TAP GAP….. Equity Poser 5/11……Respond by May 10,2011
Hip Hip Hip Hurrah ! Winner of the gauravblog hamper announced this Wednesday early morning,May 11,2011 ……thanks to quite a few of you for some very lively responses…most were skeptical …..but I’m going to give the gauravblog hamper to the most passionate,the most positive,the most optimistic response….you can view this as a contrarion call by me !……not to buy into Anil Ambani Group but to award the hamper to one who is in the minority but strongly defends his conviction that Anil Ambani Group of Companies,with Anil at the helm or not,will not only survive but will be great wealth creators….. Praveen Vishnu Shamain wins the gauravblog hamper for this Equity Poser…I was particularly impressed with his take that Anil Ambani Group of Companies may be takeover targets and will thus not only survive but create great wealth….. PVS please email me your postal address and telephone nos at [email protected] …well done
My own personal view is that Anil Ambani Group will see some more harrowing times before any likelihood of getting better….Value Investors will not invest in his group….too many Corporate Governance Issues and Account manipulations…..but Aggressive and Contrarion Investors may just find this to be a big,albeit high risk opportunity…increasingly so if the prices decline even further…..In fact since I posed this Poser end April,across all Anil Ambani Companies there has been a further decline in the shre price of 10% to 15% inside just over ten days…..There is no clear and decisive second face of the Group after Anil Ambani…..and with so many top heads already rolling in the 2G scam,there is a growing call for even Anil Ambani’s scalp…that will spell disaster for his group and his companies will register even further lows…..he is already facing huge problems in raising Capital,inability to reduce debt significantly in Reliance Communications as he is finding it difficult to monetise the tower assets at a good value (GTL went back on an agreed deal in June 2010 without assigning any reason…it would have reduced RCom debt by Rs 18000 crs) ,sticking to project implementation schedules,retaining or attracting top people to work for him,government animosity towards him for his aggressive anti government tirade through the media for favouring his brother’s group in the Family tussle between the two ,probably desperate times calling for desperate measures ……and Anil Ambani will not be able to get away on the 2 G Scam with a mutually agreed Consent Terms with the Government,like he did with market regulator SEBI in a Corporate Governance and Manipulation of Accounts Issue,by agreeing to a Consent order and paying up the stipulated fine of Rs 50 crs……it is Ironically Reliance Power, which has jammed shareholders badly, remains in the top 50 market caps List at Rank 43 today with a market cap of Rs 32525 crs despite being available at Rs 116,a shade above its’s 52 week low of Rs 110 ….Reliance Infra and Reliance Communications are available at well below Book Value and are quoted at Rs 596 and Rs 90 with market caps of Rs 15950 crs and Rs 18700 crs respectively…near their 52 week lows…Reliance Capital is at Rs 519 with a market cap of Rs 12818 crs and commands the best relative valuation among Anil Ambani Group of Companies
Many would like to see Anil Ambani battered and bruised after for his Reliance Power IPO seduced Investors to invest at obscene premiums all aided by media hype and unscrupulous leading merchant bankers who generated huge hype in January and Februray 2008 at the time of the IPO….criminal really….serves Anil Ambani right is the cry out there…..However the Group has companies which are engaged in scale operations and are even market leaders in many segments…it is therefore unlikely that when there is ‘Blood on the Street’ it would mean they Died…..Maybe Anil’s only practical hope to see his Companies grow back strong and regain Shareholder and Investor support will be to surrender them to another Business Group…If he wants to be the Phoenix that rises from the Ashes…being extreme here really…..he needs to come clean with all stakeholders….humbly apologise from the heart…and begin a process in earnest to undo the harm caused…then,believe me the same shareholders of his companies who are low on even Hope these days will hold his hand again and you will witness a contrarion call coming good….he cannot live in an Ivory Tower with shareholders as his subjects getting more and more poorer below !…a tongue in cheek reference to his plans to build an even grander house in Bandra,a western suburb of Mumbai,for his Nuclear Family than build by his Brother in South Mumbai
Would I invest in the Anil Ambani Group now ?….Not yet….Maybe later….Maybe….his troubles are far from over…2011 and 2012 will be defining years as problems will play out strongly and his companies will seek further Lows….I also hold a reserved and well founded negative opinion on some of his top management…his inner coterie for years now….they are causing more harm than good…no matter how much the Media glorify them….the same Media will not hesitate to villify them in the Future when the Going gets really really really Tough for this Group….Anil Ambani needs to cleanse his Group of such a coterie
Cheers and well done again to PVS for a avery passionate and optimistic response…I’m an Optimist myself…so I’m soft on those who are Optimistic themselves and look at the positives….I find myself increasingly drawn towards lending a hand to Anil Ambani to lift him and his companies back up !…even God gives a second chance !
