ADAG Group - Investment opportunity or not?

Stock Opportunities Untested - but worth a good look
1

hi all ,

have been a reader to valuepickr since long , recently met Ayush Mittal at an event and after listening to him thought of sharing few of my thoughts on the forum !!

coming to the topic i want to discuss with you all is " fate of adag group " is this an opportunity for wealth creation or threat for further value erosion ??

frankly i dont know !!

but i am trying to anlayse the situation and welcoming view from all to have better clarity .

i have always believed that in investing , best of the opportunity is available in worst of the circumstances . there are many many examples available like sub prime crises , spice jet issue , maruti suzuki plant closure & riots etc.etc… whoever investor have tried to analyse the situation and was able to diffrentiate maruti and spice jet from jp & suzlon have created a tremendous amount of wealth for themselves .

so is adag group a suzlon is making or future spicejet ???

ADAG group mainly have 3 companies rcom , relinfra & rcap .

as we all know

rcom is clearly in trouble and major worry is whether will it be able to pay off debt and liabilities it has created ?? if not , how will it affect other companies ?

relcapital is nbfc and it is a fancy sector of recent bull phase . known liability is around 1200 cr loan being given to rcom and may be holding rcom in some scheme . sector has lots of potetntiial as we can learn from other players in the same industry . how rel capital is doing ??

rel infra is in to power ( former bses ),infra and defence ( recently ) . here also large amount of debt is an issue which is around 35000 cr aproximately.

how adag group will tackle the looming debt problem ( first rpiority ) , growth ( second priority ) and profiltability & visibility of smooth days ahead , a kind of third priority ??

will keep my views in days to come .

i will appreciate to have feedback from other members

disclosure - invested

5 Likes
Reliance Capital- Growth at cheap Valuations?
2

As far as i remember Rcap had an exposure of roughly about 2400 cr in RCOM, if you add equity investments + loan given + guarantees provided. This fig is from 2017 fy AR.
And there is a possibility that Anil Ambani may have increased Rcap exposure to RCOM in this FY, in last 7 months, as Rcom is in deep mess.
in my opinion RCOM is worth zero and all the investments made by Rcap in Rcom will need to be written off. It is very frustrating to note that Promoters can so easily siphon out the money from performing companies to the bankrupt ones without any legal issues.

However, the Rcap is in attractive sector and the business segments have been performing well. Even if we reduce the book value by 20% due to Rcom exposure , it will still come as close to 480.
The stock is trading really cheap in my opinion. The biggest risk to the stock is Anil Ambani.
I feel sometimes it is safer to invest in companies with corrupt promoters who at least know their job than to invest in companies with incompetent Promoters. Incompetent is a very mild term for Anil Ambani.

5 Likes
3

If you are a bear and like to short , you can definitely consider ADA group.

As a long term investor , good quality management is one of the gateway conditions i consider. If you see how rcom shaped its business ,even bare minimum effort was not seen to get market share ,get customers.
A good management in bad business can still be considered ,but a bad management in a good business will always be a disaster.

3 Likes
4

In the latest Reliance Capital concall, management said they have no other gurantees/loans to RCOM except 1000 crores to tower business and some 500 crores non-fund exposure. They were also confident that there will be no rating downgrade of RELCAP because of this.

disc - invested recently around 400+ levels

1 Like
5

in that case Rcap is very attractive at these prices.

6

if i remember correctly, in book value terms Rcap is damn cheap compared to its peers (obviously could be of promoter quality…!)

I am just wondering why nobody is concerned about the newly listed business, viz Rhome and RNAM. These companies are in right sectors at least for the time being and should potentially create wealth going forward…!

7

Reliance Capital has lot of value at current prices. Hope to give a
detailed thesis on this soon.

Disc : Invested

1 Like
8

http://www.evernote.com/l/ACftOd0BAbtJX5H6rFv9_awGvOz47PBXYLA/

here is link to some basic information tried to consolidated on rcom debt repayment through diffrent media source .

9

i think link has some problem - here are the details .

