Less than a week after the two Ambani siblings scrapped the non-compete agreement between the two groups, rumours of Reliance Industries Ltd’s next foray have started doing the rounds. If the rumours are true, RIL and Bharti may perhaps form a strong fit.
RIL brings its strong cash flows to the table, Bharti currently needs cash and brings its strong customer focus into the picture.
RIL recorded a cash profit of almost Rs 28,000 crore — $6 billion — during FY10. Unlike the past, it doesn’t have any mega projects to invest in. Meanwhile, Bharti requires over $12 billion — Rs 50,000 crore plus — to pay for its recent acquisition of Zain Telecom’s Africa business and its 3G licences.
Immediately after the non-compete agreement was called off, Kotak Securities said that RIL’s entry into the telecom sector was unlikely at this point because of very intense competion, regulatory risks and a possible slowing of growth.
A buyout of an existing player is the most likely route, according to the broker. Another broker, HSBC, says that reaching out to retail consumers has not been a strength of RIL, which prides itself on executing big projects that require a limited marketing effort.
Taken together, this indicates that if the company is interested in entering the telecom space again, a joint venture with a strong player may be the way to go. As the largest player in the business with a market share of over 20 per cent, Bharti’s strong suit is its customer focus.
RIL’s stock price has languished over the past one year as the company finds its growth options limited. The stock has fallen by almost 10 per cent over the past one year while the BSE Sensex has risen 15 per cent.