The owner Dhirubhai Hirachand Ambani who became a legend in his own life, was born in a modest household of a school teacher in a small town of Chorwad in Gujarat. In 1948, at his age 16, he went to Aden, Yemen, for a job in a company which was distributor of Shell oil. In his job, Dhirubhai worked at times as attendant in a Shell petrol pump. The story goes around that even as an attendant, he dreamed big and told his peers that in future he will make an oil company bigger than Shell. Few big dreams have been realized as well as those of Dhirubhai’s. Reliance Industries’ petroleum refinery at Jamnagar, is today the largest integrated refinery in the world. His message to the youth of India to ‘Dream Big’ truly reflected his life story.

1. 1
DHIRUBHAI STORY - RELIANCE STORY
The story of Reliance Industries is an exciting story of corporate India.
Early Years:
The owner Dhirubhai Hirachand Ambani who became a legend in his own life, was born
in a modest household of a school teacher in a small town of Chorwad in Gujarat. In
1948, at his age 16, he went to Aden, Yemen, for a job in a company which was
distributor of Shell oil. In his job, Dhirubhai worked at times as attendant in a Shell petrol
pump. The story goes around that even as an attendant, he dreamed big and told his peers
that in future he will make an oil company bigger than Shell. Few big dreams have been
realized as well as those of Dhirubhai’s. Reliance Industries’ petroleum refinery at
Jamnagar, is today the largest integrated refinery in the world. His message to the youth
of India to ‘Dream Big’ truly reflected his life story.
In 1962 Dhirubhai returned to India and set up Reliance, a trading firm to import yarn
and export spices. The partnership firm ran in problems because Mr. Damani,
Dhirubhai’s partner was risk averse. He did not agree with Dhirubhai’s strategy to build
large inventory of yarn in anticipation of price rise. Dhirubhai went alone, parted
company of Mr. Damani and took risks in the business. He succeeded in business to
improve his personal wealth and move from a modest residence in Central Bombay to
one in up market Altmount Road.
With comfort of yarn trading, Dhirubhai moved up the value chain to trade in textile.
Reliance soon became one of the larger whole sale dealers in textile in Mumbai’s famed
Mulji Jetha Market. Whole sale trade gave him first hand feel of textile market,
particularly its rural demand component. Logical next step for Reliance was to go for
textile manufacturing. In 1975, Reliance Industry’s textile mill was established at Naroda
in Ahmedabad. Dhirubhai personally supervised the marketing of textile with Vimal
brand name. With massive promotion and focus on rural and semi urban markets, Vimal
had run away success and Vimal became a household name.
Reliance is a good case study of vertical integration. From selling textiles, Reliance
diversified in manufacturing textiles it sold. In eighties, Reliance diversified in making
yarn that made the cloth. Making of yarn needed specialized chemicals requiring
sophisticated technology and Reliance went for the manufacture of these base chemicals.
The processes of making these base chemicals required more sophisticated
petrochemicals and reliance put up these advanced technology based petrochemical
plants, first at Paataal Ganga in Maharastra and later at Hazira at Gujarat. In making the
petrochemicals, feedstock used is the byproduct of petroleum refining process and all
petrochemical manufacturers depended on state owned oil refineries for their supplies. In
a bold move, Reliance promoted a refinery project in Jamnagar. While Reliance entered
into marketing arrangement agreement with a leading petroleum product company for its
petroleum product, it acquired a ready and an easy access to the feedstock.

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Ingenious financing and creation of equity cult:
Dhirubhai is rightly credited with initiating an ‘equity cult’ among Indian investors. More
than 58,000 investors from various parts of India subscribed to Reliance's IPO in 1977.
Dhirubhai was able to convince large number of small investors from rural Gujarat that
being shareholders of his company would be profitable.
To fund ever expanding Reliance, Dhirubhai adopted ingenious financial strategy of
alternating debt and equity as sources of funds.
In eighties, the government owned financial institutions and banks were very rigid on
applying debt to equity norms to the borrowers. The debt to equity ratio was generally 2:1.
Reliance, envisaging a debt financed rapid growth for it adopted a very innovative strategy
to confirm to the norms of lending institutions and still raise the needed financial resources.
