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From Rags to Riches and Riches to Rags

Article in AMBER – ABBS Management Business and Entrepreneurship Review · March 2023
DOI: 10.23874/amber/2023/v14/i1/220787

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 10
Business Case Studies
From Rags to Riches and Riches to Rags

Dr. Ajitha Savarimuthu,

DOI: [Link] Associate Professor, Acharya Bangalore B-School, Bangalore

Abstract: Early Life of Dhirajlal Hirachand Ambani

One of the most audacious business people of his era On December 28, 1932, Dhirajlal Hirachand Ambani
was Dhirubhai Ambani. He became more optimistic was born in the village of Chorwad (Gujarat). The 3rd
and intelligent in handling business as he gave himself child born to a village schoolteacher and his wife, often
permission to take more calculated risks in life, which known as Dhirubhai Ambani, he grew up in a low-
allowed him to grow as a person. Dhirubhai Ambani income home. His first business venture was selling
had to take various chances, such as leaving his nation chaat-pakodas to pilgrims at Mount Girnar. After the
for employment, quitting his position to launch a tenth standard, he stopped studying. When he reached
business, changing the direction of his company from 17, he travelled to Yamen to work with his brother
selling spices to yarn and forging new commercial Ramniklal. Dhirubhai Ambani was manning a gas
ventures like petrochemicals. Mr. Dhirubhai Ambani station in Yamen. Later, he rose to the position of
was a remarkable individual who always valued hard business hiring manager. While in Aden (a city in
effort, creative and problem-solving, which helped Yamen), he additionally worked for Antonin Besse’s
him become India’s most successful businessman, a at a salary of 300 Indian rupees. He spent some time
true ‘rags-to-riches’ tale. Anil Ambani, previously one working in Yamen before moving back to India. He
of the richest individuals in the world, has nevertheless desired to become a businessman while residing in
has lost $42 billion wealth. Anil Ambani was able to Yamen.
transform himself from the richest man in the last
When Kokilaben Ambani wed Dhirubhai Ambani in
century to the poster child for the phrase “riches to
1955, she had no idea how drastically her life would
rags” Anil Ambani, once the sixth-richest billionaire
change. She got her first glimpse of Mumbai. She was
in the world with $42 billion in assets, informed a UK
travelling to Aden and was in awe of the steamer
court in 2020 that his net worth had fallen to zero
because it was another first for her. The way of life in
and that he became a pauper to Chinese banks. The
Aden, where Dhirubhai briefly resided, was very
case enlightens on fail of family business on the second
dissimilar from Jamnagar or other locations she was
generation due to lack of managerial skills and
born, yet Dhirubhai served as her mentor. For her,
overconfidence on diversification.
meeting Aden was a significant turning point. She gave
Keywords: Raise, downfall, Rags to Riches and Riches birth to her first child Mukesh on April 19, 1957, in
to Rags Aden (Anil, Dipty and Nina were born in Mumbai).
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Business Case Studies

