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How the Ambani plans stack up - good one

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How the Ambani plans stack up - good one - March 18th, 2006

The city of Mumbai covers 75 sq km. That's less than 20,000 acres.
In comparison, the size of the special economic zone that Mukesh
Ambani plans to build across the harbour from India's commercial
capital will be all of 25,000 acres.

Mukesh's friends tell you privately that he is not planning just
any old SEZ; what he has in mind is a whole city and industrial
zone to rival Mumbai. Talk of thinking big.

That's only for starters. For Mukesh Ambani, the older of the two
brothers who parted ways after a bitter fight, is also planning to
set up more SEZs all over the country - in Haryana, West Bengal,
Karnataka, Andhra Pradesh and Maharashtra.

And as if that weren't a lifetime's work, he intends to do a
Wal-Mart in India by setting up the largest retail chain store
that the country has seen. And there's more, because he is
doubling the size of his oil refinery to a gargantuan 60 million
tones - to make it the largest stand-alone refinery in the world,
equal in capacity to all the other refineries in the country put
together.

And then there are yet more projects. For Reliance is set to
become the country's largest private producer of natural gas, and
is laying a network of pipelines across the country to feed
industrial and domestic consumers. And even that is not all.

If you thought the splitting of Reliance, the parting of ways with
Anil, and the loss of his dream project Reliance Infocomm, would
crimp Mukesh's style or scale down his ambitions, think again.

These outsize projects, with a combined investment of Rs 1,00,000
crore (Rs 1000 billion), will be run from what used to be the site
of the sprawling NOCIL plant in Navi Mumbai. This has been turned
into a gigantic excavation site.

Soon, over 4,000 labourers will start working day and night to
build the new headquarters of Mukesh Ambani's Reliance Group -the
Dhirubhai Ambani Corporate City - complete with lake and reserve
forest.

The complex, importantly, will be 40 acres larger than the
neighbouring Dhirubhai Ambani Knowledge City, which Mukesh had
built as his corporate fortress before he had to part with it to
younger brother Anil Ambani.

Anil is not planning small either. He refers to his Reliance Anil
Dhirubhai Ambani Group (Reliance-ADAG) as the "new Reliance".

He might have lost out on the bids for the renovation plans for
Mumbai and Delhi airports to competing bidders, but a day after a
whirlwind tour of the US to woo foreign investors (the plan is to
raise the FII investment in Reliance Communication Ventures Ltd to
74 per cent from 26 per cent now), Anil said triu mphantly that the
"sky is the limit" for his group.

Besides pumping in Rs 15,000 crore (Rs 150 billion) capital
expenditure into telecom holding company RCoVL over the next three
years, Anil is tipped to become the country's largest player in
the media and entertainment space (where he's putting in Rs 2,000
crore {Rs 20 billion (over the next 12 months)}, wants to convert
Reliance Capital into a financial superhouse, and will power the
nation with 20,000 MW of power involving capital expenditure of
over Rs 70,000 crore (Rs 700 billion).

The Reliance-ADAG group's assets, Anil says, are over Rs 31,000
crore (Rs 310 billion) with a net worth over Rs 25,000 crore (Rs
250 billion). This places the group in the third position in terms
of net worth behind RIL's Rs 49,000 crore (Rs 490 billion) and
Tata's Rs 31,500 crore (Rs 315 billion).

Mukesh and Anil have learned to dream big from their father, but
analysts feel Mukesh's advanta ge is his huge cash flow and track
record of implementing mega projects in record time at globally
competitive capital costs.

Anil's companies, by comparision, will be cash guzzlers for many
years to come, going by the large capex plans. Another school of
opinion has it that Anil Ambani may have got the smaller share of
the business, but with greater growth prospects.

Rashesh Shah, CEO and managing director, Edleweiss Capital, says
both are announcing huge investments in their respective areas of
strengths: "Anil Ambani has big plans for entertainment, which gel
well with his telecom business. Mukesh's plan to make a big splash
in retail is a logical extension of his expertise in selling and
distributing petroleum products."

Mahesh Singhvi, managing director, Singhvi & Associates, says the
retail business suits Mukesh Ambani most. "He was looking for a
business in which he could utilise the huge cash flow
productively . Alternatively, he could have put in the money in the
stock market. But it seems he is not very keen in investing in the
markets." Anil, however, has been putting in a lot of money in the
markets, he says.

This is Mukesh's grand plan

Special Economic Zones: One of the most ambitious in its scope and
looked after by Mukesh's close confidant, Anand Jain, RIL is
setting up special economic zones as large integrated world-class
townships spread over 1,00,000 acres at an initial investment of
Rs 25,000 crore (Rs 250 billion).

