The fine print of Anil Ambani’s AGM speeches
For an industrialist who is shouldering debt close to `1.22 trillion, Anil Ambani certainly put up a brave face on Tuesday
Mumbai: For an industrialist who is shouldering debt close to ₹ 1.22 trillion, Anil Ambani certainly put up a brave face on Tuesday.
Never for a moment did he lose his composure or swagger while posing for photographs and attempting to calm the frayed nerves of investors, even as he laid out rosy plans to suggest that his Reliance Group is a turnaround story in the making, where there is a well-thought-out plan—one which will deliver growth and healthy returns.
Arun Kejriwal, director of Kejriwal Research and Investment Services Pvt. Ltd, who tracks the Reliance group of companies closely, sums up Ambani’s day fairly well.
In his view, in a show that lasted almost eight hours over four annual general meetings (AGMs), Ambani neither committed to any capital expenditure plan nor put out an actual plan for a turnaround.
“The most optimistic man in this planet would be the man who is burdened with the debt," he says. “Reliance Group companies cannot paint themselves pessimistic as they do not want to give a sinking feeling to the investors. But turning around all these companies by the group is wishful thinking."
It most certainly is. Despite all of Ambani’s reassurances in the past, the group’s debt has doubled in the last five years. The net worth of group companies put together is at ₹ 90,189.17 crore.
And Kejriwal’s is not the lone sceptical voice. Mumbai-based independent stock market analyst S.P. Tulsian said that while the debt of the group companies has continued to pile up, the value of the assets has deteriorated.
“You can fool all the people some of the time, and some of the people all the time," he said. “But you cannot fool all the people all the time. Reliance Group companies have been promising investors potential debt reduction and turnaround for the last five years."
Promises galore
On Tuesday, when the company arranged its marathon AGMs for Reliance Communications Ltd (R-Com), Reliance Capital Ltd (R-Cap), Reliance Infrastructure Ltd (R-Infra) and Reliance Power Ltd (R-Power), chairman Anil Ambani spelt out ambitious expansion plans.
The biggest announcement came in the power business—R-Power would invest ₹ 50,000 crore over the next five years to set up a 4,000 megawatt (MW) power plant at Tilaiya in Jharkhand, including a 40 million tonne coal mine, which will be India’s largest.
R-Power, added Ambani, would also set up a 700MW hydro power project at Tato in Arunachal Pradesh. That’s not all. The company will also look at developing at least one 500MW solar power park under the ultra mega park policy announced by the government.
Ambani’s efforts to be the largest power producer in the country have failed in the past.
The company recently walked out of a deal to buy the hydropower assets of Jaiprakash Power Ventures Ltd, citing regulatory uncertainty. The completion of the proposed transaction would have made R-Power the largest provider of hydroelectric power in the private sector in India.
Experts point out that there is no single project that will propel further growth for R-Power.
“Reliance Power has spare cash of ₹ 5,000 crore. I don’t see where is the growth coming from...It is not clear what Anil Ambani is pursuing at this point of time and where the investment will come from," a senior analyst with a domestic brokerage said, speaking on condition of anonymity.
Power producers in the country are already facing the heat due to the recent Supreme Court decision scrapping the allotment of 214 coal blocks. However, the top court spared two coal blocks operated by R-Power.
At R-Com’s AGM, Ambani said, “R-Com is looking forward to participating in the 2015-2016 spectrum auctions to launch 4G services in the country."
Vinod Sawhny, R-Com’s chief executive, added that the company is on the threshold of launching an over-the-top (OTT) product (apps like WhatsApp are OTT products, riding atop cellular networks they do not own), currently being tested.
Sawhney said the product has seen 65,000 downloads already from retailers and channel partners and when launched, will be available in over 80 countries.
Ambani said R-Com is targeting cutting its current debt of around ₹ 35,000 crore to under ₹ 20,000 crore in the next 24 months.
“Non-core businesses like real estate and DTH (direct-to-home) will be monetized. We are looking at various options to monetize these two assets. One option is demerger of land banks from R-Com and separate listing," he said.
Analysts argue that these plans have been on the table for long. “RCom has been saying for the last two-and-a-half years that it is trying to sell assets or list to pare debt, but nothing has materialized on that front, except the partnership with Reliance Jio," said Ankita Somani, equity research analyst with MFSL Research, part of the Marwadi Group. “And 4G is a difficult call to take as no telecom operator has launched it yet except Bharti Airtel Ltd. We will get more clarity on data points on price and viability of the 4G ecosystem after Reliance Jio’s launch. In fact, 3G has only caught up in the last one year and that too because of drastic tariff cuts...so 4G price points will be of high importance," she added.
Reliance Jio Infocomm Ltd is the ambitious 4G venture of Reliance Industries Ltd, promoted by Anil Ambani’s elder brother Mukesh Ambani.
There’s background to Somani’s scepticism. R-Com has been trying to sell its international unit, Reliance Globalcom.
In November 2013, Gurdeep Singh, R-Com’s chief executive for wireless business, told Reuters that the company is actively discussing a hive-off with a partner. Earlier this year, in March, Bill Barney, Globalcom’s CEO, denied that the unit is still for sale. “There’s no ‘For Sale’ sign up on the company," Barney told Reuters.
R-Com shares lost 0.8% to close at ₹ 98.90 on Tuesday on BSE, while the exchange’s benchmark Sensex gained 0.13% to 26,630.51 points. Over the past one year, shares of RCom have lost 32.6% and the Sensex gained 37.4%.
At the R-Cap AGM, Ambani said the group’s financial services arm is comfortable in all its businesses and does not require any capital for expansion.
The company will, however, look for new opportunities in its healthcare insurance business. “R-Cap is interested in the housing finance segment and expects the capital employed to triple in near future. It may also consider getting into the affordable housing space in the future," he told shareholders.
Ambani maintained that the company was still hopeful of a banking licence and will evaluate the opportunity when the Reserve Bank of India announces final guidelines.
R-Cap will look to collaborate with global firms in banking. R-Cap’s debt in FY2014 stood at ₹ 25,577 crore, up 13.6 % from a year earlier.
The opportunities
There are Reliance businesses that look good as well.
At the R-Infra AGM, Ambani said that the company is tripling its cement capacity from 5 million tonnes to 15 million tonnes in the next three years and has opened new plants in Madhya Pradesh and Maharashtra.
“We have the ability to produce 65 million tonnes of coal from our mines and if we are able to achieve this, it will make us the largest coal producer in India," he said.
And things also look better in the infrastructure business. R-Infra, with the second highest revenue in the group, has the lowest debt among the four listed group companies. The debt, at ₹ 24,289 crore, does seem sizeable, but the nature of the infrastructure business calls for large borrowings. Although the company has not yet flagged signs of caution, a lot depends on the breaking even of the Mumbai Metro projects, which experts believe will take another two years. The total cost of the Mumbai and Delhi metro projects is estimated to be at ₹ 16,000 crore.
The company has been prudent to keep debt under check and dispose of non-yielding assets in the past. In October 2013, Mint reported that the company plans to sell either all or most of its 11 road projects to pare debt.
Still, Ambani’s performance at the four AGMs on Tuesday looked like a script that’s been on the loop for a while. Investors and stock market observers know that the Reliance group companies have a long way to go before a turnaround story actually comes through. Till then, they will have to make do with Ambani’s reassurances.
Swaraj Singh Dhanjal and P.R. Sanjai contributed to this story.
Reliance Power has sued HT Media Ltd, publisher of Mint, in the Bombay high court over a 12 May 2010 front-page story in Mint that it disputed. HT Media is contesting the case.
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