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RELIANCE

May 8, 2007 – 5:26 pm

RELIANCE

The Times of India reported on 5th May that [[Reliance]] Mutual Fund has kept its position as India’s largest fund house with assets crossing INR 48,000 crores. Reliance has the distinction of being the first Indian company to be named among the five hundred listed in Forbes.  How did all this come about? Let us dig into the rags to riches story of Reliance. The one name associated with it from its foundations is Dhirubhai Ambani.
 
What is Reliance? The Reliance Group is India’s largest business house with total revenues being more than $22.6 billion. This is equal to 3.5% of India’s GDP. Reliance contributes to 10% of India’s total indirect tax and 6% of her total exports. Reliance network of exports spread out to more than one hundred countries across the globe. 
What are the activities of Reliance?  It is involved in oil exploration and production, gas refining and marketing, petrochemicals, textiles, financial services, insurance, power, telecommunications and infocom initiatives. 
The names of Reliance and Dhirubhai Ambani go hand in hand. He was born on 28th December 1932, in Chorwad, Gujarat. He belonged to the Hindu Modh Bania community. Dhirubhai built India’s largest private sector empire, Reliance, and created an equity cult. His father was a schoolteacher. Dhirubhai started off by selling fried snacks to pilgrims in Mount Girnar during weekends. After school he became a dispatch clerk at A.Besse & Company. The latter became distributors of Shell and Dhirubhai was sent to manage an oil filling station at Aden. For sometime he also worked in Dubai. In 1958 he returned to India with INR 50,000/- in his pocket. With this he set up a textile trading company. 
This was the first chapter of the story of Reliance. Aptly helped by his wife and two sons Dhirubhai diversified his interests to petrochemicals, telecommunications and information, technology, energy, power, finance, capital markets and logistics. Reliance gave new dimensions to India’s equity culture. Till then the market had been dominated by financial institutions but with Reliance coming into the picture thousands of retail investors jumped into the fray by putting their trust in the name of Reliance. With innovative instruments like convertible debentures from the 1980’s Reliance became a hot favorite in the Stock Market. Reliance was the pioneer Indian company to raise funds in the international markets. Only India’s sovereign rating restricted its high credit taking in international markets.
The Federation of Indian Chambers of Commerce and Industry named Dhirubhai Ambani of Reliance The Indian Entrepreneur of the 20th century. The Times of India conducted a poll in which he was acclaimed to be the greatest creator of wealth in the 20th century. 
Thus we see that Reliance Industries Ltd was the brainchild and product of the labors of Indian business tycoon, Dhirubhai Ambani alias Dhirajlal Hirachand Ambani.
The story of Reliance makes fascinating reading. During the 1950’s the administrators of Yemen discovered that a lot of their currency, the Rial, was disappearing through Aden because of a young man placing unlimited buy orders for Rials. The Rials, at that time, were made of pure silver and was greatly in demand in the London Bullion Exchange. Dhirubhai bought and melted the Rials and sold it to the London bullion traders. Within three months his work came to a halt but by that time he had made few lacs. 
In the 60’s Dhirubhai returned to India and started Reliance Commercial Corporation with a humble capital. The business was related to the import of polyester yarn and export of spices. 
The first address of Reliance was in Narsinathan Street in Masjid Bunder – a small 350 sq ft joint with a telephone, table and three chairs and only two assistants. The family too managed in a one room flat. 
The fortunes of Reliance soon began to change. In 1966 the first textile mill was set up at Naroda using polyester fibre. He branded his products Vimal and thanks to intensive marketing, Vimal became a household name. Financial retail outlets were set up where only Vimal brands were sold.  In 1975 a visiting World Bank team certified it to be excellent even by the standards of the developed world. 
The next step of Reliance was to enter the equity world. An equity cult came to be created. Nearly 60,000 investors from all parts of India placed their trust in Reliance IPO in 1977. Rural India and first time investors learnt to place its trust and money in the name of Reliance.