The company has already taken over the Nikhil Gandhi-promoted
10,815 acres Navi Mumbai Special Economic Zone and has signed a
deal with the Haryana government for setting up a "second Gurgaon"
- an SEZ over 25,000 acres.

While the Hyderabad SEZ will be devoted to petrochemicals that
will use the Krishna-Godavari basin gas as feedstock, the one in
West Bengal envisages a mega biotech venture, whic h involves
creation of a large botanical garden along with multiple marine
laboratories and R&D facilities.

Petroleum refining: Ambitiously involves doubling the Jamnagar
refinery capacity to 60 million tonne (1.2 million barrels per
day), to be partly financed by the largest IPO in the world for
any greenfield project.

When completed in 2008, it will be the largest petroleum refinery
at any single location, anywhere in the world. Apart from the
refinery expansion {cost around Rs 25,000 crore(Rs 250 billion)},
the company will spend Rs 17,600 crore (Rs 176 billion) in
upstream oil and gas over the next few years. Besides, RIL will
invest Rs 2,500 crore (Rs 25 billion) to build a new
2,80,000-tonne-per-year polypropylene plant.

Another Rs 3,000 crore (Rs 30 billion) will be invested to scale
up the company's polyester production capacity. The acquisition of
German firm Trevira last year has already made Reliance the
largest polyester fibre and yarn producer in the world.

The company will increase its polyester manufacturing capacity by
550,000 tonnes this financial year, taking its total polyester
capacity to 2 million tonnes. Another Rs 1,000 crore (Rs 10
billion) will be spent on Nocil and Dyechem. With this, RIL will
be the 11th largest petrochemical company in the world.

On the petroleum-retailing front, the company hopes to operate
4,000 outlets. The objective has been to straddle the petroleum
value chain and RIL's decision to put in close to Rs 18,000 crore
(Rs 180 billion) on upstream oil and gas exploration and
production is in that context.

Retail: Looked after by his core team comprising Manoj Modi and
Hital Meswani, the retail plans are humungous. "The plan is to do
a Wal-mart in India. The idea is to develop a low cost
supply-chain model which will involve massive economies of scale,"
Reliance insiders say.

The strategy is to set up a chain of hypermarkets, supermarkets,
speciality stores and convenience stores in 800 cities and towns
across the country through Reliance Retail at an investment of Rs
30,000 crore (Rs 300 billion). In the first phase, the company
plans to set up 1,575 stores between December 2006 and March
2007.

In towns and villages it will have hypermarkets, which will be
warehouse-style stores spread over 1,50,000 sq ft, selling
products ranging from consumer electronics and groceries to fresh
food and clothes. The company will also open smaller 75,000 sq ft
supermarkets.

Food and beverages will account for 40 per cent of the retail
products and the company plans to give direct employment to
500,000 people (under 23 CEOs). While all other stores will be
directly owned by the company, convenience stores could be the
only exception and operated through a franchisee route in
collaboration with kirana shopowners.

"Farmers are the key in this venture and Reliance wants to give a
fair deal to them through setting up an automated supply
management chain. Did you know pineapples are sold in the
North-east at 25 paise a piece in the absence of proper storage
chains? We are going to ensure a fair price to farmers who are
shortchanged now," Reliance insiders say.

Now see how Anil stacks up

Telecom: RCoVL has a substantial shareholding in three major
telecom companies - the first is Reliance Infocomm, the second is
Reliance Communication Infrastructure, and the third is Reliance
Telecom.

Reliance Infocomm has been adding 10 lakh (1 million) subscribers
every month since December last year, and thanks to the ambitious
plans drawn up by Anil Ambani for smaller towns, RCoVL now has a
pan-India presence, spread across nearly 4,500 towns, and a total
subscriber base of 15.55 million subscribers, making it the second
la rgest player in the Indian mobile telephony space.

"Our growth focus will be smaller towns and villages where there
is tremendous growth potential," Anil said, a day after RCoVL's
listing with a market cap of over Rs 35,000 crore (Rs 350
billion).

According to the company's own estimates, RCoVL's wireless traffic
is 290 million minutes a day, wireless data carrier is 32 million
minutes per day, the PCO lines have 48 per cent market share and
the company has 48 per cent market share in the ILD traffic.
Despite these impressive figures, analysts say the challenge
before RCoVL is daunting as its average revenue per subscriber is
still much lower than Bharti's.

Media and entertainment: Ranging from television to radio to films
to exhibition to home video, the junior Ambani seems to have a
blueprint for every division in place. The kick-off was his Rs 370
crore (Rs 3.7 billion) acquisition of the 51 per cent stake in
Adlabs, a film processing, retail and production company.

Adlabs raised Rs 768 crore (Rs 7.68 billion) in capital in 2005
and more than half of this will be spent on building multiplexes
(100 new screens) and digital theatres. Once Adlabs has a large
network of theatres, it will be possible for the group to
digitally transmit a movie from one centralised location to all
the theatres through Reliance Infocomm's existing fibre optic
network.

