Anil Dhirubhai Amabani Group (ADAG) Stocks: Which ones are experts betting on?
Anil Dhirubhai Ambani Group (ADAG) stocks have been fire for the last couple of sessions. In an exclusive interview with CNBC-TV18, Deven Choksey, MD, KR Choksey Securities and SP Tulsian, sptulsian.com, talk about which ones you should be betting on and which ones fundamentally appear attractive from that pack.
Q: Let us start with Reliance Communications, there has been a lot of talk about tower stake sell etc, what do you think is the most likely transaction? Would you still buy it after the recent rally?
Choksey: I think to me the transaction would be in two parts. First transaction would be for Reliance Infratel, wherein I think they would be possibly selling a majority stake in this particular company and in turn even in the minority stake in order to facilitate the new tenants for the towers, going forward. At the same time, I think this particular transaction is going to probably reduce that debt, which is there in the books of Reliance Infra at this point in time. That would possibly going to go a little bit more positive, going forward.
The second part of the transaction, which should happen, would be with RCOM, wherein they would probably in their own books and also to fund the rollout of 3G, I think probably they would be selling 26% stake in this company, which would ultimately end up realising for them around close to Rs 15,000-16,000 crore. So that would possibly going to be the second transaction.
Both these transactions put together, I think the company, which would be a little bit more attractive hereafter, would be Reliance Communications because I think the kind of valuation at which it is at this point of time traded, probably those dark clouds would go away once the debt starts disappearing, though the equity would probably get diluted in the interim period. But still with the kind of better process emerging thereafter, I think Reliance Communications should get re-rated from current levels. The viewpoint is that the stock should be trading somewhere between Rs 205 and Rs 225 levels, should this transaction take place.
Q: There has been a lot of talk around Reliance Media Works as well on whether they will buyout star stake in Balaji, all unconfirmed right now. But do you expect any significant re-rating or corporate moves in that company?
Choksey: Possible and at the same time, I think slightly difficult. Difficult more from the point of view that this entertainment business is so far not generating the bottom-line for the company and you end up acquiring one after another company which are not still making profits, I think that gives you the discomfort that we are talking about.
Possible more from the point of view, yes, I think it is a financial transaction. You have the wherewithal to handle that kind of a transaction, so it could be possible. In my viewpoint, the consolidation at this point of time in ADAG pack in the media space is more required than additional buying of this sort.
Q: There has been a lot of talk that next week we could see the signing of the gas pact between the two parties and a hint of that might come in the Reliance AGM as well on Friday, what are your expectations?
Tulsian: Definitely it is likely because we are approaching the timeline set by the Supreme Court. But I think it will more be in the recommendatory form where I have been maintaining my view that it will be the direct agreement by the Reliance Industries with the ultimate user of the ADAG, which would be Reliance Power. That recommendation will be sent by Reliance Industries to the government for their final approval. But till you have the policies getting changed by the government for the greenfield gas based power projects, I don’t think that those can be taken as the conclusive agreements, having reached between both the parties because that still remains on the table as having agreed between the parties, which needs a final approval by the government.
So, I don’t think that reference of that will be made or will be seen in the AGM, which will be held on this Friday. There could just be a reference that, yes, the things will all be moving in the coordinated manner and everything will get settled and sorted out. But I don’t think that the specific reference of gas pact having signed between ADAG and Reliance Industries will be made in the AGM.
Q: Do you expect to hear any positive triggers at all, at the AGM in terms of either reference to telecom or closely working with the ADAG, do you think any such reference will be there in the speech?
Tulsian: I think a lot of the reference or focus will be made on the telecom venture because the management will justify their venturing into the broadband wireless. Probably one could read between the lines that the eventual plans of Reliance Industries could become an integrated or complete telephony company and by having the voice telephony also in their fold. But I don’t think even the power, which is the next big area for Reliance Industries, will have any reference.
I don’t think that the ADAG will have any specific reference because Reliance Industries will still be keeping their distance because at no point of time or at none of the platform, there will be lauding the role of the ADAG. But the references will all come that the judgement of the Supreme Court has set at the rest the whole dispute. Now, in view of the non-compete clause having dismantled, the Reliance Industries has plans of going into the telecom venture. So instead of giving any reference to the ADAG, the AGM will be more focused on the dismantling of the non-compete clause and the foray and the prospects and the growth potentials in the telecom sectors, which Reliance Industries is seeing in the time to come.
