Ambani Vs Ambani: Life After The Split
This week Mukesh Ambani’s Reliance Industries Ltd. sold dollar bonds at the cheapest rate by a non-financial Indian issuer ever. That came days after his younger brother Anil Ambani’s Reliance Communications Ltd. defaulted on its bond payments. That somewhat sums up how the fortunes of the billionaire siblings have diverged since their family split in 2006.
As part of the family settlement, the older Ambani got oil refining, exploration and petrochemicals businesses housed under RIL, the owner of the world’s largest refinery in Jamnagar, Gujarat. The faster-growing financial services, infrastructure and telecom businesses went to the younger brother.
More than a decade and a gas dispute later, Mukesh Ambani now also has a large retail business and a data-driven wireless carrier that has triggered a tariff war across the telecom industry. Anil Ambani’s businesses haven’t fared that well. Reliance Communications, under pressure due to piling debt and falling profitability, has been among the worst hit.
Here’s a snapshot of how the Ambani brothers have fared since the split.
Reliance Industries’ debt more than doubled to Rs 1,96,601 crore in the last five years as it invested in its telecom arm—Reliance Jio Infocomm Ltd. Still, its interest coverage ratio—a measure of a company’s ability to service debt—remains healthy. A ratio of one or more means that the company will cover its cost of debt for the year.
Anil Ambani-led businesses’ debt rose at an unsustainable pace. Reliance Power Ltd.'s total debt nearly doubled in the last five years. It also rose substantially for Reliance Infrastructure Ltd. and Reliance Communications. While the telecom operator is already struggling to service its debt, the interest coverage ratio has fallen for the other two as well.
Mukesh Ambani Outperforms
Mukesh Ambani’s flagship RIL has outperformed his younger brothers’ businesses on profitability and returns since the split. Its revenue and profit rose at an annualised rate of 11.2 percent and 9.5 percent, respectively. Shares of the company have given an annualised return of 16.5 percent, taking its market value to a record Rs 6 lakh crore.
Anil Ambani’s group companies have lagged. While Reliance Capital Ltd.’s revenue rose at a higher annualised rate of 23.3 percent since listing, profits rose at a compounded annual rate of 4.4 percent. Reliance Infrastructure’s profit rose at 5.5 percent CAGR, while its share price rose at a 2.4 percent annualised rate. His telecom business is already making losses with shares hitting an all-time low this month. Reliance Power was excluded since it wasn’t part of the combined group and was set up by the younger Ambani after the split.
Market Value Gap Widens
Since 2006, the market capitalisation of Reliance Industries rose six times to nearly Rs 6 lakh crore. The combined market value of Anil Ambani group firms—Reliance Capital, Reliance Infrastructure and Reliance Communications—has declined about 17 percent to 47,017 crore. This includes the value of recently listed Reliance Nippon Asset Management and Reliance Home Finance Ltd.