Towards this end, it adopted the convertible debenture route.
A convertible debenture is debt at the point of issue. The debenture holders have an option
of converting its debt claim to equity at the pre-decided time in future, at pre-committed
price. Reliance kept on modifying its capital structures on continuing basis.
The Reliance approach is explained through a simplified table and calculations below.
Please note that these are assumed hypothetical numbers and modality associated thereof
and do not represent the actual raised by Reliance.
Action 1st
Round 2nd
Round 3rd
Round
Equity capital at the beginning of
the round
100 100 400
Conversion of convertible
debenture providing additional
equity
300 1,200
Total equity 100 400 1,600
Raise additional institutional debt
using the norm of debt: equity of
2:1
200 600 2,400
Total debt 200 800 3,200
Total resources available 300 1,200 4,800
Debt:Equity Ratio 2:1 2:1 2:1
Issue convertible debentures equal
to total available resources 300 1,200 4,800
Total resources at command 600 2,400 9,600
Of which debt (including
convertible debentures
outstanding)
500 2,000 8,000
Effective debt: equity ratio that
would prevent further institutional
borrowing
5.1 5.1 5.1

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It needs to be noted that Reliance was not the innovator of the debt equity approach. Lee
Iacocca had successfully used the approach to pull Chrysler Corporation out of its serious
financial trouble in second half of the 1970s.
For the success of the convertible debenture funding strategy, it was imperative that most
debenture holders agree to convert. To ensure the conversion, the market price of the
share had to be above the committed fixed price agreed for conversion. This would give
capital gains to the investor and make convertible debentures attractive instruments of
investments.
All through the eighties, Reliance supported the share prices in the market, gave good
dividends and capitalized profits by from its expanding diversified capacities and
aggressive marketing by issuing Bonus Shares.
Fighting Detrectors:
In 1982, Reliance Industries came up against a rights issue regarding partly convertible
debentures. It was rumored that the company was making all efforts to ensure that their
stock prices did not slide. Sensing an opportunity, a bear cartel which was a group of
stock brokers from Calcutta started to short sell the shares of Reliance. To counter this, a
group of stock brokers till recently referred to as "Friends of Reliance" started to buy the
short sold shares of Reliance Industries on the Bombay Stock Exchange.
The Bear Cartel was acting on the belief that the Bulls would be short of cash to complete
the transactions and would be ready for settlement under the “Budla” trading system
operative in the Bombay Stock Exchange. The bulls kept on buying and a price of Rs.
152 per share was maintained till the day of settlement. On the day of settlement, the
Bear Cartel was taken aback when the Bulls demanded a physical delivery of shares. To
complete the transaction, the much needed cash was provided to the stock brokers who
had bought shares of Reliance, by none other than Dhirubhai Ambani. In the case of non-
settlement, the Bulls demanded an "Unbadla" (a penalty sum) of Rs. 35 per share. With
this, the demand increased and the shares of Reliance shot above 180 rupees in minutes.
The settlement caused an enormous uproar in the market and Dhirubhai Ambani was the
unquestioned king of the stock markets. He proved to his detractors just how dangerous it
was to play with Reliance.
To find a solution to this situation, the Bombay Stock Exchange was closed for three
business days. Authorities from the Bombay Stock Exchange intervened in the matter and
brought down the "Unbadla" rate to Rs. 2 with a stipulation that the Bear Cartel had to
deliver the shares within the next few days. The Bear Cartel bought shares of Reliance
from the market at higher price levels and it was also learnt that Dhirubhai Ambani
himself supplied those shares to the Bear Cartel and earned a healthy profit out of The
Bear Cartel's adventure.
From the 1982 crisis, Reliance emerged as an ‘investor friendly’ company. It created trust
in the investing community of a level that few other companies in the world have created.

4. 4
Reliance came to be known as ‘investor friendly’ company. Dhirubhai took care of the
investors and investors in turn supported Reliance. Reliance’s shareholder base kept on
expanding fast. In 1980s, Reliance issued A, B, C, D, E, F, G, H, J and K series of
convertible debentures. Each was taken up by the investors. Middle income households
discovered gains out of stock market. Unquestioning support to Reliance was guaranteed
by mutual trust created between the company and investors. Reliance built up a
shareholder base of 3.8 million investors and entered the Guinness Book of World
Record as the company with the largest shareholders base. It retained the position till
2005 when Microsoft surpassed it in the number of shareholders.