Winning Response wins the gauravblog hamper….Five Hampers have already been won in earlier Equity Posers and shall be delivered to the winners before May 10,2011…you can check out the Winners Scroll
Will Anil Ambani Group of Companies not only survive but also create Wealth for you in the next three to five years ?
Some of his group companies are traded now as below
Scrip
Trading today at Rs
Reliance Broadcast Network
78
Reliance Communications
104
Reliance Capital
579
Reliance Infrastructure
667
Reliance Media
162
Reliance Power
129
22 thoughts on “TAP GAP Equity Poser 5/11….Will Anil Ambani Group of Companies not only survive but also create Wealth for you in the next three to five years ?….winning response gets a gauravblog hamper”
Yes, They will survive…will create good weath in Reliance Capital / Reliance Infra…
Moderate weath will be with Reliance Communication….if it sell it stake to foriegn AT & T and management holding will decide more future….
Reliance Broadcast Network have to compete with various broacaster….as latest movement there are 700+ broadcasting licenses will be issues in various regions 😀 so professional approach required…
Reliance Power Long Stories….another decade….everything Made in China…
Reliance Media currently assesment going on with Investor….who will be next investors to buy 120 Million USD stakes sell…
Please correct if anything wrong 🙂
Cheers,
Praavin
Dear Mr. Gaurav,
Your question deals with two aspects – survival and the wealth creation.
My opinion is only on a few of Anil Ambani’s companies (RCOM, RELCAPITAL,
RINFRA, RPOWER), as I don’t understand the businesses of other group companies.
These four companies mentioned above will survive ON THEIR OWN as long as Anil
manages the business or will be TAKEN OVER by other companies, if he is not at
the helm of the operation. So, they survive, one way or the other.
Now, coming to the quetion of wealth creation, it is a relative question.
Welath creation (returns) compared to what? Are we comparing them over the returns
given by broader market? Are we talking about absolute returns?
Anyways, IMHO, the above four companies will be multibaggers over next 3 to 5 years period.
Keeping aside the controversies involved with the group, we have to remember that ADAG
has these four companies with solid assets, and they are not created out of thin air. Yes,
it is true that right now it is bad sentiment which is hurting his companies’ performance in the
stock market. Share prices are ignoring the fundamentals. But, how long can they keep ignoring
the fundamentals.
Many of his companies are leaders in their respective businesses. RCOM has the best of Telecom
infrastructure among all telecom compaines, in India. RELCAPITAL runs a mutual fund business with
highest AUM among other mutual fund houses. RPOWER is executing some of the largest power projects
in India.
Yes, it is true that group is involved in too many non-business related activities. Group is
not transparent. Group doesn’t have good corporate governance. But, these will be forgotten with time.
We need to learn from the performance of UB Group, Sterlite Group companies in the market over the last
few years.
UB group was considered as one of the worst groups, with promoter focussing more on non-business related
activities, few years back. Sterlite group delisted their stock “un-ethicially” and came back again with
flying colors. How many of us remember this? Anil is more smart, intelligent and focussed compared to
the promoters of UB and Sterlite.
Since your question is for the duration of 3 to 5 years, I can confidently say that market will forget
all these controversies and start discounting the fundamentals.
These are my views and I’m personally very bullish on Anil. I hope, Anil doesn’t let me down 🙂
With Regards,
Praveen Vishnu Shamain
Sounds flattering but this may not be true. There are other better companies. No doubt they will survive but at what cost. The entire power sector in the country will never be a part of wealth creation and so will the other group companies. My advice is to keep away from the ADAG pack. Cheers and happy investing.
Hi Gaurav,
Need to look at this from different angles.