That apart, Reliance ADG has won bids for 45 FM radio licences,
making it the largest player in terms of the number of licences
owned. The group is also optimistic about beginning its DTH
service shortly involving an investment of Rs 400 crore (RS 4
billion).

Financial services: Reliance Capital may have been a small finance
company with only Reliance Mutual Fund to speak of, but Anil wants
to transform it into a financial superhouse. For this, he has
already acquired insurance company AMP Sanma r, which has now been
renamed Reliance Life.

So bullish is he over his newfound businesses that he is investing
Rs 3,000 crore (Rs 30 billion) of his personal money in them. All
these are besides the group's acquisition of minority stakes in a
host of companies like Saregama India, Gini & Johny, Kinetic Motor
and DTDC.

Anil also has big plans in the retail brokering space. R Trade
Securities, the group's vehicle for retail brokering, is setting
up a pan-India network for itself, as well as its two subsidiaries
- R Trade Commodities and R Trade Financial Services. Commercial
operations for these three firms are expected to begin in April.

Energy: Reliance Energy has drawn up over Rs 70,000 crore (Rs 700
billion) investment in the power sector, including the 5,600 MW
Dadri project in Uttar Pradesh at a cost of Rs 11,000 crore (Rs
110 billion), and an ultra-mega 12,000 MW coal-based power
generation project in Orissa at an investment of Rs 48,000 crore
(Rs 480 billion).

REL has also signed an MoU with the Maharashtra government for
setting up a gas-based combined cycle power plant up to 4,000 MW,
which would mainly serve consumers in Mumbai.

Besides this, the company has planned investments of Rs 5,000
crore (Rs 50 billion) for undertaking transmission projects in the
western region and has applied to the Central Electricity
Regulatory Commission for obtaining licences for seven schemes.

It was exploring a comprehensive transmission network covering
northern India for evacuation of power from the Dadri project and
the company has also bagged the 280 MW run-of-the-river Urthing
Sobla Hydro Power Project in Uttaranchal at an investment of Rs
1,500 crore (Rs 15 billion).

How the shares fared

The four demerged entities of Reliance Industries have unlocked Rs
48,906 crore (Rs 489.06 billion) worth market valuation for
Reliance-A DAG on listing. Reliance Telecommunication Ventures,
which holds 66 per cent stake in Reliance Infocomm, unlocked Rs
36,724 crore (Rs 367.24 billion), Reliance Energy Venture Rs 5,400
crore (Rs 54 billion), Reliance Capital Ventures Rs 2,966 crore
(Rs 29.66 billion), and Reliance Natural Resources Rs 3,816 crore
(Rs 38.16 billion).

The parent company, Reliance Industries, was valued at Rs 1,29,339
crore (Rs 1293.39 billion) on January 17, 2006, a day before the
de-merger. The stock market, as indicated by the BSE Sensex, has
gained 15.2 per cent since January 17, and hence the market
valuation of Reliance Industries could have gone up by Rs 19,660
crore (Rs 196.6 billion) even otherwise. So the net valuation
added on account of the demerged entities stood at Rs 29,087 crore
(Rs 290.87 billion).

The shares of Bharti Tele-Ventures, the largest private sector
telecom company, have gained 21.5 per cent since January 17. If
one extrapolates Bharti's growth for RCoVL valuation on listing,
the net added valuation of demerged entities come down by Rs 6,644
crore (Rs 66.44 billion). Which means that the demerged entities
have added market valuation of Rs 22,442 crore (Rs 224.42 billion)
on listing.

However, the valuation of the Reliance group has surged at a
higher pace between the announcement of the split on June 17 and
the de-merger of Reliance Industries on January 17. The group
valuation during this period soared by 88.08 per cent or by Rs
73,749 crore (Rs 737.49 billion) to Rs 1,57,478 crore (Rs 1574.78
billion).

The split, however, has made Anil Ambani's group the fourth
largest business group in terms of market value with Rs 73,868
crore (Rs 738.68 billion) market capitalisation as on March 7,
2006. The Tata group takes the honours with a market cap of Rs
1,96,663 crore (Rs 1966.63 billion) and Mukesh Ambani's Reliance
Industries the runne rs up with Rs 1,08,620 crore (Rs 1086.20
billion). Bharti Tele-Ventures ranked third with Rs 76,227 crore
(Rs 762.27 billion).

As per the presentation given by ADAG, Reliance Industries tops
the net worth list with a net worth at Rs 49,000 crore (Rs 490
billion). Tata group ranked second with Rs 31,500 crore (Rs 314
billion) and ADAE ranked third with net worth of Rs 25,000 crore
(Rs 250 billion).
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