India's Ambani led Reliance Group free to enter Power,Telecom and Financial Sectors

Indian mega industrial groups led by Ambani brothers decided to rescind their non-compete agreement which allows oil and petrochemical giant Reliance  to enter the financial,telecom and power sectors.This deal is much more beneficial to Mukesh Ambani led Reliance Group then Anil Ambani’s led ADAG Group.This deal came about after ADAG lost a gas supply dispute with Reliance in India’s Supreme Court recently.

Power companies in India may face a formidable competitor

Reliance is a massive free cash flow machine as its oil and petrochemicals businesses are one of the most profitable around the world.Its  project execution abilities are also well known.I don’t think that Reliance would like to enter the Hyper Competitive Telecom market but it would make sense to enter the Power Sector where India faces a huge shortfall.It already has a some presence in power installing Solar panels for India’s Commonwealth Games and it would be logical to enter this field as power sector requires large capital outlays and project execution capabilities.Reliance also may want to enter the Financial Services field which  is growing rapidly.It could enter through acquisitions of india Infoline,Edelweiss or any of the myriad  private players to jumpstart their entry.

ADAG Group could be a Loser

ADAG has less to gain from this deal as entering the oil and gas sector might not be that profitable given the large amounts of capital and long gestation periods required .Note the ADAG Group is strapped for cash and facing headwinds in its telecom and power companies I think it has more to lose from competition in the power and financial sectors where it is quite dominant.However the full deal is not known and Anil Ambani might have received a big monetary settlement to free Reliance from the non-compete agreement

Mukesh-Anil Ambani scrap ‘non-compete’ agreement of 2006 – ANI

In a significant development, Reliance Industries Ltd. (RIL) and Reliance ADA Group companies on Sunday formally agreed to cancel all existing non-compete arrangements which the two groups entered in January 2006.The two groups have entered into a new simpler, non-compete agreement with respect to only gas based power generation.The new agreement has been approved by the board of directors of RIL and the respective Reliance ADA Group companies.

However, RIL has agreed not to enter into Gas Based Power Generation Business for the period upto March 31, 2022. An appropriate exception has been made in respect of RIL’s captive gas based power plants.It is believed that these developments will eliminate any room for further disputes between the two groups, on matters relating to the scope and interpretation of the non-compete obligations.