1.Sentiment
The mkts currently hate the ADAG group.This sentiment will turn even more negative in the coming few months.As per Subramaniam Swamy’s interview with Karan Thapar, he is 100% sure that Anil Ambani will see the inside of Tihar jail !
Employee morale in the ADAG group is also v low.The thinking is if Anilbhai cannot protect his right hand man (Group MD Gautam Doshi) then how can he protect anybody else?If you speak to any head hunter, you will find that most professionals do not/will not join the ADAG group.In fact top class professionals like Anil Singhvi,Amitabh Chaturvedi etc have left this group
Anilbhai has also pissed off the govt big time on account of his ads attacking the govt,Murli Deora etc during the gas tussle.He no longer has the “Ambani” talisman to protect himself.I think now Govt thinks he is fair game to go after.Notice how SEBI is unable to make headway against the MDA group but was quite successful with the ADA group.
2.Funds flow
Mr.Ambani has been trying to raise funds for a long time now.Bankers,FIIs etc are v v wary of him.He has made lots of promises in his various AGMs but unable to fulfill them.I would strongly recommend his AGM speeches for RNRL.The difference between reality n his promises is stark.
As an aside, if Anil Ambani wants to go for an IPO, will it be fully subscribed?Retail investors have not forgotten the Reliance Power fiasco.And FIIs have exited all his group companies.So who will go for his IPOs?Is it any wonder that he did not have the courage for the listing of his telecom tower arm?
3.Fundamentals
Are his companies fundamentally ok?To use a Buffett analogy, do any of his companies have a sustainable moat?The answer is NO.Only Reliance Capital could be the exception to this rule.
Technicals:
The charts are uniformly negative for his companies.
Valuations:
Are his companies cheap?Not by a long shot.Plus,there are plenty of cheap companies out there (for instance would u rather have NHPC or RelPower, L&T or Rel Infra ?).If a global meltdown happens,will ADAG fall faster than the market? You bet it will !!
Are there any catalysts which can improve valuations?None for a couple of years for his power/infra projects.None at all for Rel Capital,Rel Media.Some foreigners may take a stake but wont help the minority shareholders in any way
Conclusion:Revisit the ADAG set in 2013.
@RAOJI,
You have made certain statements, which are far from truth.
1. Your statement – FII’s have exited all his group companies.
My answer – I have given below the latest shareholding
of FII’s (%) in some of ADAG companies, which clearly
shows that your statement is wrong.
Dec 2010 March 2011
RCOM 8.44 8.14
RCAPITAL 20.75 21.63
RPOWER 4.70 4.61
RINFRA 16.57 15.76
2. Your statement – Anil Ambani is unable to raise funds.
My answer – Recently Nippon Life Insurance acquired 26% stake in Reliance Life insurance, which is the biggest investment made by any foreign company in the Indian insurance sector.
RCOM raised 8700 crores from China Development Bank, which is a landmark investment by many parameters.
If you were referring to inability of RCOM to divest its stake, I would tell you this. Divestment needs to be strategic and value creating rather than to appease few sceptics like you.
3. ADA makes lots of promises in AGM and unable to fulfill them. Example is RNRL.
My answer – We have to remember that RNRL lost the case in the Supreme Court and hence became a shell company without any business model. Best way out of such situations is merging it with another group company, rather than allowing it to bleed.
i expected agitated responses on anil ambani…for and against… and am delighted these are warming up…keep them coming
Completely agree with Raoji.
First principles of Equity investment would entail NEVER to ‘invest’ in a company with suspect management/Corp. Gov
Giving example of UB group/Sterlite,etc can be misleading as you have thousands of other companies with suspect Corp. Gov going bust or destroying share holder value(Enron, Satyam, HFCL, etc)
Would you be able to sleep peacefully after investing in an ADAG stock with all the goings around?
The way they treated ECB’s on Rel Comm’s books to book other income in the good days (when Rupee was appreciating) & subsequently changing accounting standards so as not to show losses when Rupee started depreciating, the way they ‘won’ so many UMPP’s with limited track record(almost always emerging lowest bidder) & small equity base, the way Lanco’s bid was cancelled & alloted to R.Power, the polemic ads against RIL , Petroleum ministry & DGH ( can any business in India survive by antagonising GOI?) and lastly the distasteful Market-cap at any cost so that ADAG(Anil) becomes bigger than RIL(Mukesh) only led to disaster for shareholders, the overt political reliance on one politician/party who is now a nomad with no political power & plenty of enemies,
Many senior ADAG officials are in jail with their boss & his wife washing their hands of any wrond doing. Would any senior manager consider working with such a group? I know i wouldn’t if offered a chance.
