The Future of Reliance: A New Era of Growth or a Decline?

Chairman and MD of Reliance Industries Ltd., Mukesh Ambani, inaugurated the group’s Annual General Meeting (AGM) on August 28th, 2023. It was the 46th AGM of the group, and it held additional importance in the history of Reliance due to multiple developments. One significant change was the addition of three new members to the board of RIL: Isha, Akash, and Anant Ambani.
Mukesh and Nita Ambani’s daughter and sons were welcomed as they contributed to raising the Ambani family’s control in the group. Now, 6 Ambanis & relatives are gracing the Reliance Group’s board with their presence. All have an equal holding of 0.12%, apart from Founder Dhirubhai Ambani’s wife Kokilaben, who holds 0.24% in the group. Alongside this, 66-year-old Mukesh Ambani recently received a special 5-year term extension for his position in the group.

Reliance is India's most valuable and well-known company, with a market capitalisation of ₹16.57 trillion. The company, with varied businesses in different market sectors, including retail, energy, beauty, telecom, and more, has multiple plans in motion for world domination. In Mukesh Ambani's words,

 “New Reliance has been a forerunner of the emerging new India.”

                                                                                                            -At RIL’s 46th Annual General Meeting

Everything is looking elated from Ambani’s rose-tinted glasses, but what about others?

Involving more members of the family in the group as Directors means more power in the Ambani family’s palms. This can be a source of difficulty when it comes to corporate governance. Plus, it also gives birth to a worrisome situation for other shareholders and investors as family-controlled businesses like Reliance have a LOT of baggage!

In this article, we will observe the potential difficulties awaiting the conglomerate with the addition of Ambani’s 3rd generation. As well as discuss the implications of Ambani’s plans for the group in combination with his children’s futures.

You must be wondering, “What’s in it for us?” Well, those who already have RIL shares in your portfolio and those who are watching the company with plans for the same will find crucial information for the company’s future. Knowing the ins and outs of the company would help you make smart decisions as an investor.

So, let's start this expedition with the man of the hour, Mukesh Ambani’s ⬇️

Reappointment in the Group

Founder Dhirubhai Ambani's son, Mukesh Ambani, is the driving force behind the success of Reliance Industries. He has proved multiple times how he can change the tide when the situation calls for it. From managing the family drama with brother Anil Ambani for Reliance Companies' partition to the legal issues their feud brought, Mukesh Ambani took care of things efficiently.

With his efforts, Reliance Industries is leading in terms of revenue, profit, export, market value, and other criteria. The latest annual report for FY 2022-23 portrays the story of the group's success with a 23.6% hike in revenue and a consolidated EBITDA of ₹1,53,920 crore.

The rising numbers and multiple achievements in different companies under the group led to the reappointment of Mukesh Ambani as the ringmaster for another 5 years. Ambani received a term extension via a Special Resolution as the Chairman and MD.   

As mandated by the Companies Act 2013, Section 196(3)(a) dictates that the age of a company's directorship should not be under 21 years or over 70 years.

Despite this, Mukesh preserved his position in Reliance Group from 2024 to 2029. And our guy is 66 years old. No kidding!

Mukesh Ambani be like 👇

So, what happened was that the company's shareholders passed a distinctive vote known as the Special Resolution (SR). Through the SR, shareholders voted in favour of Ambani securing his position in the company. Required documents were signed, authorities were informed, and Viola! Mukesh retains his position.

Mukesh's succession line is alive and kicking, with the eldest son, Akash Ambani, handling the telecom sector to the retail line managed by Akash's twin, Isha Ambani. At the same time, the youngest son is being groomed for the new energy plans. Despite all this, for RIL, no leader is better than Mukesh Ambani, and the numbers speak for themselves. At this stage, it won’t be farfetched to say that Reliance Industries doesn't have a better option than Mukesh Ambani.

Implications of 3rd Generation Ambani in the RIL Board

Family-controlled businesses are abundant in India. You must have heard this saying at one time or another in life: “A Doctor's son will be a doctor, and an engineer's son will be an engineer.” This philosophy also applies in the cutthroat business world. Therefore, we have first, second, and even third generations of families involved in big businesses.

The inclusion of the family members, distant and close, gives space for both positive and negative possibilities. On one hand, having familiar faces on board makes it easier to make decisions. But, this can also result in the board thinking more for its personal benefits instead of what’s good for the company. Such a mentality is not advantageous for the business as a whole.

Reliance Group is quite familiar with both the prospects of being a family-owned business. Remember the episode between Mukesh and Anil Ambani in 2005, which led to the split of the Reliance Empire? Yeah! Those were some tough days for the group. 😮‍💨

Coming back to the topic, the addition of 3rd generation as the board members feels like a coming-of-age event. Let’s see what positive effects this could have on the group:

• A close-knit group of people on board facilitates better communication, which results in faster decision-making and improved company performance.
• Promoters from the same family closely monitor the company's assets and operations because they have a vested interest in the company's success. This increases the chances of identifying and capitalising on opportunities for the company's growth.
• In modern corporations, decisions are made democratically, with the majority vote deciding the outcome. When most of the board members are from the same family, decisions can be made more quickly and efficiently, as there is less need for debate and discussion.

