India's largest private sector company, Reliance Industries, has decided to sell its oldest business, textiles, along with its iconic brand `Only Vimal' in an effort to exit loss-making businesses. The Mukesh Ambani company has hired NM Rothschild to manage the sale, a top official directly involved with the sale said.
The textile business sale, which includes its Naroda factory, is expected to be concluded by the end of the year. The business was set up by the founder-Chairman of the group late Dhirubhai Ambani along with his brother Ramniklal Ambani way back in 1966. However, since then the group has diversified into energy and petrochemical businesses to become India's largest company with an annual turnover of Rs 85,000 crore. Its textile business contributes less than Rs 2,000 crore to the group's revenues.
According to the sale documents seen by ET Now, the textile business sale will also include the retail network of the Only Vimal brand of fabrics.
When contacted, a Reliance Industries spokesperson said: "We do not comment on market rumours."
The Reliance group is not interested in any business in which the annual returns are less than 12 percent, a source in the group said.
"We would rather invest that money in bank deposits," the source added, asking not to be identified.
The group's top management is also unhappy with the frequent labour trouble at the Naroda factory. In April this year, RIL's Naroda factory employees went on strike, seeking a 60 percent rise in wages. Although the Ambanis have an emotional connect with the business, the Only Vimal brand is being sold to sweeten the deal, the source noted.
In the annual general meeting of shareholders held early this month, Chairman Mukesh Ambani promised that the company will double its operating profits in five years and invest a massive Rs 100,000 crore in Indian businesses in the next five years. Most of this investment will go into expanding its petrochemicals operations, foraying to telecom as well as its oil and
gas business.
Even the retail business, the youngest baby in Reliance's family, is expected to double turnover from Rs 7,500 crore in FY 2012 to Rs 15,000 crore by March next year.
"The focus of the management is to invest in businesses where returns are around 25 percent. Hence, the textile business does not fit in the new strategy," the source said.
The Reliance stock was trading 2.47 percent down at Rs 719.40 when ET Now broke the story at 10 a.m. on Thursday.
In its annual report for the year 2012, Reliance said the textile industry was impacted due to volatile cotton markets. Within a span of around 5-6 months, international and domestic cotton prices saw a historic peak and, subsequently, a steep fall.
"The uptrend was primarily due to shortage of cotton availability across the world and certain government policies on cotton and cotton yarn exports, which were not receptive to textile industry growth. Consequently, the industry resorted to panic buying and stocked cotton. But with the beginning of a declining trend in cotton prices, the industry faced problems in sourcing cotton, impacting the downstream demand as well," it said.
The company further said the end-users moved into a strict wait-and-watch mode and the textile industry faced a huge pile-up of unused cotton and cotton yarn inventory, leading to severe stock losses.
Manmade fibre, especially polyester and yarn, fared relatively better as volatility in prices of polyester was much lower compared to cotton. Major textile production centres in Andhra Pradesh, Tamil Nadu and some northern states faced severe power shortage, adversely affecting output and profitability of mills. Labour shortage was another problem faced by the industry, the annual report noted.
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