adag, and market inefficiency

reliance power

Reliance Power operates power plants and is also involved in distribution of electricity. In early January 2008, Reliance Power came out with an initial public offering primarily to fund its power projects across the country. In February 2008 the stock got listed, opened at a high of over Rs.500 per share, but closed the day at just over Rs.370. This was the largest IPO at the time which collected over Rs.115 b through issue of 260 m shares. During February and March 2008, the stock price saw a high of Rs.599.90 (BSE) and a low of Rs.303 (NSE). 

To make up for the loss, the company issued bonus shares to all the minority - that excludes promoters - shareholders in the ratio of 3:5. That makes the high price adjusted to bonus to Rs.375 and low price to Rs.189, and the market capitalization of the business to Rs.905 b (high) and Rs.457 b (low) in 2008. As of now, the stock is trading at Rs.10.75 and the market cap is Rs.30 b. That's a colossal loss. The promoters own 75% of the business, and over 80% their shares are pledged. 

It was generous of the chairman to give bonus shares to the shareholders when it was clearly not required. If the shareholders thought the business was good enough at Rs.450 per share, they would have got their expected rate of return, never mind the blip in the stock price. That the issue price was too high was something investors had to check for themselves. Even the timing of IPO wasn't considered right which had the makings of the global recession. However, the long term fall in stock price is not attributed to these events, but the business itself.

reliance infrastructure

Reliance Infrastructure is involved in power plants, metro rails, airports, bridges, and toll roads. The company acquired BSES in 2002 and sold its transmission business in Mumbai in 2018. In January 2008, its stock traded at Rs.2,485.75; that was nearly Rs.600 b for all equity. Now the stock price is Rs.112.30 and the market value of equity is Rs.29 b. Down 95%. The promoters own about 48% of the business, and over 80% of their shares are pledged. 

reliance communications

Reliance Communications emerged from transfer of telecommunications business from Reliance Industries on a going concern basis, and it shares were listed in early 2006. In January 2008, the stock was priced nearly Rs.800, and the equity was priced over Rs.1,500 b. It is trading less than Rs.6 per share now, and the equity is worth Rs.15 b. Down 99%. The company has filed for bankruptcy this month as there have been too many hiccups in its attempts to sell assets to repay its enormous debt. The promoters own about 53% of the business, and 30% of their shares are pledged. 

reliance capital

Reliance Capital is a financial service company operating in asset management, mutual funds, stock broking, wealth management, insurance, and finance. In January 2008, the stock was trading at Rs.2,762.60, and as I write this post in February 2019 it is quoting at Rs.136.50. The market value of its equity has fallen 95% from Rs.678 b to Rs.35 b. The promoters own about 52% of the business, and 75% of their shares are pledged.

reliance naval 
Reliance Naval & Engineering is into shipbuilding business. After Reliance Infrastructure acquired 17.66% stake in Pipavav Shipyard in March 2015 for $130 m, it came out with an open offer, and the ownership now stands at about 30%. The company operates as a part of the ADAG group.  In August 2010, the stock was trading at Rs.116.20 and in December 2015, at Rs.100.25. The market cap has changed from Rs.77 b to just over Rs.6 b. Down over 90%. All of promoters shares have been pledged.

reliance home finance
Reliance Capital owns 48% of Reliance Home Finance, and the total promoter holding is 75%. As it was spun out of Reliance Capital in September 2017, each share held in Reliance Capital got a share in Reliance Home Finance. The stock price has fallen from Rs.107.20 (September 2017) to Rs.24.30. That's reduction in market cap of 77%. The company is worth about Rs.12 b now.

reliance nippon life
Reliance Nippon Life Asset Management is owned by Reliance Capital (43%). In January 2018, the stock price was Rs.318.30. As of now, it is 50% down and the market cap of the company is Rs.96 b.

The promoters ownership has proportionately fallen to Rs. 115 b as of February 2019.

Like we noted the long term fall in stock prices is not attributed to any macro events, but the businesses themselves. For whatever reasons many of the businesses have been dealing with unmanageable debt, and as is their wont, the markets have also punished those that should not have been.

Nevertheless, such a steep fall in stock prices appears to be unwarranted, and this might be an opportunity for investors having faith in the management. A decade and more, these businesses should come out of their problems and emerge good. But then again such contrary views require bold moves, and also depend upon the opportunity costs.