After pointing out the good things, it’s time to discuss the negative aspects of having the majority of members from the same family as promoters of the company. Let’s check them out:

• Transparency gets heightened with family members in power as tensions from both personal and professional matters become difficult to screen. This can create a bad atmosphere for the entire board and cause hindrances in decision-making. It can also lead to internal fights being telecasted in front of the company as bad laundry. And nobody wants to see that from a well-respected and prestigious company.
• Promoters from the same family often keep their personal interest above what’s beneficial for the company. This has been the final push taking several businesses down in history.
• Matters like succession plans or choosing people for managerial positions are often done biasedly. Yes, the same thing we label as "nepotism". Only when it comes to family-owned businesses is this label not accurately applicable. This "favouritism" leads to less-deserving people becoming in charge compared to other potential candidates, which can be a bad decision for the company.
• Unequal distribution of roles & responsibilities among family members can cause strain in relations. This can also lead to the splitting up of assets and legal ramifications, just like what went down with Mukesh & Anil Ambani.

Future of Reliance with Isha, Akash, and Anant Ambani

Under Dhirubhai Ambani's leadership in 1958, Reliance Industries began its journey as a venture firm, trading commodities like spices and polyester yarn. By 1966, the company was incorporated as Reliance Textile Industries Pvt. Ltd. In 1992-93, they entered the petroleum sector; the rest is history.

Today, RIL has an astounding presence in several sectors of India. Along with continuous domination in the business world, the Ambani family also portrays their ever-increasing power in the nation.

Let's see sector-wise what Reliance Industries is planning for the next duration based on the new adaptations in its board members.

Retail Sector: Isha Ambani's Reign

The retail sector includes seven categories, namely, Food, Clothing & Textiles, Consumer Durables, Footwear, Jewelry, Books-Music-Gift Articles, and Fuel. RIL's Reliance Retail is a dominating player in all seven. After entering the retail sector in 2006, Reliance Industries, at 53rd position, is the only Indian retailer in the list of top 100 retailers in the world.

Although companies like Avenue Supermarts (DMart's Parent Company) and Tata's Trent Ltd. have a good presence in the retail sector, no one could beat Reliance Retail. Based on revenue, Reliance Retail is the largest retailer in India. On 6th August 2023, the company crossed the 1 billion transaction mark after establishing 3,300 new stores in FY23 alone. Now, 18,040 stores are a part of the Reliance Retail PAN-India move.

This particular section of the RIL is headed by Managing Director Isha Ambani. Around one year ago, in August 2022, Isha became the leader of this Reliance group's prestigious section. There are even whispers of Isha Ambani being crowned as the Chairman of the retail unit.    
   
With this, Reliance Retail has plans to go head-on with DMart via Jiomart. In terms of online shopping, DMart doesn't have too strong a standing, whereas JioMart excels in it. The launching of JioMart on Whatsapp this year brought forth a new era for consumers, allowing them to shop for daily essentials and enjoy instant chat services with customer support. As per Mukesh Ambani's note in the latest annual report, RIL plans to upscale digital commerce with the assistance of subsidiaries like Ajio and Netmeds.

Meanwhile, Reliance Retail also entered the beauty sector this year with "Tira Beauty." With this, they planned to bring a more affordable yet luxurious clothing line (Azorte) for consumers to steal big brands' market share. Ambanis seem to have big plans for Reliance Retail in the upcoming future. An inkling of those plans is discussed here.

Telecom Sector: Akash Ambani’s Command Centre

The telecom unit of RIL, Reliance Jio Infocomm (RJIL), has been Akash Ambani’s territory since 2022. Akash started as a non-executive director of RJIL and is now the unit's Chairman.

With the launching of Jio, Reliance Group brought forth a revolution in the 4G services. They did the unthinkable by giving free internet to all. It was a masterstroke to beat the competition on their own grounds, and it also tremendously boosted the idea of “Digital India”.

Even the way RIL won the deal for 4G from the government was commendable and cunning. Check out what exactly took place by clicking here.

Reliance quickly kicked all the well-established competitors to the curb by giving people unlimited data with the additional advantage of a new SIM card. Today, Reliance Jio Infocomm Ltd., aka Jio, is the largest mobile operator in India and the third largest in the world, with over 43.9 crore subscribers.

As per TRAI, Jio leads the telecom sector with a market share of 38.17% in wireless subscribers, with 32.57% and 20% between Airtel and Vodafone. Jio brought forward the True 5G services this year, expanding its services to more than 2,300 cities and towns.

Want to know how Reliance Jio is becoming stronger than ever? Click on the link to read about it.

Reliance New Green Energy Unit: Anant Ambani’s Expertise

Reliance Industries Ltd. has been planning a renewable energy setup for the conglomerate, and Anant Ambani will head it. Anant has been involved in different sectors of the group, along with being a board member of Reliance Retail and Jio Infocomm.

Unlike his siblings, Anant Ambani’s role in the future is not as clearly defined. We only hear words about him being engrossed in Reliance’s plans to become a world leader and trendsetting in energy transition.

Per the group’s plan, the Dhirubhai Ambani Green Energy Giga Manufacturing Complex at Jamnagar is being updated as needed. It is estimated to be the world's largest and most technologically advanced solar gigafactory.  

The Bottom Line

Reliance has been expanding rapidly in many sectors, and Ambanis wished to do the same for the financial market. That's why the RIL and JFS demerger took place. People had high hopes for this company, but one thing or the other went amiss, leading to a watered-down listing of JFS in the stock market.  

This was a great example of big plans not working out for corporations like Reliance. Now that Ambani's 3rd Generation has equal ownership with the 2nd, children and parents have equal say in the group board room. An inkling of doubt still remains in people's minds about this succession plan for RIL. After all, a doctor's son might become a doctor, but the chances of his potential not matching his father's stand 50:50. 

*Disclaimer: The stocks and companies discussed above aren't a recommendation from Finology Insider and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.