Back in the late 1940s a young teenager was working as a gas station attendant in Aden, then a flourishing port in the state of Yemen. As a young teenager, he came in touch with companies like Shell which had already created massive integrated capacities in oil and gas. The boy was none other than Dhirubhai Ambani who went on to lay the foundations and nurture one of the largest Indian business groups in the form of Reliance Industries.
From trading to textiles
Most Indians know the history of Reliance Industries since 1978 when the company came out with its first IPO and changed Indian capital markets forever. However, the actual journey of the Reliance Group began in the late 1950s and early 1960s when it started trading in textiles in India. Gradually, at the peak of the license and permit regime, Reliance managed to set up a textile mill and forayed into textiles with the Vimal brand. Soon, RIL was to realize that textiles were not the industry that will allow him to scale the business in a big way. RIL started betting on polyester, which was to later become the cornerstone of a big shift in consumer preferences. That was the phase till the late seventies that marked the first phase of the RIL story.
Plastics and petrochemicals
This marked the second phase of RIL growth from the 1980s onwards. With petrochemical complexes like the one at Patalganga, RIL emerged as the undisputed leader in the areas of poly ethylene, poly propylene, plastics etc. That was the time the environmental challenges to these materials were just about starting and RIL realized that anything that was environment unfriendly would be hard to sustain. It started planning a complete backward integration with heavy investments in oil and gas.
Refining becomes the core of RIL
By the early to mid-2000s, RIL was no longer the company depending on textiles, yarn or petrochemicals, A chunk of its revenues started coming through from oil extraction and refining. During this period, the group also undertook a major foray into buying up blocks in the Krishna Godavari basin in Andhra Pradesh, setting up the mega refining plant in Jamnagar, taking over BSES for its power foray and investing in telecom and financial services. This period also saw the painful split of the Reliance Group with the core petrochemicals and oil business staying with the MDAG group and the telecom, power and financial services ventures going to the ADAG group.
The oil era post 2005
The original RIL became a virtual oil and petrochemicals company by the mid 2000s. While petchem continued to be a key driver of growth, it was refining that was giving the real money. Extraction had its own pricing and regulatory hassles but it was refining that was raking in the money. Reliance enjoyed GRM (gross refining margins) that were close to twice that of the Singapore benchmark making the generation of free cash flows much simpler for RIL. It was then that the Reliance had to plan out its future. There was the RIL of the present and an RIL of the future that they had to worry about. That was the time that RIL started putting major investments into its retail and telecom foray. The idea was not to sell telecom as a service but as part of a larger retail offering. The billions of dollars in cash flows generated by refining and petchem had to be put to good use.
Reliance of the future
The way RIL has disrupted the telecom industry reducing it to just 3 players, it is clear that the group has made its mark. It led to the elimination of marginal players, consolidated the industry for good, reduced prices of voice and data and managed to offer telecom services as a retail ecosystem than as a bundled offering. That is likely to drive the Reliance of the future, if you go by what Mr. Ambani and his group have been consistently referring about creating the right ecosystem. The big plan is to elevate telecom, data and retail to be the largest revenue contributors in the next 5 years and probably to profits in the next 10 years. That could be the RIL of the future!
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