Reliance readies big-bang entry into new sectors

Financial services, telecom and education are on the radar even as the company faces government scrutiny on KG-D6 output.

Billionaire Mukesh Ambani is leading Reliance Industries into financial services and education and re-entering the telecom sector, as he seeks to build new growth drivers.

The petrochemicals, oil & gas and retail-focused company, the country’s largest by market cap, is facing strong headwinds, what with reports the government may initiate arbitration proceedings against it for $1.85 billion ‘extra’ expenditure in developing the KG-D6 oil & gas fields. The company has been losing investor traction of late, and its stock is down 23 per cent since April this year, compared to a loss of 17 per cent for the Sensex.

But true to Reliance Industries’ big-bang, shock-and-awe style of taking on any new market, the entry into these new categories also promises to be as big as it gets, come 2012.

GROWTH CHART

Financial services

* Reliance has formed a joint venture with US financial services giant D E Shaw

* D E Shaw India Financial Services would start operations in January

Telecom 

* RIL has readied a  Rs 15,000-crore war chest to re-enter the space

* It is looking at leasing out over 50,000 towers and is in talks with leading tower players

* It has started vendor selection for sourcing telecom equipment.

Education

* Infotel Broadband, an arm of Reliance, has bought 38.5 per cent in digital educational company Extramarks

* Over the next three years, it plans to invest Rs 500 crore

Reliance Industries’ equal joint venture with US financial services giant D E Shaw, D E Shaw India Financial Services, would start operations in January. It has its eye set on being number one in the space and, therefore, everything is on the table — from acquisitions to launching mutual funds to running for a banking licence. The JV has already bought over a dormant financial services company and has received clearances from various sector regulators, including the Securities and Exchange Board of India and the National Securities Depository Ltd.

In telecom, where the group is returning after the much-publicised split, spat and settlement with Mukesh Ambani’s younger brother, Anil Ambani, sources say RIL has readied a Rs 15,000-crore war chest. That does not include what it paid last year to acquire 95 per cent stake in the Mahendra Nahata-led Infotel Broadband for its pan-India broadband wireless spectrum

licence. Infotel was the only company to have won a national broadband licence for Rs 12,848 crore, in a government-run auction for running fourth-generation telecom services.

The company is looking at leasing out more than 50,000 towers and is in talks with all the leading tower players in the country. It has also started vendor selection for sourcing telecom equipment. Players such as Huawei, Ericsson and Alcatel Lucent are in the fray.

Says Anil Chawla, managing director of D E Shaw in India, “D E Shaw group and Reliance see huge potential for innovation in the financial services market in India; we want to be a considerable player here and want to be at the top.” Asked whether the company would go for acquisitions, Chawla added: “The JV is still in its early stages and has a long way to go. We are not ruling out inorganic growth options.”

RIL declined to comment on Business Standard’s queries on new forays.

Education is another sunrise sector that has caught the group’s fancy. A few weeks ago, group company Infotel Broadband picked up 38.5 per cent stake in digital educational company Extramarks, promoted by Delhi-based chartered accountant Atul Kulshresta.

The company has a blueprint to invest Rs 500 crore in the sector for the next three years, which will leverage RIL’s broadband foray. The interest in digital education also stems from the fact that RIL is expected to launch its broadband wireless services, beginning the second half of next year.

“We will leverage 4G is two ways. Interactive classes on the net require consistent speeds of 120 MBPS, which will be available with 4G. With it, we will offer one-to-one as well as one-to-many tuition classes at affordable prices,” says Kulshresta. The company also intends to develop special applications for 4G tablets, something for which Reliance is in talks with low-cost producer Datawinds, made famous by its world’s cheapest product, Aakash. The plan is to offer tuition on the net for Rs 300 an hour for the one-to-one package and around Rs 50 for the one-to-many package, for 20 students.

Extramarks has other ambitious targets. It wants to expand its digital classrooms (where content is stored in a computer) to target at least 25 million students across the country. Currently, it is present in 3,000 schools and covers 700,000 students. The company will also aggressively bid for building and running schools being opened by states under the public-private partnership mode, and has bagged one such project in Rajasthan.

The educational foray will not be limited only to the mass end. The Ambanis already have an investment in this sector through the prestigious international school they have set up in Mumbai. Extramarks is also taking about opening digital pre-nursery schools, complete with digital boards where kids can play, but with steep monthly fees across the country.

Interestingly, Reliance Industries is banking on acquisitions and partnerships for its foray into these three areas. Mukesh Ambani has spelled out a partnership-led growth model for Reliance at the company’s shareholders meet in June. “Reliance is forging new partnerships to pursue new growth opportunities," he had said. In fact, even for its core oil & gas business, RIL bought in British oil major BP as a 30 per cent partner, a clear indication the company was walking its partnership-for-growth talk.

RIL has also made small strides in the hospitality business. Last year, it bought 14.12 per cent stake in East India Hotels, which runs the prestigious chain of Oberoi hotels. This month, Mukesh Ambani’s wife, Nita Ambani, was inducted into the RIL board, along with RIL old-timer Manish Modi.