The Rothschild of India

Ashish Advani (March 12, 2010)

The One Stock you have to Own!

Issue #22

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Dear Dalal Street Insider Subscriber,

Let me take you back 50 years ago…

It is the middle of the afternoon on a dusty, noisy, hot Bombay street. A man is fighting against all odds, battling to make living selling textiles. He carries a heavy bag of fabric samples walking trader to trader hustling to make a deal.

Finally, he strikes a small win. He gets an order to sell some textile bales to a wholesaler of fabrics. And he is ecstatic at this win. Little does he know that he has taken the first step in becoming the biggest business tycoon India has even known!

Meet Mr. Dhirubhai Ambani!

Rising from a very modest, poor family, he was passionate about making it big in the business world. He had the one thing you find common in all successful businessmen: He had an unrelenting desire to succeed and the determination of a possessed individual who would never admit defeat.

Dhirubhai was born in a family of 5 kids and he was the 4th child. He was highly intelligent but also very impatient. He hated the poverty around him and decided to abandon studies and pursue business. At a very young age he used to setup onion rings and fries stalls at state fairs to earn extra money.

At the age of 16, he moved to Yemen, Aden. His first real job was that of the manager of a Shell filling station. He earned Yemini Rials (which were made of pure silver in those days). When he was not working, he would save his Rials, melt them and sell them on the bullion markets in London. He got his first training in petroleum products in Yemen.

Moving back to India, he started small and wanted to setup a business in textiles. He wanted to import polyester yarn. And that got him started in business. His people skills were legendary and his ability to navigate through complex issues made him very popular and established his metrics for risk taking.

Once he got started in his textile business, he constantly desired expansion. He was smart enough to capitalize on his skills learned at the Shell petrol filling station and the textile business he had started. He studied the link between petroleum products and textiles and learned his most invaluable lesson.

Due to the heavy demand for the imported polyester yarn, he rarely made a profit less than 300%. Seeking expansion, he started his first textile plant in 1977 and started the textile business with “Vimal” brand, a name that still rings true with Indians. “Vimal” means quality fabric with amazing durability for a fair price.

But the lessons learned between textiles and petroleum products were never forgotten. As his textile business took off, Dhirubhai started thinking about backward integration. He started manufacturing the polyester yarn that he was so fond of. Within 5 years of opening his textile factory, Dhirubhai started his first backward integration plant to manufacture Polyester Filament Yarn (PFY), then the Polyester Staple Fiber (PSF). By 1988 he had started his first full blown Petrochemical plant.

Dhirubhai was not only an amazing businessman but was a true innovator and often known as the pioneer of the “equity” cult in India.

Reliance Industries Limited had the largest shareholder base in India back in 1977 and maintains that status today. Reliance shares are the most widely held and Dhirubhai has been credited with bringing the masses to the stock markets.

Back in 1992, Reliance was the first Indian company to list its stock overseas. Reliance has many other firsts to its credit including the net profits of Rs.1, 000 Crores ($338 Million) back in 1995.

Soon after this resounding success in the business world, Dhirubhai started diversifying his business interest to high growth industries such as Telecommunications, Information Technology, Energy, Power, Infrastructure, Retail stores and of course Textiles.

Unfortunately, Dhirubhai suffered a stroke in 1986 and started depending heavily on his two sons Mukesh and Anil Ambani.

Now, I have seen more often than not, that siblings often cannot measure up in the shadow of their illustrious fathers. But these two sons took on the business with the same gusto as their father.

Today the Reliance Empire is the largest in the country with sales over $ 33 Billion per year and profits of nearly $3.3 Billion per year. And this is after the slowdown it has experienced over the last year. And Reliance is spread out across the world. Last year, over 55% of its sales were generated overseas. This trend has only slowed slightly this year.

To put into perspective the size of this empire, the turnover of Intel is about the same size as that of Reliance Industries. But the one big advantage that Reliance has over Intel is that it is far more diversified. In downturns, Intel will hurt more as demand for chips is down. Reliance Industries, even when some segments are slow, will still do well in other areas.

And Reliance has targeted the consumer segment of the market. Many of its businesses are geared towards India’s consumers. The rapid growth of India’s consumer-based economy segment is not lost on Reliance. The division that constructs and operates Malls (Reliance Retail Limited) has taken the country by storm.

Their segments that deal with telecom and IT are booming as well. Due to the heavy interest in Infrastructure development in India, Reliance Infrastructure Limited is poised to advance in great strides. Reliance is in the gaming industry, cinema, electronics, and most other industries that you can think of.

After the death of Dhirubhai Ambani in 2002, Mukesh Ambani has taken over the reigns of the empire and helped it move along at a blistering pace.

Just yesterday, Mukesh Ambani was named the 4th richest person in the world with a net worth of nearly $29 Billion. He is only behind Carlos Slim of Mexico, Bill Gates and Warren Buffet.

Recommendation:

No portfolio in India can be bereft of the “Reliance” stock. With the upcoming boom India will experience this year all around, it is strongly recommended that you buy shares of Reliance Industries Limited.

Reliance Industries is not listed in the US. It is listed on the London Stock Exchange. And the symbol is RIGD.IL. Please ask your broker to assist you in buying these shares.

The current price of Reliance Industries is $ 44.54.

Please buy the shares up to a price of $ 45.00 or lower.

Let’s review our portfolio:

Position Update

Until next week,

Stay Strong India!

Ashish Advani