RIL board has agreed 4-way expansion

Management of Reliance Industries (RIL) has told its board that it has identified power, telecommunications, financial services and pharmaceuticals for investments in the near future. The board, which met early last week, discussed strategies to enter these high-growth sectors, something which has become possible after the cancellation of a non-compete pact between the Ambani brothers which had barred RIL from businesses such as power and telecom.

RIL plans to utilize the free cash it generates from its oil and gas business to fund these diversifications. The company’s only foray outside its core businesses in the past four years had been its entry into the retail segment, which is housed in a wholly-owned subsidiary called Reliance Retail.

The company has since moved to implement part of this plan by taking over Infotel Broadband, which has won licences to supply high-speed internet connectivity using radio waves in 22 circles in India.

RIL’s re-entry into power and telecom doesn’t come as a surprise and had been widely expected, once the non-compete pacts between RIL and companies of the Anil Ambani Group were scrapped. Its interest in pharmaceuticals, however, is not widely known and is believed to be linked to the prospects of Reliance Life Sciences, which is privately owned by RIL chairman Mukesh Ambani.

Reliance Life Sciences has reached a critical size in its operations, brightening prospects of a bigger play in the pharmaceutical industry, said the person familiar with the discussions. The unlisted company has made profits and is looking to expand its presence in global markets such as Europe.

According to a business analyst with an institutional brokerage, it is a good business proposition for RIL once a business achieves critical size. You may see the group evaluating options like merger and takeovers to enter the pharma space.

The last piece of the puzzle—the proposed move into financial services—may take more time because the Reserve Bank of India does not allow industrial houses like Reliance and Tatas to set up banks. Business Analysts, however, expect RIL to enter banking, if regulators allow, as well as the insurance and broking businesses..