Reliance effectively made the share market in India. Today one out of every four
investors in shares owns a Reliance share. With large number of shareholders, Reliance
was the first Indian company to hold its Annual General Meetings on Cooperage ground
which is Bombay’s prime football field.
Barring the downturn of 2007-09, Reliance has always rewarded its shareholders. Small
investors have made money from Reliance that have funded housing for the families and
provided financial support for retirement, travel and even marriages in the families.
Reliance is as much about finance as it is about production and marketing. Reliance has
introduced new ways of mobilizing finance. After the liberalization process started in
1991, the government of India permitted Indian companies to raise funds abroad.
Reliance was the first Indian private company to raise funds through Global Depository
Receipts (GDRs) in Luxemburg. GDRs are global version of convertible debentures
where the owner is a creditor for a fixed period and then had an option to convert debt to
equity at the prevailing market price. Later in 1990s Reliance raised money through issue
of ADR (American Depository Receipts) which is America specific and stringer
requirements for ‘due diligence’ for the borrower.
Reliance is the first and the only Indian company to issue in European market 100 years
maturity Deep Discount Bonds. Reliance enjoys excellent credit rating and is able to
borrow from banks at interest lower than the Prime Rate.
Reliance has effectively used its capacity to borrow cheap abroad to increase its
profitability by saving on finance cost. It uses the cheap money borrowed in European
markets to retire its more expensive domestic debt.
Today, Reliance scripts together carry a weight of more than 16% in the benchmark BSE
index of 30 scripts.
Till mid 90s, Ambani family owned less than 15% of equity in its own businesses. Very
dispersed outside shareholding base gave them authority to control management of their
companies despite limited ownership stake. Over the years, with increased threat of
hostile take over, the family has increased its stake to over 40% now.

5. 5
Lag-lead financing:
With successive new projects financed by raising equity, Reliance allegedly adopted a
questionable practice of lag-lead financing. Finance raised for a project was often used to
finance another. When the concerned project needed money, new issue for another
project was made and funds utilized to complete the previous project. This way, B
financed A, C financed B and so on.
In 1980s, this practice of lag-lead created serious problems for Reliance. Reliance
Industries (RIL) completed its Paataal Ganga petrochemical projects with funds
generated from the issue of Reliance Petro Chemical (RPCL), which was to build a larger
capacity diversified project at Hazira. The strategy was to fund Hazira by using surplus
generated by Paataal Ganga. The plant at Paataal Ganga, with technology provided by Du
Pont, was completed in record time and was generating profit through aggressive
marketing when massive floods following heavy rains damaged the plant. (Paataal Ganga
is the name of the township as well as of the river on bank of which, RIL plant is
located.) The flooded river broke banks and inundated the plant and damaged its critical
electronic panels.
Repairs to the plant would have taken months if not years. In a bold and risky decision,
Dhirubhai decided to scrap the new plant and replace it with double the capacity new
plant which he ordered to be airlifted from Du Pont base in Delaware, USA. RIL
approached the government and sought excise duty exemption for the plant claiming that
it was replacing the duty paid plant damaged plant. It did not tell the government that the
new plant was of nearly double the capacity of one being scrapped. The government gave
the exemption from a very high (over 100 %) excise duty. Reliance almost got three
plants for price of two. Years later, the government found the ploy and charged RIL
heavy penalty on top of the evaded excise duty. This RIL promptly paid off. By the time
RIL had made more money by full utilization of the double capacity plant.
In and out of L & T
Paataal Ganga floods was the beginning of problems faced by Reliance in the following
few years. RPCL at Hazira for which a public issue was made and funds used up by RIL
at Paataal Ganga now needed funds. RIL had the surplus to transfer to RPCL to kick start
the Hazira project, but it ran in to an unexpected problem.
In the Union Budget 1987 of Rajiv Gandhi government, the then Finance Minister V P
Singh introduced the provision of ‘Deemed Dividend’ in the Income Tax Act. According
to the provision, any transfer from a company to another which has common members of
Board of Directors and common ownership pattern was deemed as dividend payment and
taxable as income in the hands of the recipient company. The nature of such transfer was
irrelevant. It could be a loan or a loan repayment and still was taxable at then prevailing
corporate income tax rate of 47.5%.

