May 9, 2010

An Analysis of ADAG Group Companies: Opportunities for Future? or More Cautions Ahead?

On 7th may it opened 67.45, made high of 72.95, made low of 50 crashing by 26.84% and closed at 52.75 at down by 22.82 on BSE.

From 27th march the stock started moving up from price of 62 and in next 4 trading sessions made high of 72 rising by 16%.
 The take away are that the price was somehow rigged. Because earlier also two famous Mumbai based big operator rivals were exposed fighting for hitting each other in this counter. However the bear side operator won and a big off the table settlement deal was also clinched.
So thus, the RNRL share rose 16% in 5 trading sessions and gave away 22.82% in a single day following the SC verdict against the Company and in favour of RIL.
It  is evident that if we deduct the previous 5 trading session ‘unusual rise’, then the stocks should be said to have crashed only 22.82%-16%=6.82%.
The share prices of RNRL has earlier also seen many huge swings. Such as as much as 35% rise in a single day.

Following information are available from public sources, and the company annual reports.
This company is 2nd largest in India in terms of acreage with 3100 square kilometers of coal bed methane block.
This company also own coal mines in foreign (details not available from the company).
This company has won oil and gas block in Mizoram. 
It is coming in city gas distribution business.
From the company, coal and gas will be supplied to meet R-Power's demand to generate 34000 mega watt of power.

The Anil Ambani leadership has taken Rel Communication to top position in Telecome sector. He has shown his leadership ability by building ADAG group’s umpire in diversified businesses within a very short span after the RIL demerger.
However the telecom bust has not spared the Rel Comm, the ability of his leadership should not be shunned.

      Many people also said that the R Power IPO was a scam and the ADAG group trapped investors. Yes the pricing was stiff. But many companies offer overvalued IPOs and investors subscribe to it. It was only a coincidence that the R Power IPO hitted the market and just then after the beginning of stock market crashes world wide happened due to the US Subprime crisis.
       Always remember ‘most of the IPOs come only pricey, and very few IPOs have any value on the table for investors’. I don’t recommend an investor to go through an IPO route. If one is looking for initial gains, then exit on listing, keep a sotploss a you keep in any trade or short term investment. Because this is not investment, if it is for the short term. Investment is always based on Value and not short term gains.
          Many people have a strategy ony to invest into IPOs. This is no strategy. Its only that they have found a simple way. They subscribe to all IPOs during bull market and randomly 7 out of 3 works and they earn money. I know hundreds of such investors who has made it a business to fill/invest in IPOs. When the bear market hits they usually go on vacation. They return back when the tide returns. They don’t have to apply any brain weather when to enter or not because the market itself indicates that. If the IPOs are there and receiving response then the market is favorable and otherwise not. Remember the EMMAR MGF IPO? It was the end or signal of IPO market of last bull run.
      So the point is that blaming R Power is not valid, looking at the above functioning of IPO markets and IPO investors mentality.
  Who knows the R Power IPO could have doubled in some days or months if the Global meltdown couldn't have resumed?  Surely.

On 7th May Rel Power crashed to an intraday low of 135.70, which is intraday fall of 11.82%. it settled down at close at 140.10 at 8.97% minus.

       This company will generate 33000 mega watt of power which will be higher than current capacity of NTPC (current capacity 30000 mega watt). At this capacity, sales of NTPC is 42,000 crores and profit of Rs.8221 crores, after 7 years the company will have the same figure if price remain unchanged of selling power (which is not possible, price would rise) current market capitalisation of Reliance Power is around Rs.35,000 crores .
After the SC verdict on 7th may Anil Ambani reiterated that ‘Reliance Power is committed to become the larget power producing company in India’.
Anil Ambani indeed tried hard and fought for so many years strongly for BENEFITE OF RNRL SHAREHOLDERS.
Insiders also suggest in next two years, RNRL will acquire some companies in gas distribution and other verticals.
        The Cement, BPO forays are also expected to give a boost to ADAG group’s value.
It also remains to see that how much value is created out of the media, and film production foray of ADAG Group. This is a no small or avoidable sector. If we go by the experiences of Western world, this sector has created immense wealth for investors and still command it. Many media and information companies still command top market capitalization and running profitably as well as commanding premium in take over and merger bids.

RIL-RNRL Verdict and Implications:
      The SC has given verdict in favour of RIL. This is a definite advantage to RIL and the government which going to gain several thousand crores in tax revenues, which it would otherwise couldn’t have got due to lower pricing of gas.
      Yes RNRL now will not be able to take advantage of what Anil Ambani was fighting for, i.e. the low rate of gas supply for R Power and for trading. But did the Company’s future was solely dependent on ‘this low price’ deal. No.
      The ADAG group has already started to build assets for RNRL and this is evident from its latest annual reports. Read the fundamental look given above.
     The deal remains, the contract between RIL-RNRL remains but the price wouldn’t be so low. And this was however expected given the government’s interventions and raising the stance that gas is a national property. The critic stance of ADAG might also have raged the central government and made it a matter of pride as well.
Anyways, as I said the supply deal remains, the R Power plants also would continue getting gas from RIL blocks.