Dhirubhai Ambani’s Rise obtained his Bachelor of Science degree. Later,

When Dhirubhai Ambani returned to India in 1958, Mukesh Ambani enrolled at Stanford University to
all he had was 500 INR. Together with his cousin pursue an MBA. Ambani took Reliance public in 1977
Champaklal, he founded the textile company “Majin”. after being turned down for financing by nationalised
In the past, Majin imported polyester and exported banks. Investor confidence in Reliance remained
items like spices and rayon to Yamen. At the unwavering despite accusations of political
Narsinatha Street in Masjid Bunder, Dhirubhai Ambani manipulation, corruption, and engineered raids on
established his first business in just 33 metres squared rivals as a result of the founder’s deftness in navigating
made up the workplace space. Ambani had only a sluggish economy and burdensome government
retained a few significant items in a 350 square foot regulations and bureaucracy. This was due in part to
space, including three seats, a phone, and a table. the handsome dividends the company offered as well
Dhirubhai Ambani and his family were residing in a as the founder’s charisma and vision. Ambani is
two BHK apartment at that time. Ambani had strong credited with introducing the stock market to the
marketing skills, was seen as a risk-taker, and thought typical Indian investor. Thousands of people attended
that increasing inventories would increase income. In the Reliance AGMs, which occasionally took place in
the late 1950s, Ambani started a company called sports stadiums, and many more watched them on
Reliance Commercial Corporation to trade in spices. television. Dhirubhai was hailed for his crucial role in
Following a strategy of providing higher-quality items influencing India’s stock market culture by luring
and accepting lower profits than his rivals, he quickly crowds of ordinary investors to a market monopolised
moved into other commodities. His company expanded by state-run financial institutions. He is credited with
swiftly. Dhirubhai Ambani and Champaklal’s relation- establishing the equities cult in India. He never
ship dissolved in 1965. It is thought that the reason behaved in a traditional style and was frequently
their collaboration didn’t work out well was because criticised for his commercial tactics, which led to
they both had different perspectives on how to run a controversy throughout his life. The “Dhirubhai school
firm. Ambani focused on synthetic textiles after of management” was adamant that the advantages
determining that the company had exhausted its accruing directly to the shareholders were the only
options with commodities. With the debut of the first factors that mattered.
Reliance textile factory in 1966, he embarked on his Under Indira Gandhi, the Indian government allowed
first venture into backward integration. He founded a
the private sector to manufacture PFY (polyester
business in 1966 under the name Reliance Commercial
filament yarn) in 1980. Dhirubhai Ambani requested
Corporation, which was later renamed to Reliance
a permit to establish a PFY manufacturing facility.
Industries. He continued to pursue a strategy of
Because the government at the time was prohibiting
backward integration and diversification, gradually
large-scale manufacturing and making it impossible
transforming Reliance into a petrochemicals
to import yarn for the textiles, getting the licence was
powerhouse and later expanding the company’s
a protracted procedure that needed strong connec-
operations to include plastics and power generation.
tions within the bureaucracy system. Despite fierce
Along with his brother Anil Ambani, Mukesh Ambani competition from the Tatas, Birlas, and 43 other
attended the Hill Grange High School in Peddar Road, concerns, Dhirubhai, also known as License Raj, was
Mumbai. Mukesh Ambani attended St. Xavier’s given the licence. Dhirubhai drew his eldest son from
College in Mumbai after finishing his secondary Stanford, where he was pursuing an MBA, to work with
education. The Institute of Chemical Technology then him in the company, which at the time was still a tiny
awarded him a BE in chemical engineering. but rapidly expanding business, to assist him in
Kishinchand Chellaram College is where Anil Ambani building the PFY facility. Dhirubhai Ambani invited his
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Business Case Studies

