The Reliance Group Saga - Break-up of the Largest Family-owned Business in India

            
 
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Case Details:

Case Code : BSTR182
Case Length : 19 Pages
Period : 2002-2005
Organization : Reliance
Pub Date : 2005
Teaching Note :Not Available
Countries : India
Industry : Diversified

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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Background Note

The Reliance Group was founded by Dhirajlal Hirachand Ambani popularly known as Dhirubhai. Born on December 28, 1932, Dhirubhai was the second son of a poor school teacher in a small village of Gujarat, a Western state of India. After completing his tenth standard, he joined his elder brother, who was working in Aden6 at that time.

He worked as an attendant in a Shell petrol station and later took up a clerical position in an oil company that was distributing Shell products. At that time, he realized that the value of the silver contained in the coins in Aden was greater than the value of the coin itself. By trading in these silver coins, he was able to generate Rs. 15,000 as seed capital for a trading agency in India, which was started in 1958. The trading agency - Reliance Commercial Corporation - imported polyester yarn that was sold to textile manufacturers, and exported spices. Dhirubhai often exported spices at a loss to procure replenishment licenses to import nylon. Even so, he never incurred an overall loss as the imported items commanded a premium price in the market.

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With the increase in disposable incomes, Indians had started buying more expensive clothes. Sensing an opportunity in the textile sector, Dhirubhai obtained the necessary clearances to manufacture cloth from polyester fiber. Reliance's first textile mill was opened in Naroda in Gujarat in 1966. Dhirubhai went on to establish a highly successful clothing brand named Vimal.

As the clothing business started making good money, Dhirubhai adopted the backward integration7 strategy and established petrochemical plants that manufactured fibers for synthetic fabrics. In the 1970s, for further expansion of its business, Dhirubhai needed cheap funds, which were not easy to obtain from banks. So he decided to go in for an initial public offering (IPO) in 1977, issuing 2.8 million shares of RIL for Rs. 10 each. 58,000 people invested in the company's IPO. This public issue went on to change the face of corporate financing in India. Dhirubhai always ensured that the shareholders were well rewarded. Reliance's shares offered good value to investors, and the ones who held on to the shares reaped high returns...

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6] Aden is a port city in the Republic of Yemen. Yemen is located in the Middle East, bordering Arabian Sea and Red Sea between Oman and Saudi Arabia.

7] Backward integration strategy includes acquiring ownership of one's supply chain, usually in the hope of reducing supplier power and thus reducing input costs.

 

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