6. 6
For RIL, transferring its cash surplus to RPCL would have attracted high tax and cost
would be prohibitive. RIL had funds, RPCL needed it. Transfer was an issue.
Reliance’s strategic thinking ingenuity was at its best in what followed.
This was the time when public sector banks were floating their own mutual fund
subsidiaries. Apparently prompted by Dhirubhai, the then Chairman of Bank of Baroda,
Paramjeet Singh, approached the Reserve Bank seeking permission to launch the mutual
fund. The permission was granted in due course and BoB Mutual was instituted. The new
fund approached LIC Mutual and GIC Mutual institutions, both owned by the
government, to seek from them shares in Larsen and Toubro, a respected private
engineering firm. LIC and GIC together were holding more than controlling interest in
the company with LIC holding 42% and GIC holding 12% of the company’s share
capital. To accommodate a new public sector bank fund on the street, LIC and GIC
agreed to sell 6% shares of L & T each, to BoB Mutual.
The day BoB Mutual received the shares; it transferred the same to associate firms of
Reliance. Dhirubhai and Reliance with 12 % ownership became the largest non-
institutional owners of the company and staked claim to the Board according to the
Company Law. Dhirbhai became the Chairman and three of his nominees, his sons
Mukesh and Anil and advisor and confidante Mr. Bhakta were adopted on the Board of L
& T as members. L & T effectively became a Reliance Group company.
In the first meeting of the Board, two resolutions were adopted.
L& T resolved to build Hazira on deferred payment basis. Hazira would pay for the cost
in future in installments. (Anyway, Hazira had no cash to pay since it could not be
transferred from Paataal Ganga !!) and that
To fund the financial needs of building a huge Hazira project, L & T would approach the
market (as a Reliance company) with an IPO of Rs. 8 billion!
L & T IPO under Reliance banner was well received by investors. It was over subscribed
and the company received Rs. 4 billion by way of application and allotment money.
Reliance juggernaut was rolling. Work at Hazira began.
But there was another unexpected hitch.
In the Parliamentary elections in November 1989, Rajiv Gandhi’s Congress Party lost
election and an Opposition Coalition Government with V P Singh as Prime Minister and
Madhu Dandvate as Finance Minister was installed in New Delhi. Singh and Dandvate
were aware of the L & T maneuver of Reliance, which by now was extensively
publicized by dissenting press. They ordered an enquiry of L & T related dealings as to
how despite owning 44 % of shares, LIC and GIC let Reliance run L & T as its fiefdom.
Heads rolled. Parmjeet Singh and Chairmen of LIC and GIC lost their jobs. Government

7. 7
insisted on calling an Extra Ordinary General Meeting to reconsider the two resolutions
passed by the Board.
Realizing that he did not have the majority to fight the battle with the new government,
Reliance sued for peace. It ensured the government that the Board would rescind those
resolutions and that Dhirubhai would resign as the Chairman and a Member of the Board
and that Anil Ambani would also resign from the Board, leaving only two representatives
on the Board.
Accordingly Dhirubhai and Anil resigned. L & T would build the Hazira plant but on
normal commercial terms. The issue of RPCL having no funds to pay for the plant
remained unresolved.
With Hazira deferred payment plan falling apart, L & T also had problem, albeit a
pleasant one. It had collected Rs. 400 crores out of Rs. 800 crores IPO. It had to find
avenues for productive deployment of these funds. It decided to diversify in cement and
in due course, became the largest cement company in India.
Ambanis continued holding 12% stake in L & T and two Board memberships. In early
2000s, cement contributed 33 % of Revenue but only 10 % of profits of the company. L
& T appointed BCG for advice on restructuring. On BCG recommendation, L & T
decided to hive of its cement division. Aditya Birla Group with major interest in cement
business through Century Cement, expressed willingness to buy the L & T cement
business. Ambani holdings in L & T were sold to Aditya Birla group at hefty profit of
over 150% on the then prevailing market price. Ambanis made good money out of L & T
share holdings.