In 1982 Reliance Industries came up against a rights issue about partly convertible debentures. It was rumored that Reliance was making all efforts to see that their stock prices did not fall by even an inch. Ready to strike, a Bear cartel consisting of a group of stockbrokers from Calcutta began to short sell Reliance shares. Another group, friendly towards Reliance began to buy the short sold shares on the Bombay Exchange. The Bears were confident that the Bulls would soon run out of cash and be prepared for an understanding under the ‘badla’-trading scheme prevalent in the Bombay Stock during that time. But the tables came to be turned in favor of Reliance. Dhirubhai himself provided the required cash when the Bulls demanded a physical delivery of shares. The net result was that Reliance shares shot up from INR 152/- to 180/- within a few minutes. The market was in uproar with Dhirubhai as the uncrowned king. The Bombay Stock Exchange came to be closed for three full days. Authorities intervened and brought down the unbadla rate to 2/- with a ruling that the Bear cartel would have to deliver the shares within the next few days. The Bears bought Reliance shares from the market at higher price levels and most probably Dhirubhai himself supplied these shares and earned a healthy profit from the great adventure. 
Questions naturally arose around Reliance. How could a yarn trader within a few years cough up such huge amounts of cash during a crisis? Parliament began to face queries. The Finance Minister gave the information that a non-resident Indian had invested nearly 220/- million INR in Reliance from 1982/83. These had been channelized through many companies – all registered in the Isle of Man. The peculiarity was that all the owners had the common surname or Shah. However, Reserve Bank investigations did not find anything wrong done by Reliance and its friends.
Keeping its core in petrochemicals – Reliance soon diversified its activities to telecommunications, information technology, energy, power, retail, textiles, infrastructure services, capital markets and logistics. BBC described it as ‘a business empire with an estimated annual turnover of $12bn, and an 85,000- strong workforce’. Reliance has the distinction of being the only public limited company whose many annual general meetings had to be held in stadiums with more than 350,000 shareholders in attendance.
Success creates jealousy. Reliance had to suffer its share. Nusli Wadia of Bombay Dyeing group was once the biggest competitor of Reliance. Wadia was known for his clout in political circles during the time when the economy had not been liberalized. Competition took an ugly turn when during the seventies Wadia got a permission from the then Janata Party ruled government to build a DMT (Dimethyl Terephthalate) plant. Then Ramnath Goenka of Indian Express turned his pen against Reliance. It seemed that Goenka was using a national newspaper for his own personal vendetta. But despite everything people did not lose faith in Reliance. Reliance ran into rough weather also with the V.P.Singh government. The license for importing Purified Terephthalic Acid was cancelled. This was essential as a raw material for manufacturing polyester yarn.
The first stroke had paralyzed Dhirubhai but the second stroke spelt out the death sentence for him. He died in 2nd July 2002 leaving behind at the helm of Reliance his two sons Mukesh and Anil, wife and two daughters. His funeral was attended not only by big business and politicians but also by thousands of ordinary folks. He is an example of what a common person can do to help himself as well as the economy of his country. 
At the time of his death the Reliance group had a gross turn over of INR 75,000 crores from 70 crores in 1976/77. In 20003 Government of India issued a postal stamp (denomination 5/- INR) in Dhirubhai’s honour. 
Reliance began to flow through two channels after the death of Dhirubhai. Differences broke out between his two sons over ownership issues as well as private matters. It was expressed that this would have no impact on the functioning of the company – it being a company managed aggressively by professionals. This is of great importance to the Indian economy as a whole. The wife of Dhirubhai, Kokilaben mediated for her sons.
Mukesh was awarded Reliance Industries and IPCL and this group came to be known, as Reliance Industries Ltd. Anil became head of Infocomm, Reliance Energy and Reliance Capital known as the Anil Dhirubhai Ambani Group (ADAG). 
The pages of the book called Reliance thus continue to be written as it meanders through Time.