Message is clear: RIL to focus on infocom, energy business

Veeshal Bakshi

New Delhi, Nov 19: Infocom and energy sectors are our future businesses is the loud and clear message that emerges out of Ambanis’ decision to sell Reliance Industries Ltd’s shareholding in Larsen & Toubro.

By exiting from a company, for whose management control they fought a bitter battle with financial institutions’ barely a decade ago, the Ambanis have exhibited two things -- that they are and will remain completely focussed on infocom and energy businesses and that they don’t run their businesses or make investments on emotions. It is the bottomline that matters.

The Ambanis got into L&T in the late eighties because they were convinced that it had synergy with its other business plans involving huge capital investments in petrochemicals and refinery projects.
They entered L&T in 1987 and had acquired up to 18 per cent by the following year. In April 1990, the then Prime Minister VP Singh forced Mr Dhirubhai Ambani to relinquish management control by stepping down as chairman. Soon after, they even went to the extent of launching an unsuccessful takeover bid.

But less than a decade later, L&T was no longer on their mind. Its cement and construction business did not fit in the future business plans of Ambanis. They reduced their shareholding from 18 per cent to under eight per cent, though it was raised again to a little over 10 per cent before striking a deal with Kumar Mangalam Birla.

With L&T no longer taking any of their time and attention, the Ambanis are now expected to focus and consolidate their position in BSES Ltd, which perfectly fits into their future game plan of becoming a major player in the power sector. Reliance is today the single largest shareholder in BSES with 28.8 per cent but still needs another 10 per cent to come at par with financial institutions’ combined shareholding of 38 per cent. A part of the Rs 766 crore booty realised from L&T stake sale could be utilised for raising shareholding in BSES through creeping acquisition route.

The Ambanis want the new areas of infocom and power to run on the same principles of their petrochemicals and oil businesses -- set up large, world class facilities but remain away from selling directly to retail customers. The strategy is evident from their plans in infocom sector where the group is setting up digital capacity by connecting the entire country through an optical fibre network which has 10 times more capacity than the current estimated demand and then lease it to those who want to provide different kind of services to retail consumers.

The sale of L&T stake also marks the biggest step in restructuring of the group which began with exit from media business. The Ambanis closed down business daily Observer of Business & Politics last year after running it in losses for over a decade. RIL’s managing director Anil Ambani went to the extent of stating that the group will not enter media business in future. The textile business was restructured in March this year by closing production of certain kinds of textile products and shedding workers through a voluntary retirement scheme.