Hazira goes on:
Even when the L & T deferred payment construction strategy failed, Reliance was not
stopped. Within weeks of Dhirubhai resigning from L & T, lawyers from Reliance were
in the court seeking merger of RIL and RPCL. Shareholders of both the companies
approved the merger. There was no legal deficiency in the proposal and courts permitted
the merger. With merged units, the issue of modality of transferring RIL cash to RPCL
became a non-issue. Hazira went on.
Detracting press did make noise about RPCL share holders being short changed in the
agreed exchange ration of 10 RPCL against 1 RIL share. The clamor soon died down as
Hazira work accelerated.
In 1993, Hazira was falling short of cash required to complete the project. Devaluation of
Rupee in July 1991 had raised the project cost. Reliance floated two companies –
Reliance Polypropylene Ltd. And Reliance Polyethylene Ltd. and made IPPs of Rs, 300
crores each. In worse post Harshad Mehta scam market, both the issues were
oversubscribed,

8. 8
Before long, both RPPL and RPEL were merged with RIL.
Set back to Dhirubhai’s health and his perseverance:
The pressure of maintaining the Reliance growth even while fighting adversities took toll
of Dhirubhai’s health. He got a stroke and was paralyzed on the right side of his body.
His Speech was seriously impaired. There were wild rumors about his health and
Reliance share was negatively affected. The stroke was in the early February 1991. For
over eleven years till his death in June 2002, the state of his health was a well guarded
secret by the family.
In 1991, following the impaired speech, Ambanis realized how important it was for
Dhirubhai to be at the Annual General Meeting of the company and give a speech to
assuage the fears about his health among investors. Dhirubhai knew his priorities well.
With a speech therapist, he went to Switzerland and practiced his proposed two minutes
speech for six hours a day for eight weeks! On the day of the AGM, he was on the dais.
Unassisted by others, with the support of his stick, he walked up to the podium and
delivered in clear language and diction his much practiced speech. He announced the
largest ever IPO for Reliance Petroleum of Rs. 2,100 crores. The audience, skeptical
about the health of Dhirubhai’s and the future of Reliance was ecstatic. The feeling,
expressed in different context at different times, by Elizabeth Browning that the ‘God is
in His heaven and everything is well with world’ was all pervasive. Reliance Petroleum
IPO sailed through easily and Reliance share continued it upward trend in following
years.
After the stroke Dhirubhai handed over the reins of his business empire to his sons
Mukesh and Anil. He adopted an advisory role providing strategic inputs. His vision and
thoughts remained as clear as before even after the stroke.
Strategic dimensions of Reliance Story:
Some critical dimensions of strategy emerge from the Reliance story. These can be
expressed as four pillars of Reliance.
Size Matters – Create Large Capacities: Reliance is all about scale. Instead of starting
small and growing big philosophy of other Indian business houses, Reliance started big in
every area it went for. Unlike desiring to fill in the gap between existing demand and
existing supply, Dhirubhai believed in ‘supply creates its own demand’ philosophy. He
established huge capacities, took advantage of economies of scale, reduced unit cost and
competed on price in the market.
For instance, for petroleum refinery, when Aditya Birla Group established Manglore
Refinery with an annual capacity of 9 million tons, Reliance’s Jamnagar refinery began
with a capacity of 27 million tons which since has been raised to 42 million tons. Current
expansion would make Reliance capacity 62 million tons by end 2010 and plans are

9. 9
already afoot to raise it to an incredible 100 million tons capacity. Reliance will remain in
Guinness Book of World Records for a long time to come.
The story is repeated in most Reliance ventures. When Bharti Mittal laid down optic fiber
cable (OFC) network for his AirTel, he laid 12,000 km. of OFC. Reliance
Communications established a network of 60,000 km of OFC.
At the launch of Reliance Communications, Mukesh announced that Reliance was
targeting 10 million subscribers in a year. (The target was achieved in 15 months.) Today
with nearly 100 million subscriber base, Reliance Communications is a little behind
AirTel’s subscription base.
In its retail venture, Reliance is projecting an initial investment of Rs. 25,000 crores.
Reliance Petroleum has laid a network of petroleum pipe lines of over 4,000 km.