         Live Mint Article Dated Oct 30, 2017

• Rs. 27,000 Cr will be raised through sale of assets and lenders converting a portion of their loans into equity, giving them majority control.
• Firm has about Rs. 45,000 Cr in debt and announced to shut down 2G services.
• Firm will continue to operate 3G and 4G services till the time they remain profitable.
• According to the new plan, which is yet to be approved by banks, RCom will sell part of its spectrum, fiber and tower assets which are likely to fetch about Rs 17,000 crore.
• Apart from spectrum and other telecom asset sales, RCom is planning to raise an additional Rs10,000 crore through its properties in Dhirubhai Ambani Knowledge City in Navi Mumbai and Delhi among others.
• Further, the plan proposes that lenders convert Rs7,000 crore of their loans into equity, giving them control of the firm. “They will also have the freedom to bring in an external investor who will take a call regarding the change in management,” said Garg.
• At Monday’s (Oct 30,2017) closing price of Rs 15.7 a share, RCom had a market capitalization of Rs3,907 crore. If lenders convert at this price, they could get a 64% stake in the firm.
• The sales of telecom and real estate assets, and the conversion total up to Rs34,000 crore. Another Rs5,000 crore worth of debt is unsecured.
• Subject to the plan materializing, the telecom firm will be left with a debt of Rs6,000 crore. It is believed this will be sustained after its winds up its 2G and 3G voice businesses, and only focus on the business-to-business and 4G businesses.
• The firm’s senior management said that rivals such as Mukesh Ambani-owned Reliance Jio Infocomm Ltd have shown interest for “several” of its assets. It also said that the joint lending forum, a grouping of its creditors, will handle asset sales transactions and it won’t strike any ‘bilateral’ deals.
• “There will not be any bilateral dealings anymore. The lenders will decide the best deal available from now on,” said Garg. Jio, for instance, “was not interested in bilateral dealings and wanted the process to be transparent,” said Punit Garg, executive director at RCom. The lenders have hired SBI Capital Markets as the adviser for the asset sales, he added.
• Garg said the firm expects to complete the debt reduction plan by March 2018. “None of these transactions require regulatory clearances and will be easy to execute.”
• On being asked if it has received approval for the plan, Garg said “do you think lenders can refuse a zero write-off plan. They got to be so happy and thrilled.”
• “We will resolve the unsecured portion of the debt after tackling the secured portion,” said Garg.
• In June 2017, RCom lenders had invoked the strategic debt restructuring scheme. It allows lenders to take over management control. The lenders, however, had given a seven-month breather to the firm till December.
• Under its earlier deleveraging plan, RCom had said it would cut its debt by 60% of its debt by December through a merger with Aircel Ltd and sale of majority sake in its tower business to Canada-based investment firm Brookfield Infrastructure.
• The Aircel plan collapsed due to regulatory and legal hurdles. The Brookfield deal is still on but other investors can also bid now. “The deal valuation is likely to be revised downwards,” Garg said.

Economic Times Article Dated Nov 12, 2017

• The company has also proposed the conversion at Rs 24.71 to Rs 24.73 a share, the price being arrived at according to the formula prescribed by the Reserve Bank of India (RBI) on SDR.
• Lenders, however, are opposed to it since the shares of the company have since fallen to Rs 14-15 a share. Conversion at this rate will result in huge mark to market loss for the lenders.
• The second option of converting debt into equity, as per the RBI formula, would be the break-up value of the company, which according to it was Rs 97 a share.
• But bankers say that material developments such as the collapse of the deals with Aircel and Brookfield have made all other assumptions irrelevant. “These two moves would have lowered debt by Rs 25,000 crore and in the absence of these, lenders feel the need for a fresh valuation,” said one of the bankers cited above.