      The RIL-RNRL verdict shouldn’t be blamed for this stock to make low. Because the all telecom stocks are facing pressure due to fundamental reasons.
      The telecom space is now overvrowded. The tariff war has sent most of the telecom operators’ share to lows weather it is Bharti Airtel, Tata or Rel Comm.
      The silverlinning as it might seem is the heavy rush for the latest spectrum bids and the huge collection made by the government. But many Indian players such as Videoco, Unitech have encashed or raady to encase the telecom licences or ready to do so.
      This sector is 100% and ‘stay away’ for investors. The Government of India has done a great deal in busting this sector. The government failed to understand the stages of growth and cycle of telecom business. It believes that the users have benefited by lower teriffs but the economic value has deteriorated. The declining profitability will also bring down the quality of service in this sector.
      We have been telling to all in my articles and on www.FiiTrades.Net  for so long.
The 3G thing is only savior for the telecom players. Lets see if they are able to increase ARPU-average revenue per user’ after 3G launch.
      A class of sure beneficiary will be the value added service provider for the telecom companies and users.
   Another negative for the telecom sector is the decreasing valuation of towers and decreasing dependability on telecom infrastructure. The use of non-owned infrastructure is increasing.

FUNDAMENTAL LOOK INTO Reliance Infrastructure:
    The company belongs to ADAG (Anil Dhirubai Ambani Group) having presence in power and infrastructure sectors.
      Reliance Infrastructure is not only India’s largest private sector company in power but also the largest private sector company in many other infrastructure sectors of India.
    In the power space it is involved in generation, transmission, distribution and trading of electricity and constructing power plants.
    In the infrastructure space the company is focused on roads, Urban infrastructure which includes MRTS, Sea link and Airports, Specialty Real Estate which includes business districts, trade towers, convention centre and SEZ which includes IT & ITES SEZ and non IT SEZ as well as free trade zones.
The engineering, procurement and construction (EPC) division has an order book of Rs 21,500 crore.

In the Urban Infrastructure business, it is the country’s first and only private sector builder and operator for Metro Systems. It is already into construction of the first line of Mumbai’s Metro system stretching 12 kms from Versova to Ghatkopar. Besides it has also won the Delhi Metro’s airport express link stretching a length of 22.5 kms. The total investment for these two projects is Rs 4900 crore.

In specialty real estate business, it is the country’s first and only private sector builder to build India’s first 100 storeyed building, a trade tower and business district in 80 acres of land in Hyderabad. The total investment for this project is Rs 6,500 crores.

In Special Economic Zones (SEZs), it is developing over 180 mn sq ft of SEZ for IT/ITES, retail hospitality in Mumbai and Noida with an investment worth Rs 31,000 crore.

The infrastructure assets include six roads and two metro rail projects. The company has a healthy balance sheet, with over Rs 10,000 crore of cash and cash equivalent.
The company has plans to a JV venture for the electrical equipment manufacturing business.
In collaboration with Shanghai Electric, the company is examining the feasibility of setting up equipment manufacturing facilities for power generation, to cater to the domestic sector and to markets in the Middle East, Africa and South East Asia. The progress on the project will purely be on the basis of cost benefit analysis.

This company holds 45% in reliance power which will generate 34000 mega watt powers in the next 7 to 8 years.
If we calculate the valuation @141 of reliance power then stake value per share of reliance infra will go to 1500.
Book value 525 per share (only of reliance infra and not unlisted company).

Total valuation= Reliance Power valuation + book value
Total value=2025.

Now at price of 1062 what you are paying?
What is the value of infrastructure business?
What is the value of 981 mg power capacity?
Looking at above factors and analysis our price projection are 1500 and 2000.0000000

US Market Regulator SEC Probe into 6May WallStreet Crash

The USA Stock market regulator SEC and Commodity Futures Trading Commission has started a probe into the 6th May sudden market crash.
Most of the reviews coming in is the lack of circuit breakers and the tangled network of high-speed trading network. The different rules of trading on such different trading platform which are interconnected and the trade routing system is also under criticism by many and sources suggest that the cause of such sharp crash lies in between these things only. The computer programmes making the situation worst.

The initial focus of the investigations appeared to center on the way a growing number of high-speed trading networks interact with one another and with venerable exchanges like the NYSE. Most investors are unaware that these competing systems have fractured the traditional marketplace and have displaced exchanges like the Big Board as the dominant force in stock trading.
A source said that  it appeared that as stock trading was slowed on the New York Exchange when big price moves started, orders moved automatically to other, electronic exchanges that did not have pricing restrictions.