Anil Dhirubhai Ambani- Wealth out of Thin Air

Everybody has read the hype created by Anil Group and if the Grey Markets are to be believed, Anil might become the Richest Man of the Planet. But have you wondered how he has created this fortune?
Let me analyze the entities in his conglomerate.

* Reliance Power:
NTPC has 30 years of fabulous track record. It is the world’s 6th Largest Power producer, World’s 2nd Most efficient Power Utility Company. It has an impeccable project execution track record and is the lowest cost Producer (highest profit margins too) of the Nation. In spite of having 26,850MW capacity of fully owned plants and 27,904MW capacity of Jointly owned plants and several plans near to commissioning, this company has a market capitalization of just 169,567.98 cr INR or 43 Billion Dollars.

Relaince Power on the other hand was valued at 30 Billion dollars at the time of IPO and looking at the hype should reach 60 Billion Dollars at the day of listing. So much hype in spite of the Group having ZERO experience in electricity production and the fact that the first revenue will come only after 18-20 months.

* Reliance Communications:
Bharti telecom (last quarter) had a revenue of 6059.89cr and Profit of 1619.15Cr.
While Reliance Communications had a revenue of 3328.39cr and a profit of 801.24cr. So how is it that a company that has half the profits of Bharti, lesser profit margins is valued almost the same as the giant? (PS: both companies are growing at almost the same rate) If I compare the results with BSNL or some International Giant, then the valuation is more screwed up.

* Reliance Energy:
Although reliance Energy and Tata Power have the same revenue (tata has higher profits), Why is it that this company is worth Twice?
They raised money for the power projects, then transferred all the contracts to Reliance Power and again raised the money. So its like selling the same asset twice.

* Reliance Capital
Same story.
A banking company with a sales of 1,400 Cr (profit is even lower) is valued at 53,000cr.

* Reliance Natural Resources
If you visit its website, it describes the company as:

Reliance Natural Resources Limited (the “Gas Based Energy Resulting Company”) was originally incorporated on the March 24, 2000, under the Companies Act, 1956 as Reliance Platforms Communications.Com Private Limited. The status of the Company changed from private limited to public limited on July 25, 2005. The name has since been changed to its present name, viz. Reliance Natural Resources Limited under Fresh Certificate of Incorporation consequent on change of name dated January 9, 2006.

In terms of the Scheme of Arrangement (“Scheme”) with Reliance Industries Limited, as sanctioned by the Hon’ble High Court of Judicature at Bombay by its Order dated December 9, 2005 and which has became effective from December 21, 2005 the Company is vested with the Gas Based Energy Undertaking of Reliance Industries Limited as defined in the Scheme.

Does it make any sense??????
Let me know if it does. The company has no assets, all it owns is exploration rights to 4 Coal Based Methane beds.
No wonder a company with an annual sales of 40Cr INR is valued at 30,000 Cr.

Call me skeptical, but what I am unable to understand is why a guy with no track record, prior experience, without any significant sales/revenue is valued at 2-3 times the peers which have shown repeatedly stellar performance.

BTW, I feel the primary reason for today’s market crash was Reliance Power issue. Usually when the market falls (significantly) the investors pump in a lot of money to build up a portfolio (and arrest the fall) while the speculators short sell in the hope that it will go down further.

Future group got over-subscribed 100 times, the Power issue got bids worth 7.52 trillion rupees (191 billion dollars), which sucked up all liquidity from the retail/HNI, and mutual funds making it impossible for people to buy any further shares. hence the bears were having a field day (which lasted for more than a week) The biggest proof of this theory is that usually when the market fluctuates a lots, the volumes increase dramatically. (because of increased intra-day activity and the fresh infusion of capital from the long term investors) However today in spite of the fact that the market fell sharply, the volumes were low… indicating a serious liquidity crisis.

It will take another 10 days before the refunds will start coming. And I do not know what will happen by then.

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3 thoughts on “Anil Dhirubhai Ambani- Wealth out of Thin Air

  1. Ever since Reliance took over BSES, Mumbai (and also Delhi) consumers have been funding all their other businesses.

    REL keeps making 50% profit, quarter after quarter, and keeps raising tariff .. and does not file separate P&L a/cs for their electricity and non-electricity businesses .. and yet our (spineless) MERC turns a Nelson’s eye …

    We as a small group, have been trying to get MERC to do something and have had limited success only. More at http://groups.yahoo.com/group/bijlee/

    Like

  2. When shares held as stock in trade can be pledged with banks for obtaining/sustaining/enhancing credit limits;
    When It is possible to have a mutual fund co. whose decisions are governed by those who come out with major ipo’s;
    When appointments to institutions set up to protect public interest is made quitely;
    Then fiction becomes reality.
    Then the beneficiaries are constrained to prioritise appointment makers’ concept of civic responsibility.
    Then rates of electricity are increased in disregard of the fact that the citizen does not have the wherewithall to afford it.
    Yet one has to face it for it comes from the institutions that have been set up to protect public interest under the Act.

    Like

  3. @Sandeep and Sharda…..
    Welcome to ENagar 🙂

    the problem is that electricity distribution favors monopoly… and in absence of proper checks and balances these corporates are just bribing the regulators and milking the people.

    This time’s crash ruined the people who had leveraged their positions. The moment the prices fall, the banks reduce the credit limits and if the investor is not able to come up with cash in time, they square off this total account…. hence compounding the bearish sentiments

    Like

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