Reliance is going to be a very serious player in the Indian telecomm business. The following article has more on the history of Reliance.
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Investors have been largely benefited by Reliance's ability to customise technology. Its strength lay in the way it integrated its projects. Take the example of Reliance Textiles, which was the first Ambani company to go public after its merger with Mynylon of the Pais who had once owned the Syndicate Bank. Considering the polyester content in Vimal fabrics, the choice was to manufacture polyester staple fibre (PSF) and polyester filament yarn (PFY). So in 1982 Reliance set up the PFY project at Patalganga in Maharashtra followed by PSF capacity in 1986. Next it integrated backwards in purified terephthalic acid (PTA) in 1986 and paraxylene (input for PTA) in 1988. It then pocketed the detergent manufacturers by putting up a plant to make linear alkyl benzene (LAB) in 1987.
In 1991, the company embarked on its most treasured project, at Hazira, the largest single multi-feed ethylene cracker in the world. Hazira is a conglomeration of many world class plants, churning out polyethylene (PE), polypropylene (PP), polyvinyl chloride (PVC) , PFY, PSF, polyester terephthalate (PET) and other intermediates like vinyl chloride monomer, mono ethene glycol and pure phthalic acid (PTA). The Hazira plant is the biggest chemical complex in India.
While this methodology helps in the economies of scale, there are many bottlenecks such as inadequate port facilities, erratic water and power supply and high cost. To overcome these, Reliance went on to create its own facilities. It built its own jetties in Hazira and a single buoy mooring, 5 km off the coast, for large tankers to unload liquids directly into storage tanks. All Reliance plants are self-sufficient in power.
In fact, the ethylene terminal at Hazira was a stunning achievement. Before the commissioning of the cracker plant Reliance imported large amounts of ethylene for its downstream PVC and PET plants. To transfer the ethylene at 138 degrees it set up a cryogenic terminal in the deep sea. An achievement Anil Ambani is proud of: "People said ethylene transfer is unsafe and not possible in India. Once we proved that we can do it safely, the world is copying it."
Reliance uses what is known as the 'sweat technology' whereby it engineers milk as much as possible from the plants. To enhance output of PTA at Patalganga, the team added a 30-tonne compressor for supplying more air to the reactor where paraxylene gets oxidised. But the engineers were not satisfied; only 23 tonnes air was being used. The team is working on how to use the remaining seven tonnes!
Mega challenges excite and power the bosses of this petrochemical giant. The common shibboleth heard in the premises of Reliance is Dikhana hai (We have got to do it). Executives are encouraged to think laterally and view business as a series of processes. Managers are given the power to take decisions, which expands once performance is proven. The company has relentlessly sought professionals of high class, picking the best from other private companies, public-sector and the multinationals. The mantra in Reliance is 'owner manager'.
Reliance is also known for its financial prudence. "Reliance's management, strategy and size are world class," says Sanjeev Prasad, analyst, Kotak Securities. Insiders say that the company never defaults on its payments to financial institutions. All its payments reach the institution at 2.30 p.m. sharp on the day it is required to be paid. Says a banker: "But they never send the payments earlier."
Being a prompt borrower has helped Reliance raise funds with ease. In 1996-97, the company raised funds worth $614 million from the international market. Reliance is the first Asian company to issue 100-year maturity bonds in the global markets. The bond issues were part of a strategy to reduce its average cost of capital and increase the average maturity of its debt. This has helped the company bring its capital cost in line with global benchmarks.
Reliance has covered most of the criteria for competitiveness, including total integration, state-of-the-art technology, low-cost feedstock and cheap funding. In fact, its cost of production is among the lowest in the world. Its capacities are so huge that once the company is totally operational it will become one of the top five companies in the world in its product category.
Says Brijgopal Daga, chief general manager, Unit Trust of India: "The biggest plus point of Reliance is its size." According to him, the company has been able to beat the vagaries of the market because of the huge capacities. Its future looks bright with the government proposing to increase tariffs in the petrochemical sector to stop anti-dumping. This will help Reliance because this year, when the prices of petro products were at a 10-year low, their growth came from a 300 per cent increase in volumes. "The smallest shift or turnaround in the cycle will give them tremendous growth," says Daga.
But there some who are sceptical about this trend. Says Kotak Securities' Sanjeev Prasad: "We are expecting an 11 per cent growth in the petrochemical sector so Reliance may not be able to sustain this profit for next year". But some Reliance officials feel that even if the global petrochemical prices fall by 10-15 per cent, the high-value addition at Hazira will insulate Reliance from such shocks.
While other corporates were involved in cutting capacities last year, Reliance was busy adding capacities. "We believe in creating pre-emptive capacities," says Anil Ambani, managing director. Reliance forecasts the demand for its products to grow at 15 per cent in the coming years.
Reliance's efforts are fully focussed on the domestic market. Almost 97 per cent of its turnover comes from sales in the domestic market. "There is no reason for them to sell outside when they have such a good demand in India," says Tekchandani. Adds UTI's Daga: "Whatever little they could be losing out in exports, they make good through transactions like picking up money through GDRs."
In the money market the only time it slipped up was when it decided to convert the triple-option convertible debentures issued in 1993 into equities, instead of paying the investors. That was when work on its Jamnagar plant started. This move made analysts a bit wary for two reasons: one, it bloated the company's equity and two, a cash-shortage was perceived.
But the Reliance magic never fails and its results have proved otherwise. The secret of Reliance is its quick project implementation and a strong balance sheet. And you can rely on that. |
