Anil Ambani’s focus shifts: promise to performance

Anil Ambani’s focus shifts: promise to performance

Mumbai: Slideshows spoke louder than words as billionaire chairman of the Reliance-Anil Dhirubhai Ambani Group (R-Adag) Anil Ambani presided over back-to-back annual general meetings (AGMs) of three group companies—Reliance Power Ltd (R-Power), Reliance Capital Ltd (R-Cap) and Reliance Communications Ltd (RCom)—on Tuesday.

The strategy behind keeping his own speeches minimal and letting the chief executives make presentations to shareholders was possibly to conserve time and communicate the group’s achievements.

Also See Future Outline (Graphic)

The “new approach and format" to interact with shareholders, as Ambani termed it, put to rest voices expressing concern over the execution risks being faced by some group firms such as R-Power.

If Tuesday’s share prices of the three firms are any indication, Ambani’s strategy of detailing the operations of the companies through the audio-visual medium may have worked. While RCom’s shares rose 0.41% to 170.30, that of R-Cap and R-Power gained 0.28% and 1.68%, respectively, on the Bombay Stock Exchange. The Sensex dropped 0.06% on Tuesday.

Since the beginning of the current fiscal, RCom and R-Cap stocks have declined 1.5% and 5.02%, respectively. R-Power has been the only gainer among the three, rising 5.25%, but trailing the 15.12% rise in the Sensex in the same period.

Analysts, however, were not impressed. While Ambani elucidated where his firms would be five years from now, he could have done more to state how they would get there, they said.

“Most of the things that were mentioned have been said in the past as well. While shareholders may have been impressed, analysts did not find much," said S. P. Tulsian, an independent stock market analyst. “For instance, R-Power could have given further clarity on how it will mobilize the funds, apart from what they have, required to finance new generation capacity, especially the equity part of it."

Unlike Ambani’s address to shareholders at last year’s R-Power annual general meeting, where he launched into a tirade against elder brother Mukesh Ambani’s Reliance Industries Ltd (RIL) for dishonouring an agreement to supply gas, this year’s meeting was devoid of any major announcements, except for a reiteration of future plans.

In an update to shareholders, Jayarama Prasad Chalasani, R-Power’s chief executive officer, said the firm had already started construction for the expansion of the capacity of its gas-based power plant in Samalkot, Andhra Pradesh to 2,400MW. The project, for which gas allocation from the government is awaited, is estimated to cost 10,000 crore and be completed by 2012.

“Over the next 24 months, we’ll rapidly accelerate the pace of new capacity addition, to leapfrog from the current 600MW to eight times that number over 5,000MW," Ambani said, adding that R-Power’s generation capacity would be ramped up to 25,000MW by 2015 and 35,000MW by 2017. The firm also stated that the coal-bed methane blocks inherited from Reliance Natural Resources Ltd, when it was merged with R-Power, would allow it to generate an additional 2000MW of power.

RCom shareholders also received an assurance from Ambani and other executives that their company would be debt-free in the next three years.

Investors and analysts have raised concerns in the past about RCom’s huge debt—at least 30,000 crore. The tempo of their criticism has increased after a proposed deal to hive off RCom’s tower subsidiary to GTL Infrastructure Ltd fell through earlier this month. The deal was expected to reduce RCom’s debt burden by half.

Ambani reiterated that the company was in discussion with “strategic and financial investors" to sell a stake in Reliance Infratel Ltd—the tower arm of R-Com. “We also have the possibility, if considered appropriate, of combining such a transaction with a possible IPO (initial public offer), for which the necessary approval has already been received," Ambani said.

There was “substantial interest" in the market for the proposed offering of a 26% stake in RCom, given that “it was the only telecom operator in the country without a foreign partner," he added.

Ambani also stated that starting this fiscal, RCom’s capital expenditure would be only a quarter of what it had been over the last three years, and that rising free cash flows would help it further reduce debt.

Syed Safawi, president of RCom’s wireless business, added that since RCom had already incurred the expenditure required to create the required network infrastructure, its investment in the current year is projected to be 3,000 crore, compared with the average of almost 12,000 crore for each of the last three years.

One of the few announcements that Ambani made was to do with R-Cap, where he stated that the group’s financial services arm would look to have a presence across all segments of the exchange business in India, having set up a spot exchange and picked up a 26% stake in Indian Commodity Exchange Ltd recently. “We believe there is growth potential in this space."

He also said the firm was evaluating the contents of the Reserve Bank of India guidelines for granting banking licences to private players. “We have always regarded banking as a high priority sector with huge potential. It is our ambition to create a world-class Reliance bank."

He reaffirmed plans of listing R-Cap’s life insurance business as and when the Insurance Regulatory and Development Authority finalized the guidelines for the same.