Live Mint Article Dated Nov 15, 2017

• Reliance Communications (RCom) said on Wednesday that it is not making any payment to lenders or bond- holders for the time being as it is under ‘standstill period’ with invocation of strategic debt restructuring scheme and working on asset monetisation.
• In a regulatory filing, the telecom operator said that is in standstill period till December 2018 pursuant to the SDR (strategic debt restructuring) guidelines. “The Company has also announced various asset sales and a comprehensive debt resolution plan, as advised per our earlier letter dated 30th October 2017. Accordingly, for the time being, no payment of interest and/or principal is being made to any lenders and/or bondholders of RCom,” the Anil Ambani led firm said in a BSE filing.
• The filing was in response to query of the stock exchange on report around RCom defaulting on payment of a US dollar bond. On 30 October, RCom said that it plans to pay debt of 27,000 crore through asset monetisation, Rs7,000 crore through equities and carry forward debt of Rs6,000 crore to new business. The company has said that it plans to implement its debt resolution proposal within the standstill period.

Moody’s Investors Service - withdrawn rating of the Company and Senior Secured Notes (Bonds).
http://www.bseindia.com/xml-data/corpfiling/AttachHis/6db9edef-eb10-4822-a63d-6a7ab08ec069.pdf

1 Like
10

as some members are saying about shorting ADAG GROUP ( bad managment ) , i would be having a slightly different view here .
ADAG is basically part of dhirubhai ambani group which was pioneerin india in developing the equity cult. both his son must have learnt certain lessons from him. after both brother separated & decided their own path mukesh ambani has chosen to develop oil& gas and pumped in money in RIL FOR almost 7 years to the tune of 100000 crore and then in reliance jio also. and reliance underperform market for several years untill august 2016 .

on other hand, anil ambani chose to agressively grow in to power ,infra and telecommunication & also in to entertainment (unlisted i guess) but with debt . last 7-10 years of india has been tough as an economy and whoever has tried to be in to business having govt regulation /dealing/interfference have all largely been affected . but it has changed since modi govt kicked in with so many reforms.

now we have business friendly enviroment , faster and practical decision making process is there in place.

coming to ADAG group i am still not sure about how rcom debt will affect rcap & rinfra , but as an individual business both are in good sector , they have size to compete with larger player and there is a possibility for ADAG GROUP to get back their legacy via these business.

looking at backbround , elder brother growth/mkt cap , new well educated generation to take over anmol ambani (https://www.ndtv.com/business/anil-ambani-s-son-anmol-sees-a-phygital-future-1755457 )
his speech - https://www.youtube.com/watch?v=tUYCH9Z0YfI

more later …

1 Like
11

Another Anil Ambani group company stares at insolvency proceedings.

12

i recently came across discussion with some analyst and was telling that because of group companies default , reliance capital may find it dificult to raise money at cheap rate which in turn will impact it’s profitabilty .

13

tried to did value comparision between r cap & ab capital …

https://drive.google.com/open?id=0B3I0sldHkYdFVUNMYnRnaE5fLV9TZ3Y0ejdpNldPcXdrRW1v

14

rel capital sept 2017 investor presentation

https://drive.google.com/open?id=0B3I0sldHkYdFN3hFU3hyaDJnSVowUV9CbThJR1B2M3laUFI0

15

Any analysis of past growth should show the inherent value of RCap - their exposure to RCom is small and only to tower division.

Disc: Invested at 440

16

Reliance home finance and commercial finance are the segments which need to raise money. RHFL has already a CAR of 21% as per con call so no need of fresh capital. Reliance money i don’t know but shouldn’t be a big issue.
Also as per Con call RCAP is planning to divest non core assets worth 15K Cr by Mar 2018 to reduce the debt on standalone company.

rcap Conference-call-transcript-for-Q2-FY-2018.pdf (364.7 KB)

2 Likes
17

hi ,

if you can spare time and share your details

18

http://www.moneylife.in/article/anil-ambani-group-sues-congress-singhvi-for-rs5000-crore/52465.html

Last thing you can do is expect a willful defaulter to make money for you. Not invested in either brother company.

1 Like
19

Mukesh is a much much better money manager managing the most profitable Indian company. But I will not invest in reliance as it is too diversified and big. Anil companies is a strict no. Absolutely no company he manages is doing good.

20

?? Do you want to get sued now ??
He is not yet declared wilful defaulter, please don’t comment on these matters lightly. If there is capacity to repay but entity does not pay up, if there is diversion and siphoning of fund etc - then only you can be declared wilful defaulter. Bad business decision is not a criteria.

2 Likes