Now that non-compete agreements between RIL and ADAG Group companies have been scrapped, both the corporate houses are free to pursue their growth strategies separately. Each group won’t be burdened by the spectre of the other invoking the right of first refusal clause during their diversification drives.

Power sector

It makes sense for RIL to tap the potential of the Indian power sector, especially nuclear power generation, to become an integrated energy company. It can now do that without worrying over the ADAG raising an objection. RIL?s presence is currently limited to oil and gas exploration and production, refining and petrochemicals. Revenue flows in all these sectors are vulnerable to market conditions. On the other hand, power generation is a stable business and guarantees a fixed return on investment. ADA Group?which is already present in the coal-fired power generation business?as also finalised its strategy to enter nuclear power generation. The government has envisaged ambitious capacity addition in nuclear power generation following signing the Indo-US civil nuclear deal. Legislative hurdles are likely to be cleared soon for the participation of private players in nuclear power generation business.

Oil & gas

Scrapping of the non-compete deal would enable ADAG to venture into the capital-intensive and high-risk oil and natural gas business across the value chain from exploration to production and transportation. KPMG executive director Arvind Mahajan said the ADAG has the financial strength to venture into this business, but it may have to strike strategic partnerships with companies having technical expertise-say for deep water exploration-for getting qualified to make a foray. “It is not difficult for the ADAG considering its track record,” Mahajan said. In the last few rounds of auction of sedimentary blocks to exploration companies, several new entrants have come in partnerships with established players. Ranjit Kapadia, vice-president, institutional research, HDFC Securities, however, said it is not easy to make a mark in the oil and gas or in the telecom sector for a new player.

Banking

Although analysts like Ranjit Kapadia of HDFC securities points out that it doesn’t make sense for any new players to enter the financial services segment at current juncture, Mukesh Ambani group could examine entering the mutual funds business and setting up of an NBFC to vie for a banking license at a later stage. Conservative stance of the banking regulator on this issue could make this a long wait. Although the central bank is expected to come out with draft guidelines for banking license by July end, it is already made clear that industrial houses and NBFCs operated by them will not be given preference.

Currently, ADAG’s reliance mutual fund has largest amount of assets under management. While the highly capital intensive nature and the long break-even period are arguments against entering the insurance, guidelines in offing that will allow insurance companies to list within five years and a highly under penetrated Tier 2 and rural market makes case for entry into this sector.

Retail

The agreement clears the field for Anil Ambani to enter organised retail in a big way. Through its presence in entertainment and telecom service and power distribution, the A-DAG in a way has presence in retail and has the relevant experience in servicing consumers directly. This makes their direct entry into organized retail logical.

RIL entered into retail business with its brand Reliance Retail four years ago, committing close to Rs 25,000 crore. Industry experts say that unlike RIL, ADAG may follow a different strategy in case it enters the retail business. Partly because in the present scenario the company doesn’t have the resources to enter it in a similar way and partly because over time that hasn’t turned out to be the way RIL projected it would. Instead the company is expected to enter niche segments that would complement its existing entertainment and communications business.

Telecom

With the rapprochement between the two brothers, one area where Mukesh Ambani-led RIL could enter is telecom services. Mukesh’s vision, passion and business acumen for telecom is well known. Today’s Reliance Communications (Rcomm) under Anil was originally his project launched as Reliance Infocomm in 2002 on the CDMA technology platform. To Mukesh’s telecom strategy goes the credit for today’s low tariff regime as well as the growth of the CDMA technology. Before the advent of Reliance Infocomm, mobile tariffs in India were high and CDMA was used only for fixed wireless telephony.

With the Indian telecom landscape at another major crossroads today, the stage is set for Mukesh’s entry into this segment. A shakeout is imminent in the overcrowded telecom market with over 12 operators. With a Greenfield route of entry ruled out, an acquisition of either a domestic company or a global major cannot be ruled out. And if either happens, RIL would once again rewrite the rules of the business.

(With inputs from Noor Mohammad, Gireesh Chandra Prasad, Anto Antony & Anandita Singh Mankotia)