Three years ago on February 11, 2008, when Reliance Power got listed after attracting the highest-ever investor response to a public issue, Anil Dhirubhai Ambani Group (ADAG) became the second-most valued in India with a combined market capitalisation of Rs2,86,839 crore — second only to the Mukesh Ambani group.
But things fell apart — fast. And with changing business dynamics of industries that it operates in, the group's valuation over the last three years has come down to less than a third to Rs87,000 crore, or lower than the market capitalisation of nine private sector companies, from Reliance Industries to Larsen and Toubro.
While ADAG has lost 70% of its value in three years, the stock market benchmark BSE Sensex has gone up by 8.8% in the same period.
As if the weakening business environment was not enough to hit the fortunes of Anil Ambani and his companies, a January 14 consent order by capital markets regulator Securities and Exchange Board of India (SEBI) made things worse. It restrained Anil Ambani, four directors of the group and Reliance Infrastructure and RNRL from investing in the secondary market, all of which fell 6-10% in the next trading session.
SEBI's consent order related to a case of fraudulent and unfair trade practices between 2007 and 2009 by the group companies. Anil Ambani later clarified that the order will in no manner impact the company's growth plans as they retain full financial flexibility.
Repeated mails sent to Reliance Communication, Reliance Infrastructure and Reliance Power did not elicit any response. Repeated mails, calls and SMS messages to the ADAG corporate office too did not result in a response.
Market analysts say ADAG's performance over the last couple of years has more to do with the industries the group operates in than with the group and its management.
If the telecom sector has been hit with margin pressures as a result of growing competition, the power sector has seen a dip in merchant power rates.
"In the telecom business, the company is burdened with dual technology and profitability has been below its peers," said research head at a leading global financial services company, who refused to be identified.
"In the power business, they have got ultra mega power projects and approvals for coal but have yet to set up plants."
The combined consolidated revenues of the six listed entities of ADAG have gone up from Rs38,835 crore in March 2008 to Rs51,351 crore in March 2010, a growth of 32%. But the combined profits of these entities slipped to R6,920 crore, a fall of 24%. The figures for the first two quarters of 2010-11 are also not very encouraging.
"The margins of the companies have declined over the past couple of years, which has reflected on stock market performance," said an analyst in a mutual fund.
Except for Reliance Infrastructure that saw expansion in revenues and held its ground on profit numbers, all others have seen their profits shrink.
The financial sector has been under pressure as a result of the global financial crisis, interest rate volatility, and regulatory changes between 2008 and 2010. The sole ray of hope for Reliance Capital: banking licences.
"If Reliance Capital gets the banking licence then we could see a rerating," said the head of research at a leading domestic brokerage firm.
"I would say that 70% of that (the fall in ADAG companies) has to do with the industry dynamics and 30% to company related issues," another analyst said. "Since the companies are leveraged, once the industry dynamics turn positive, ADAG will bounce faster."
To return to where it was exactly three years ago, that's going to take a lot of bounce.