Would banks lend to a ‘tainted’ company (esp. State owned ones which would be nudged by Govt not to do so!)
When the market is littered with so many choices of well run companies trading at reasonable valuations why invest in the stock of a group which is at the edge of a precipice ?
That would be gambling(trading!)
I would rather wait & let ADAG prove that it will mend its ways & for that to happen & for markets to recognize it would take atleast a couple of years! So the question of ‘investing’ doesn’t arise you could however ‘speculate’ on the future & take a position!
REMEMBER:
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price” – Warren Buffett
can you give tgts for ambani group for next 3-5 yrs.So can calculate annulised yield.
Dear drjlbansal,
This sensitive poser is for you to respond to with your thoughts and views on the future of Anil Ambani Companies….will they be used for Target Practice ! or can you really set Targets,like you want,that will create some wealth in the years ahead !…so please do respond,however brief or elaborate you wish to be and you might just win the gauravblog hamper !…Cheers !
@Praveen,
I stand corrected on the FII stakes.
Quite amused about your example of ADAG companies able to raise funds from Chinese banks.Chinese banks lend aggressively as a form of vendor financing..i.e. companies can borrow from them provided they use the funds borrowed to buy Chinese equipment.
Anybody who follows Anilbhai’s track record will become a sceptic !This man tried to sell his telecom tower business to GTL.GTL, after a due diligence, opted out.Its shares shot up and RCOMs tanked.
As a long time stock market watcher, the very thought of a Ambani co selling out to a company like GTL(not known for its corp governance) makes one wince.
Why did he try to do so?Because foreigners are unwilling to pay a premium for his assets.The Nippon deal case in point.
I would like to point out one more thing.In Nira Radia tapes, you can hear Ratan Tata say clearly “Why isn’t he (Anil Ambani) exposed?
Its obvious that ADA has succeeded in alienating various stakeholder constituencies (govt,business class, employees etc).Even when Dhirubhai was in a fight with the govt, his employees and investors backed him 100%.
Sorry to say but Anilbhai is no Dhirubhai.
The right thing to do is to wait n watch till 2013.This group stocks will go nowhere till then.
@Raoji,
If you were amused about my example of ADAG able to raise funds from
chinese banks, I’m amused about your lack of knowledge on the loan
deal.
You can refer to this link for more information about the loan deal – http://www.bseindia.com/xml-data/corpfiling/AttachHis/Reliance_Communications_Ltd_090311.pdf
RCOM raised Rs. 8700 crores from China Development Bank (CDB), out of which
ONLY Rs. 2700 crores will be used to buy Chinese equipments. Remaining Rs. 6000 crores will be used by RCOM as per their discretion. CDB must have done the proper due diligence, unlike their American counterparts, when they sanctioned this loan, right? Also, remember this loan deal was signed when 2G scam news was at the peak.
Chinese are smart. That is why they are ruling the world today, unlike we
wasting our knowledge and smartness in pulling others down !!!!
You quoted Warren Buffet in one of your replies. Then you must have also known
this quote from Oracle of Omaha – “Buy when there is blood on the streets”.
@Raoji,
Please ignore last statement in my previous reply. It is not addressed to you. It was addressed to Swaroop.
@Swaroop
You quoted Warren Buffet in one of your replies. Then you must have also known
this quote from Oracle of Omaha – “Buy when there is blood on the streets”.
@Praveen,
The funds are not be used at RCOM’s discretion (aka general corporate expenses) but for funding the spectrum fees !
Warren Buffett wouldn’t touch ADAG group companies with a barge pole on account of lack of moat/governance issues, irrespective of whether there is blood or water on the streets !
Also, amused by your distaste of “pulling people down”.Only in India can tainted businessmen get away with all sorts of shenanigans.The Supreme Court has said “being on the Forbes list does not ensure immunity from investigation the 2G spectrum scam case”.I think it is a clear warning.Anilbhai has probably heeded it as most of the top ADAG brass are now camping in Delhi.Gullible investors will heed it in their own good time.
