of up to 10:1, which is the highest compression rate in the industry, and double that of any other product in the market.
Further, Infocomm, with 75,000 km of underground optic fibre network (second only to BSNL’s), and with plans to offer broadband services, has made a significant move in approaching the government for permission to operate DTH services. ADAE has also announced the acquisition of a leading film and entertainment software company, Adlabs Films, for Rs 3.6 billion, Anil’s first major acquisition after the settlement. Both moves come soon after he got Infocomm.
The stake in Adlabs Films has been picked up by Reliance Capital. Now, as per Sebi’s takeover code, Reliance Capital will have to make an open offer for 20 per cent stake in Adlabs Films. According to Infocomm officials, the takeover is significant as Infocomm plans to obtain a DTH licence. The company has been working on plans to provide entertainment services by generating content internally or procuring it from outside. Thereafter, it may look at giving cable operators franchises for their broadband and DTH services.
Despite the change of guard at Reliance Infocomm, the company seems set to continue the aggressive pace it has been pursuing. While a clear roadmap is yet to be defined, for the time being it looks like Anil has taken over from where Mukesh left. He has been meeting with the I&B and telecom minister. He has also been discussing matters relating to the controversy over rerouting of incoming international calls as local ones, following which the company was slapped with a Rs 1.5 billion penalty. The new management clearly intends to prove its mettle and make its mark in the telecom space.