son back to India from Stanford to take charge of a Ambani, then 24 years old, was given responsibility
yarn manufacturing project in his company because for the Patalganga petrochemical plant’s construction.
he believed that real-life talents were developed via Dhirubhai Ambani, passed away without leaving a clear
experiences rather than by sitting in a classroom. After succession plan. Anil and his brother Mukesh
leaving his university programme, Mukesh Ambani quarrelled, so their mother Kokilaben intervened and
oversaw Reliance’s 1981 transition from textiles to divided the family-owned enterprises between the two
polyester fibres and then further into petrochemicals, of them. Reliance Group assets including interests in
which the yarns were made of, as part of the telecom, entertainment, finance, electricity, and
company’s backward integration strategy, in which infrastructure were given to Anil Ambani and Mukesh
businesses own their suppliers to increase revenue ambani had control of petrochemicals, oil and gas,
and efficiency. In 1983, Anil Ambani graduated from manufacturing and refining. Anil’s fortune was
the Wharton School of the University of Pennsylvania believed to be Rs 550 crore higher in 2006, a year
with a master’s degree in business administration. after their father Dhirubhai Ambani’s empire was
After joining the company, Rasikbhai Meswani, the divided than that of his older brother, who is currently
Asia’s second-richest person. Ambanis’ expanded the
executive director, received regular reports from
Reliance Group, and today Reliance is a market leader
Mukesh Ambani. The firm was created from the
in the industries of textiles, petrochemicals, power,
ground up with the idea that everyone should
and communications.
contribute to it and it shouldn’t rely too heavily on a
small group of people. Even though Mukesh Ambani In 2004, Anil Ambani was also chosen to serve as an
had little experience, Dhirubhai treated him like a independent member of the Rajya Sabha. Anil Ambani
business partner and gave him the flexibility to is also credited with creating India’s biggest initial
public offering (IPO), that of Reliance Power, which
contribute.
in 2008 attracted the fastest subscription period in
Midway through the 1980s, Dhirubhai Ambani gave the country’s capital markets’ history. Ambani made
his sons Mukesh and Anil Ambani control of the day- his entry into the entertainment business in 2005 when
to-day operations of the business, but he remained he bought the majority of Adlabs Films, a business
involved in its management until just before his with interests in film production, exhibition, and
passing. Dhirubhai Ambani was suffering from a major digital cinema. In 2009, the business adopted the name
stroke. His first stroke, which caused the paralysis of Reliance Media Works. In 2008, Ambani’s
his right hand, had occurred in 1986. He was checked entertainment company was given a global platform
into Breach Candy Hospital following his second through a joint venture worth US$1.2 billion with
stroke. He fell into a coma for over a week before Steven Spielberg’s production company Dream Works.
death on July 6, 2002. Dhirubhai Ambani, who He helped with the creation of several Steven
contributed significantly to the foundation through his Spielberg movies, including Lincoln, which won an
hard work and suffering, is entirely responsible for Academy Award. Since the creation of the Reliance
the love and respect that the “Ambani family” enjoys ADA Group, Anil Ambani has become known as one
today. Today’s commercial world is ruled by a of the fastest destroyers of shareholder value in the
company that began as a one-room operation, all last 100 years, with the combined group market cap
thanks to the vision and tenacity of this remarkable falling by 90%.
guy. Reliance Infocomm Limited, founded by Mukesh
Anil Ambani’s fall
Ambani and currently known as Reliance
Communications Limited, specialised in projects Anil Ambani ranked sixth in terms of wealth in India in
involving information and communications 2010. But after being accused of corruption in 2011,
technologies. When the business was substantially his fortunes started to tumble. Reliance
investing in oil refineries and petrochemicals, Mukesh Communications was accused of questionable 2G
 13
Business Case Studies

spectrum allocation deals in 2011. The allotted of extra coal from mines connected to active projects.
spectrum to Reliance Communication was revoked The company took a significant hit as a result of the
after the con. Anil and his wife denied any misconduct charges, which ultimately forced it to incur significant
and claimed they were unaware of how the debt. Anil Ambani’s net worth fell from $42 billion in
management of the company made decisions. The 2008 to $0 in 2017. “Investments made by Anil
Central Bureau of Investigation exonerated him of all Ambani were valued at over $7 billion in 2012; they
charges in 2018. However, Anil’s remaining success are now worth $89 million.
in the telecom sector was destroyed when his older
Due to its inability to make payments, Company
brother Reliance Jio entered the market in 2016,
sparking fierce rivalry. declared bankruptcy in 2019. The corporation filed
for bankruptcy because it owes Rs. 50000 crore in
debt and has assets worth Rs. 18000 crores.
Asset management, life insurance, wealth
management, commercial finance, and house
financing were just a few of the financial services
Reliance Capital dabbled in. The heterogeneous group
of companies first appeared to have a lot of potential.
But issues quickly started to surface. Reliance Home
Finance Company was largely intended to give money
to average people planning to purchase their dream
homes, but it made more than 50% of its lending to
other businesses as well, especially those involved in
infrastructure and real estate development. Problems
with cash flow beset these industries. But when they
made loans to weak businesses inside their own group,
A significant day in the history of the Bombay Stock things only got worse (Reliance Infra and Reliance
Exchange was February 11, 2008. Reliance Power’s Power). One can only image the situation in the
shares were launched on that day after the business Commercial Finance subsidiary when the Home
raised a record-breaking Rs 11,563 crore in its IPO Finance subsidiary was involved in this “inter corporate
(IPO). It was expected that the IPO, which received lending” issue (whose job is to lend to corporates).
over 5 million bids from all types of domestic and They were on the same page and continued to provide
foreign investors and was oversubscribed by around financial support to Reliance Group enterprises. And
70 times, would do so. The government’s then, a domino effect started to happen when
announcement of intentions for ultra-mega power companies like Reliance Communications and Reliance
projects made the industry hot, and the Reliance Power started to fail and default on their loans. Even
brand had long been associated with outstanding its own creditors were unable to be paid by Reliance
profits. One of the largest portfolios of power Capital. It barely had Rs. 11 crores in cash as of March
production assets under development at the time, the 2019. All of a sudden, no one was interested in lending
company had stated it was working on 12 power money to the NBFC Reliance Capital. Thus, they lost
projects with a total planned installed capacity of access to funds. Reliance Capital started selling its
28,000 MW. Reliance Power, his company, is accused shares in businesses that were actually doing fairly well
of receiving an unauthorised advantage of about Rs in order to stay afloat. Now it is going through the
29,000 crore after the government permitted the use bankruptcy procedure.
 14
Business Case Studies

