Reliance Industries: Losing Its Historical Charm

India’s largest private sector company, Reliance Industries (Reliance), has been reported by ET Now to be in search of a buyer for its oldest business i.e. textiles along with its iconic brand ‘Only Vimal’. Mukesh Ambani has recruited NM Rothschild to complete this transaction by the end of the year. This move is assumed to be part of Reliance’s strategy to liquidate low-margin businesses to maximise its profits. The textile business contributes merely 2.3 per cent to the group’s consolidated revenue of Rs 85,000 crore. It is believed that Reliance’s management is facing various problems such as frequent labour trouble at its Naroda factory and a historic peak in international and domestic cotton prices due to a shortage of cotton availability, according to its latest annual report.

Years back, perceiving a good opportunity in the textile business, Dhirubhai Ambani, founder of Reliance, started the first textile mill at Naroda in Ahmedabad in 1966. Dhirubhai flagged it off with the brand ‘Vimal’, which was named after his elder brother Ramaniklal Ambani’s son, Vimal Ambani. Reliance’s extensive marketing capability made the brand a household name in the interiors of India. In the year 1975, a technical team from the World Bank visited the Naroda manufacturing unit as it had the rare distinction of being certified as ‘excellent even by developed country standards’ during that period.

As an aside, it may be noted that Reliance was the first private sector company to hold its annual general meetings (AGMs) in stadiums. Such was the grandiosity of the event that it was once covered by London’s Financial Times in 1985. Many old shareholders still vividly remember that roar of applause that would greet Dhirubhai when he walked on to the podium to address the AGM. It used to be like a carnival with more than 12,000 shareholders in attendance. 

Well, that was then and this is now. Now the AGM does not have the magic of Dhirubhai. Reliance has, in fact, lost its long-held status as the country’s most valued company to Tata Consultancy Services. In terms of weight in the Sensex, the Indian stock market's benchmark index, Reliance has been flip-flopping from the number one position in recent past. Though Reliance’s chairman, Mukesh Ambani, had made a promise to the shareholders to double the group’s operating profits in five years and invest a massive Rs 1,00,000 crore in Indian businesses in the next five years, there has been acute displeasure about the company’s growth strategy. Its share price has not moved anywhere since the downfall of 2008. Rather, it has been down by more than 40 per cent. One wonders, therefore, if there will be any positive change in its status. The ball is in the management’ court.