Q: What could the potential signing of the gas pact as early as next week mean for RNRL as a stock because that has zoomed to nearly Rs 68-70?
Choksey: Important aspect is that once the gas pact is signed my reading says that RNRL as a company whether they would continue to hold the trading rights for gas, that is something, which is a question mark. In my view point, till this particular announcement is out it would be speculative to say anything for or against how exactly this business would move.
But assuming this judgement, which will be government’s dictate I would believe that, I think the gas would be sold to those players who are end users and in such situation though middle party would be allowed. In such situation, I think RNRL as a company for the gas trading purpose would not assume a further business model that is my view point. But then we will have to wait for lot of clarity before it is made a rule as far as RNRL is concerned.
Q: Do you agree because the market is very excited about RNRL, but that is one risk that RNRL gets cut out in terms of the gas supply agreement, which is done directly between RIL and Reliance Power and Reliance Infra, RNRL doesn’t come into the picture as a middle party? What do you think?
Tulsian: I have been maintaining the view that there is no necessity of RNRL now to exist between these supply agreements, which will get concluded eventually between Rel Power and RIL post Supreme Court judgment. If you see there is one more point in this, I am not prepared to accept that there has not been any consideration payment by Mukesh Ambani Group to Anil Ambani Group and obviously that consideration amount is unknown to anyone. But part of that can get satisfied by taking over RNRL, which has been in the news couple of months back also when the litigation was on or maybe six months back when the litigation was all going on. So, probably because RNRL has the assets like coal bed methane, they have one oil exploration blocks, so one can always conclude that takeover of this company will give growth potential for RIL to expand in these areas and in pursuance to that this company is being taken over.
The ultimate aim of both the groups would be to retain the valuation of the company because RNRL today is enjoying a valuation of Rs 8,000-8,500 crore and no group would be interested to see the value getting eroded, which will largely be impacting about 2.5 million shareholders because 45% stake of that is held by those companies and that will really be a big dampener to the reputation of both the group. So ultimate aim is to preserve the market capitalisation and to achieve that objective, probably RIL I won’t be surprised to be taking over RNRL. But if you try to derive some value with gas rights, which presently are held by RNRL, I won’t be giving any consideration or valuation on that aspect or on that point to RNRL.
Q: What about Reliance Capital that is up about 15% since the new MoU, how do you value that?
Choksey: I think the important aspect is and I would strictly go with re-rating sentiments, which are happening into the market. Now, the investors are more comfortable because they believe now the managements of these companies are a little bit more free to look at business per se.
For Reliance Capital, looking at the fundamentals, I think the growth prospects are emerging a little brighter. Few of the things, first out of lot would be the insurance business, at some point of time you should be seeing the unlocking of this particular business happening. That is where the market up till now which was skeptical because of the management time not available for this kind of activity is now more looking positively and that is why you are seeing some kind of re-rating. We do believe that going forward in each of their areas of business in financial companies, I think would start getting better attention and that is why markets are seeing some better hopes and this re-rating. Otherwise, fundamentals are expected to follow in the businesses in which they are operating.
Q: What about Reliance Industrial Infra, it has gone up 40% since the new MoU came in, what is driving that stock?
Tulsian: Amongst both the group this company has shown the highest appreciation as you have rightly said, it has appreciated by about 35-40%, especially in last three-four days. I won’t be attributing this rise since the dismantling of the non compete clause, infact that has happened couple of weeks back, but the rise has happened only in the last four days. This company has a marketcap of just Rs 1,500 crore and you cannot expect any company from Mukesh Ambani Group to remain at such a low level, such a low marketcap. Now, people have started talking that the old expectations that probably the gas transportation infrastructure, which are held by Mukesh Ambani in his personal capacity could get pooled into this company. Presently, this company only has a Chembur Patalganga pipeline, which transports crude from BPCL refinery to Patalganaga of about 60 kms, so this fits into the object of the company. 46% stake is held by RIL in RIIL and if the gas transportation infrastructure network is pooled into this company promoters, along with Mukesh Ambani, can increase their stake in the company to about 90% and further dilution can happen and huge amount can get mobilised.
Second talk, which has started happening from last couple of days, that probably Infotel broadband can also come in this company. So this is largely on the hopes of a massive restructuring likely to happen in RIIL by putting in some existing projects, which will increase the size of the company maybe by 10-20 folds.
Source : Money Control
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Category: Stock-News
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