Reliance gas proposes to emerge as one of the top three gas producers in the world.
Global scale is in Reliance character and fulfills Dhirubhai’s advice of “Think Big, Think
Fast and Act Fast”
Large scale production requires aggressive marketing. This forms the second pillar of
Reliance empire.
Aggressive marketing: Reliance is an aggressive marketer. With lower unit cost resulting
from scale, to acquire the market share, it competes mainly on price.
Since Reliance communication’s entry in India’s mobile telephony sector, prices have
crashed. With falling prices, mobile penetration has increased and today the subscription
base has expanded to more than 400 million mobile users.
When Reliance first came to market with its petrochemical products HDPE and LDPE
(high and low density poly propylene) granules, its marketing force went to the dealers
with samples but without a price list. It offered the product at Rs. 1,000 per ton less than
that of IPCL the public sector monopoly then. In a short time, Reliance acquired 40%
market share. IPCL subsequently found Reliance competition too hot too bear and
Reliance bought over IPCL once the Government of India proposed to privatize it.
Reliance is a near monopolist today in the petrochemical space.
Investor Friendliness: Reliance is built with support of the investors, many of them
small investors. Reliance has always looked after their well being, given bonuses and
regular, relatively high dividends.
After the death of Dhirubhai, the Reliance Empire was divided between two warring
brothers. They have maintained Dhirubhai’s investor friendly approach. Anil Dhirubhai
Ambani Group (ADAG) offered the biggest IPO of over Rs. 11,000 crores for its power
business. Issued at a significant premium, the IPO received very good market response
and was oversubscribed by over ten times. At the time of listing, however, the markets
had come down and the Reliance Energy share was listed at sub-par, i.e., at a price below

10. 10
offer price. Anil Ambani did something that was never done in the history of stock
exchanges world over. Within one week, Reliance Energy announced a bonus issue
capitalizing part of the premium and thereby, effectively reduce the acquisition cost of
the investor.
Efficient and effective project management: Reliance is an efficient and effective
project management company. Reliance projects are not plagued by time or cost over
runs. DuPont has certified that it has implemented Reliance Petrochemical projects in
record times. In Reliance Communication, the massive task of laying 60,000 km. of
OFCs has been achieved with precision and efficiency.
To achieve the efficiency, Reliance has attempted ‘out of box thinking’ and devised
ingenious processes and modalities. To bypass the lethargic bureaucracy of state
governments which would call for an inter-state license to move from one state to the
other, Reliance partnered with Indian Railways which owns twenty meters of land on
either side of the railway tracks and has free passage by law to move from one state to the
other. Reliance Communications acquired the rights to lay down OFCs in the land
adjacent to the tracks on a long term (99 years) lease.
As Dhirubhai often said, “Meeting the deadline is not good enough, Beating the deadline
is my expectation.”
Post Dhirbhai split:
After the death of Dhirubhai, serious differences between two brothers, Mukesh and Anil
came out. The business empire had to be divided. K V Kamath, Chairman of ICICI Bank
and Nimish Kampani, a leading investment banker owning J M Finance were assigned
the task of dividing the businesses. Blessed by the mother, the plan of division gave
Mukesh textiles, petrochemicals and oil refining businesses and gave Anil Reliance
Communication, Reliance Power and the financial arm Reliance Capital.
Though the division was quick and efficient, bad blood between the two brothers has
remained and has taken them to court on the issue of gas pricing, agreed to in the
memorandum of understanding.
Both the brothers have continued the growth path of their businesses and diversified in
newer areas. Mukesh is diversifying in the area of retail and establishment of industrial
zones, Anil has extended his reach to infrastructure and entertainment.
In its eulogy for Dhirubhai, Hindu, the leading national news paper said, “One way of
assessing the extraordinary achievements of Dhirubhai Ambani is to make an inventory
of the facts. He founded India's first Fortune Global 500 company. He was the visionary
behind the industrial group which accounts for more than 3 per cent of India's GDP,
about 5 per cent of the country's total exports and 30 per cent of the profits made by
private sector companies. ……. The facts, as it were, speak for themselves. They tell a
story of a truly global giant, of an Indian private sector industrial house which climbed
swiftly to the peak leaving behind most others to labour in the foothills