The financial health of some ADAG-backed firm they had foolishly invested in the name of
diversification.
Company Financial Detaisl
Reliance Reported net loss of Rs. 5,791 in A Mumbai court declared Ambani in contempt of court
Communications the year that ended on March 31, in the early months of 2019 for failing to pay a
2021, as against Rs. 42,671 crore personally assured debt that Reliance Communications
a year ago owes to the Swedish equipment manufacturer
Ericsson. The judge gave him a month of time to come
Reliance Power Reported net loss reported of
up with the money instead of sending him to jail.
Rs. 388.84. cr. in the year that
Ambani was saved by his older brother Mukesh
ended on March 21, 2020 as
Ambani bailed out for a month. After a secured NCD
aginst Rs. 601.66 cr. a year ago
(Non-Convertible Debentures) default, three ADAG
Reliance Capital Reported net loss of Rs. 1,075 Cr. Companies struck a standstill agreement with Franklin
in the year that ended on March Templeton in April 2019. Due to this, SEBI modified
31, 2020 as against Rs. 1,513 Cr. the mutual fund regulations, lowering the exposure to
a year ago unlisted NCDs to 10% and nullifying standstill
Reliance Infra- Reported netloss of Rs. 771.17Cr. agreements. As a result, FT India wound 6 debt funds,
in the year that ended on March which affected 300,000 investors, and chose not to
31, 2020 as against Rs. 2426.62 liquidate the pledged securities. Anil Ambani and
Cr. a year ago three Chinese banks were entangled in a legal dispute
in February 2020. He claimed that his present net
Reliance Naval Reported netloss of Rs. 1760.74
worth is zero after taking into account his liabilities
Cr. in the year that ended on
after the court ordered him to set aside US$100
March 31, 2020 as against
million. The issue is still ongoing, and the UK court
Rs. 10,926.55 Cr. a year ago
has ordered him to pay the three Chinese banks
To buy big power plants, he took out large loans. They US$716 million. Anil Ambani was mentioned in the
funded numerous power-related projects. He was Pandora Papers in October 2021. Anil Ambani who
anxious and showed improper aggressiveness towards completed his Master in Business Administration at
the power industry. The Power Industry encounters the Wharton School of the University of Pennsylvania
some challenges, which they are unable to address, informed a U.K. court in February 2020 that his net
leading to an increase in debt. Additionally, they worth was zero. Mukesh Ambani who discontinued
borrowed large loans to operate and expand Reliance his MBA in Stanford has a net worth of $91.9 billion.
Communication. The telecom sector is quite As his father he believed that real-life talents were
competitive for them. When JIO joins the market and developed via experiences rather than by sitting in a
a sizable portion of Reliance Communication’s client classroom became true.
base switches to JIO, the situation deteriorates rapidly.
Conclusion
As a result of all of this, their firm is not expanding as
much, and they need additional clients to stay in The story actually starts in 2005 when the Ambani
business. Reliance Communication was forced to file brothers decided to divide the family firm. Financial
for bankruptcy in 2019. The incorrect diversification services and the telecom industry were acquired by
is another factor for the downfall of Anil. His business Anil Ambani. He was betting on what he believed could
diversification was poor. They did not concentrate on be the “future” of India. Having a stake in the company
one particular business and made it successful. They is necessary, but one must also manage it efficiently.
took out huge loans to launch new companies that To put it simply, the execution wasn’t exactly flawless.
 15
Business Case Studies

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perhaps riskier bets in the power, infrastructure, and [Link]?from=mdr
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Anil Ambani: $42 billion net worth to zero in 12 years.
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Rathi, R. (2021, September 11). Reliance Jio Story -
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