Mukesh Ambani’s succession plan needs three superstar businesses
– World Affairs SRS
A clean transfer of wealth is crucial for the 64-year-old Indian tycoon, who was embroiled in a bitter inheritance dispute with his younger brother after his father’s death in 2002, without a will. To avoid any such untoward situation, one idea is to put group flagship Reliance Industries Ltd under the control of a trust-like structure, as Bloomberg News reported in November. Ambani, wife Nita, 59, and their three children – twins Akash and Isha, 30, and his younger brother Anant, 26 – will be on its board.
Taking care of the family jointly may be a better alternative to divestment of existing oil refining and petrochemicals, telecommunications and retail assets. This is because Reliance is currently in the midst of a very expensive switch to clean fuels by investing in the entire value chain of solar, batteries and hydrogen, something that no other conventional energy company has attempted yet. . As Sanford C. Bernstein analyst Neil Beveridge puts it, “If Reliance can pull this off, the value creation and earnings potential will be substantial.”
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The cost of capital will be the key to this ambitious change. Just as steady cash flow from refining made it possible for Reliance to start India’s leading telecommunications company from scratch, profits from digital businesses and retail could allow the next generation of leaders to replace hydrocarbons – the traditional staple of the Ambani family’s wealth. Source – In the next decade with green energy.
mobile Internet. retail. new energy. All three are strong candidates for superstardom, defined by McKinsey & Company as the top 10% of companies that achieve 80% of positive economic returns. Research has shown that the very low interest rates of the past decade have played a part in enabling the rise of these “winning take all” firms. In developed economies such as the US, gains for the market leader became more pronounced as benchmark borrowing costs hit a zero lower limit. Even though the era of ultra-lax financial conditions is now over, Reliance’s balance sheet, which Ambani freed from net debt two years ago, could easily face a fresh round of leveraged expansion.
Perhaps the most obvious is the road to billionaire dominance in telecommunications. The trifecta of high 4G investments, intense price competition and the face of exorbitant claims by the government reduced the return on capital employed in the Indian telecom sector to 3% from 8% five years ago. The drag is now expected to lift as operators raise tariffs, boosting the industry’s annual income (1) to more than 1 trillion rupees ($13 billion) by March 2023, a 40% jump in two years, according to Crisil. , an affiliate of S&P Global Inc. Given its strategic partnership, which includes a $87 Android-based smartphone custom-built for it by Alphabet Inc.’s Google, Reliance’s Jio Platforms Ltd. is in a strong position to benefit from improved pricing and explosive growth in data demand. Is.
Retail, however, can prove to be a tough nut to crack. Reliance is rolling out a tie-up of neighborhood shops that will take orders through the popular WhatsApp chat service owned by Meta Platforms Inc (formerly known as Facebook Inc). But Ambani’s plan to dominate Indian commerce was rooted in buying the assets of Future Retail Ltd, a debt-ridden Indian retailer that was floundering with bankruptcy. Its 16 million sq ft of store space would have been well tagged in Reliance’s own 37 million sq ft. However, Amazon.com Inc., which lent the hedge money to Future’s founder on condition that the stores would not be sold to Reliance, is doing everything possible to block the acquisition using legal proceedings.
If competition in retail is going to be largely from Amazon, in new energy, Ambani will face rival Indian tycoon Gautam Adani, who wants to be the world’s largest renewable producer by 2030 and to realize it. Has vowed to invest $70 billion. That ambition. Ambani has made an immediate commitment of $10 billion over three years, but has already demonstrated the seriousness of his intention with six deals in the clean energy sector in these months.
Also read: Five books by Mukesh Ambani that helped him make sense of 2021
No major corporate succession is without risk. With Superstar, the biggest threat is a massive restructuring of relations between the state and successful private firms. But the risk of such Chinese-style shocks in India is slim. With some luck, the next generation of the Ambani family is going to inherit not one or two but at least three well-oiled money machines. And hopefully there are no ownership disputes.
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