ADAG Group - Investment opportunity or not?


(Jiten Parmar) #61

Reliance Capital has the following businesses.

  1. Reliance Nippon Assset Management - separately listed. Company holds 42% - Business doing fairly well.
  2. Reliance Home Finance - separately listed. Company holds 47% - Doing very well.
  3. Reliance General Insurance - held with Nippon. Will be listed/demerged in the future - Doing very well.
  4. Reliance Life Insurance - held with Nippon. Will be listed/demerged in the future
  5. Reliance Securities - brokerage business
  6. Reliance Money - rebranded from Reliance Commercial Finance. Has more tham 16000 cr loan book
  7. Investments in companies - like Yatra, paytm, Prime Focus, etc. This is about 14000 cr and is being liquidated.

For 1 to 4, it will have holding company discount. 5 is a small biz. 6 is a business which will grow very well, as Devang Mody is heading it (ex- Bajaj Finance).

Market cap is about 12000 cr. One can do a SOTP of all these businesses.

2 big overhangs behind it. First is RCom issue. 2nd is 2G trial.

It’s at a significant discount to book value of about 640 Rs. Has got good earnings and pays good dividend.

There will be some negatives in the stock. But for me, that’s a risk I am willing to take as it’s priced dis-proportionately.

My views can be considered biased, as it’s my largest position.


(khushi) #62

TTM EPS - RS. 30.76 (Standalone)
TTM EPS - RS. 52.22 (Consolidated)

Book value over RS. 640.

I expect a PE multiple of at least 12X (Consolidated) or 20X (Standalone) or PB of 1.2X sooner or later once correction n market gets over.

Surely deserves a Re-Rating.


(learning) #63

Debt should be replaced by selling for investments.


(Gagan) #64

Dear @jitenp @shahparag,

Thanks for sharing details on Reliance cap, it helps a lot to new investors like me.
i have recently added Reliance Cap as 10% of my PF, planning to increase more, but one thing bother’s me is pledging from promotors in increased a lot, since I am a novice, I really don’t understand exactly how pledging can be risky and exploited by promoters?
also, how should we adjust the valuation w.r.t %age of pledging? so we adapt to the risk that is building.

Thank you!
Best Regards,
Gagan


(Jiten Parmar) #65

Promoter pledging is a negative, for sure.


(shahparag) #66

pledging is defintely negative as jitenbhai pointed out , secondly creating a 10% exposure of portfolio value in one shot is not a good investing strategy either untill you believe in highly concentraded portfolio and high conviction for stock .
for me high conviction only built with time ( like 3-6-9 months reading about stock , looking at price movement & sector stock relative performance , qtrly numbers etc .etc…


(shahparag) #67

i think recent sell off in market is affecting it too …however rcap & infra both holding on to their last lows is a surely good sign …however if mkt to fall further then how strongly they can hold needs to be watched … but things looks better then in nov17 ( when the topic initiated ) and prices are again there …


(shahparag) #69

recent market sell off has bring prices again to test the bottom for adag group …however, the volatility is not for the weak hearted for sure !!!
however’ rel capital seems to have again at a good level where risk reward ratio seems favourable …


(Gagan) #70

(Ashwini) #71

@jitenp I believe Reliance general insurance is 100% owned by Reliance Capital.

Also how did you get the value of investments at 14,000 Cr. As per management concall they have been mentioning 10,000 cr investment book but no details have been given.

Thanks


(Jiten Parmar) #72

This 14000 cr number has been given by management in Q2 concall.


(Rohit Ojha) #73

Reliance capital has again taken support in the 405-410 range. Looks unlikely that it would breach these levels.


(Jiten Parmar) #74

RELIANCE CAPITAL - Reliance Corporate Advisory Services Limited, a 100% subsidiary of the Company has sold 30.06 lakh equity shares in @sula_vineyards for a total consideration of Rs. 256 crore and 47.28 lakh equity shares in KGS Developers for approx. Rs. 82 crore.

Unwinding of prop book happening, a bit slowly than guided, but happening for sure.


(Prateek Ingawale) #75

sir…are you holding Rel Cap before the Rel. Home finance demerger ?
Since Rel. cap is undergoing demerger of thr key business …is it one of the reason of your investment ?
just want to understand your thesis…


(Jiten Parmar) #76

Yes. I hold Rel Cap pre-demerger too. And also added post-demerger and recently too.


(Ashwini) #77

Jiten have they mentioned their total holdings in Sula and KGS?


(Vivek Chaturvedi) #78

Hi Jiten, as per FY17 AR out of 14000 crs of investments in other companies 6250 crs has been invested in companies which look like they are ADAG cos but are not shown as such for some reason.

If you look at pg. 83 of the AR 6250 crs had been invested in FY17 in CCD of various cos. that look like group cos only (these look like prime candidates for write offs)…

Also if we see pg. 85 of the AR 302 crs was given by way of long term secured advances as well additional 345 crs has been given as long term unsecured advances to Related Parties. If we see pg. 88 of the AR 750 crs of short term unsecured loans and advances have been given to Related Parties (again no disclosures whatsoever of the names and exact amounts of these related parties except generic disclosures on related party transactions on pg. 96 of the AR).

On pg 100 of the AR, contingent liability due to RCOM group cos. is shown as 786 crs. (550+118+118)

Even if we assume that 1400 crs given to related parties (302+345+750) comes back in full, there may be actual significant write off of investments or hiding of NPA positions to the tune of 8000-9000 crs.

The management was earlier confident of realising a significant part of these investments by end of FY18 and now is giving a timeline of FY 19 end…not sure how much can we rely on mgmt words given their history.

Is there any way to estimate how much of these investments are actually capable of being recovered and the approx. amounts of the same?


(Jiten Parmar) #79

Good digging. I do agree that management has given aggressive timelines on unwinding of the investment book. In my workings, I have estimated a recovery of 10000 cr. One needs to discount what the management says.

One good thing is that unwinding has started. Few of them like Sula and some others have been sold. I think every quarter, we need to get a handle on this.

The good thing is that, they are getting their core business act together. Good people at helm. So, that’s my main investment thesis.


(sarangg) #80

.
Had the same concerns, also present in Reliance Infra. For the purposes of my SOTP, I see that even with that part of the balance sheet at 0% recovery, there is still some upside in Reliance Capital due to stakes in operating subsidiaries. As for Reliance Infra, I am a little more concerned, however, most of the infra projects are now mature and generating huge cashflows, and the accretive Adani Transmission deal and favourable Artibration ruling are materially positive for shareholders.

Disc. Long both Reliance Infra and Capital, despite knowing the risks.


(Vivek Chaturvedi) #82

I think we need to give a significant holding company discount for all the subsidiary cos. stake to the extent of 50-60%…actually the real meat of the investment hypothesis rests upon the monetisation of prop investments and resulting deleveraging of balance sheet…assuming 10% cost of debt and XX crs of deleveraging the standalone PAT can go up by 7% of XX crs which could be a meaningful amount. Else it may not deliver returns to justify the risk inherent in the company and management

Disclosure - Invested