Mukesh Vs Anil

During the last ten days many people have asked me my opinion on the feud between the Ambani brothers and the future of Reliance. I avoid commenting on the topic and just joke that it will force them to look for a compromise candidate and who else but me would fit the bill.
But jokes apart, it is a big issue. It would not only affect the group by India as a country. At Dalal Street the transition in India’s economy is jokingly described
as the transition from self-reliance to Reliance. And this is not without reason - the group 3.5% of the country's GDP, 10% of the central government revenues, employs 80000 people, has investor base of 35 lakhs and customer base running into crores.
I always maintained that only two things can stop this dream run of reliance:
1. Fight among the brothers
2. Strategy of doing everything on their own even for retail initiatives like infocomm and petrol pumps by employing lakhs of people
(http://neerajgutgutia.blogspot.com/2004/07/reliance-stretching-it-too-far-its.html)

I hate to comment on family issues and prefer to concentrate on the business part. But now I have no choice - this family issue has put a question mark on Reliance future.

To be frank it had to happen someday or the other....but yes it happened too fast. As the family grows they have to divide but this divide can be more amicable. The problem with Reliance now is that its major strength of Vertical Integration will make the division difficult. The power business is deeply linked with the Infocomm business and solution like Mukesh taking over Reliance Infocomm and Anil taking over Reliance Energy is not possible.
(http://neerajgutgutia.blogspot.com/2004/05/reliance-integrating-telecom-and-power.html)

A solution is required where both the brothers hold equal share in the parent company Reliance Industries Ltd. while total management control of Reliance Infocomm rest with Mukesh and Reliance Energy with Anil. For RIL they have to manage by consensus.

Bloody battle among the brother can be really dangerous. It would not only destroy the Reliance growth machine (http://neerajgutgutia.blogspot.com/2004/05/stretch-leverage-ck-prahlad-as.html) but would make Indian corporate sector weak. Already FIIs have more than 50% stake in companies like Infosys and ICICI bank. TATA group do not hold substantial shares in their own company (apart form TCS). Today FII own 21% of the top 50 stocks…we don’t want a situation where even though Indian companies conquers the world they end up being controlled by FIIs.

The factor now need to be looked into is the maze of companies (http://neerajgutgutia.blogspot.com/2004/06/rs-17262-crore-fraud-reliance.html) through which investment has been made in Reliance group. Many of these family’s privately owned companies are not registered in India. This maze is a natural result of complicated regulatory system, to avoid which such maze is created but real cost of which is felt when family feud like the present one starts. It needs to be seen how his maze can be cleared and the whole group holding can be reorganized without attracting substantial capital gain and other such taxes. Without clearing this maze long term solution won’t be possible. Once the knowledge about the maze is available in the public domain we may come to know about many goldmines hidden in Reliance balance sheet.(http://neerajgutgutia.blogspot.com/2004/10/who-is-funding-iris.html)
I am waiting eagerly for SEBI and DCA to step in and ask for more transparency.

Investment tips: Reliance Industries is still a great investment. According to my calculations its worth at least Rs. 800 a share. Refinery and chemical business is as strong as ever. And the real goldmine is its 45% stake in Reliance Infocomm which once listed may become more valuable than the parent itself.(http://neerajgutgutia.blogspot.com/2004/09/become-venture-capitalist-to-reliance.html) As for Reliance Energy Ltd. I feel its bit overpriced as for now and secondly the family dispute can badly affect the future investment plans like Dadri Power project etc. Considering the uncertainty involved Reliance Energy is not a stock to invest in right now. I can’t help but mention than Project implementation man at Reliance is Mukesh and there is remote possibility that Mukesh would be looking after Reliance Energy in future. On the other hand Reliance Infocomm would remain within Mukesh’s control and the project has already reached a level where project implementation risk is low and upside is high. (http://neerajgutgutia.blogspot.com/2004/07/telecom-revolution.html)

I sincerely hope this dispute is settled and the group resumes functioning as a single integrated organization as always. Its my dream company and I wont like my dream to be broken in parts. The group has potential to implement many great projects (http://neerajgutgutia.blogspot.com/2004/05/next-pill-of-viagra.html)
and a division among the brothers can destroy all that.

Neeraj Gutgutia