Anil Ambani,like his father did,does tend to get people heated up….as I observe on the counter responses….just let’s agree to disagree and maintain some civility and etiquette and decorum…all are entitiled to their opinions…and remember there is always a buyer and a seller of a stock !….and since all of you seem to be conveniently quoting Warren Buffett…just pause and think….does Anil Ambani Group of Companies pass his critical criteria of Quality Pedigree and Corporate Governance and then Value ?….It may however suit Agressive Investors….remember even Citicorp bounced back from a dollar in 2008 !…..Cheers !
@ Gaurav Parikh,
Sir, I’m very sorry, If I had crossed the limits of the forum, knowingly or unknowingly.
But, you have to appreciate me that I’m trying very hard to wing your “gauravblog hamper” 🙂
Sorry once again.
With Regards,
@Gaurav,
Citi crashed from 50$ to $1…wealth erosion of 98%.The ADAG group should be a great buy if it crashes by 98% from its peak Jan 2008 levels !!
Another interesting thing to think about is why did citi bounce back?The answer is massive and immediate state support.
Is there any such catalyst on the horizon for the ADAG group?The catalyst can’t be project execution as they are still many months away from being operational.The only positive catalyst could be stake sale to others.But its impact on the stock price is as now uncertain.
As regards Dhirubhai,while he was certainly v controversial, his track record in creating wealth for shareholders was peerless.Which is why when ADA floated Rpower, the goodwill was so huge that the issue was subscribed in less than a minute.
Its possible that the next Dhirubhai Ambani is not a Ambani..maybe somebody else.Like Munger says, it may be a good idea to find an extraordinary entrepreneur and stick with him !
.
This probably should be your next TAP GAP poser…which promoter can generate manifold wealth for his investors because of his grand vision and relentless execution !!
Hmm sibling rivalry (Mukesh vs Anil) between Ambani’s for market-cap prize, blogpost rivalry (Praveen vs Raoji) for gauravblog hamper!
Ambani’s feud settled by KV Kamath & blog feud ‘mediated’ by our own Gaurav!
Uncanny similarities!
So i’m gonna wager that the hamper is gonna be split among warring blog-posters much like Ambani empire was split among the brothers!
Hopefully this story has a happy ending & will not end in a multi-year litigataion ending up in Supreme Court!
@Swaroop,
Ha Ha !I think you should get the hamper for your incisive analysis of the blogposts !
Raoji, Praveen, Swaroop,
Thanks for a very insightful analysis by each of you. I am now eagerly awaiting Gaurav’s views (and also eagerly waiting to see who wins the hamper!).
Raoji – I really liked your suggestion on the next TAP GAP poser…ie., which promoter can generate manifold wealth for his investors because of his grand vision and relentless execution !!
Gaurav – I strongly recommend Raoji’s suggestion. I would be very tempted to participate in that TAP GAP poser.
On this TAP GAP poser, I would be inclined not to go with the gamble that Anil Ambani would be able to create wealth in the short/ medium term (3-5 years). There are many other opportunities that are currently available at more appealing valuations.
Somnath
Being a silent observer of this site for some time now but just wanted to second the suggestion given by someone for next discussion (poser) on the entrepreneurs with vision. It shall be an interesting discussion and a knowledgeable one too
from very little that I know , employees and customers of reliance never speak good about them, have heard about poor work culture from employees and how they exploit their customers from customers.
Given the fact that now they have started cheating shareholders as well which I think is like cutting a chicken giving golden egg.
Anil has gone against GoI with ads featuring everywhere in news papers and achieving nothing with it but governments anger. With no one on his side it will be very challenging for him to rise up.
Regardless of he rises up or not, unless I see change in the reasons mentioned above I would seriously not like to park any money and am of the opinion that these are seen similarly by others institutions as well , so unless this situation changes I would not be tempted to consider.
Transparency, fair practices, ethics, law following (and not by means of making laws for oneself by bribing) are somethings in my opinion pay off in long term, Anils companies imo are excellent for day traders as they are so volatile but as matter of principle not for investing imo.
“Satyamev Jayate”
Disclaimer — All comments here are my personal opinion.
Anilbhai talking to Amar Singh…must listen
http://www.youtube.com/watch?v=bARhHZrKWIA