Reliance (ADA) group stocks witnessed heavy selling pressure on Monday with all the group stocks down about 5% or more despite the damage-control exercise over the weekend to soothe investor fears related to the Sebi order on Friday.
A host of analysts have come out with cautious to negative reports on Reliance Infrastructure (R-Infra), mainly highlighting their concerns about the investment management practices of the company.
On Monday, among the leading companies from the group, while the R-Infra stock closed 7.8% off at Rs 736, Reliance Capital lost 6.5% to Rs 574, Reliance Communications lost 4.8% to Rs 132 and Reliance Power 6.1% to Rs 138. Among others, Reliance Mediaworks was down 8.5% to Rs 182, while Reliance Broadcast was off 6.2% at Rs 73.
The losses came on the back of market regulator Sebi's consent order on Friday that said ADAG chairman Anil Ambani will not be allowed to invest in shares of listed companies during 2011, while two of his group companies, Reliance Infrastructure and Reliance Natural Resources (RNRL), which has since been merged with Reliance Power, will face similar restrictions on investments till 2012. Sebi had also imposed bars on investments till December 2011 on other directors of R-Infra-Satish Seth, S C Gupta, Lalit Jalan and J P Chalasani. The order relates to Sebi's investigations about ADA group companies investing funds raised through ECB and FCCB in the domestic stock market, which is not allowed under the current rules.
Sebi, through this consent order which was voluntarily proposed by ADA group companies, said that the companies and the directors have already paid a settlement charge of Rs 50 crore On Sunday, in a press meet Ambani said that the Sebi ban on the two companies and himself were self-imposed, and added that the order was grossly misrepresented.
In a report on R-Infra, Kotak Institutional Equities noted that deployment of cash and equivalents has been a contentious issue with R-Infra, with its liquid balance sheet comprising Rs 10,300 crore of cash (and equivalents) at the consolidated level. "The bone of contention has been the deployment of funds in inter-corporate deposits (Rs 2,770 crore) and redeemable preference shares (Rs 3,500 crore). We note that of the Rs 7,200 crore raised by R-Infra over the past four years through equity issuance (Rs 4,700 crore), NCDs (Rs 850 crore) and ECBs (Rs 1,600 crore), substantial funds remain deployed in contentious investments such as inter-corporate deposits (ICDs) and redeemable preference shares,'' the report by Murtuza Arsiwalla and Shubham Satyarth noted.
"The current consent order still leaves questions on utilization of the cash unanswered; only suggesting that prima-facie investigations suggest misrepresentation of investments in the annual report,'' the analysts added. However, Kotak retained its target price on the stock at Rs 1,060 but said it would revisit the `cautious' rating and target price once better clarity emerges on end-utilisation of funds.
Analysts at foreign broking house JP Morgan downgraded R-Infra to "neutral" from "overweight" and revised its price target drastically to Rs 950 from Rs 1,360. The downgrade was done mainly because of the absence of catalysts for higher valuation of the stock. On the Sebi order, JP Morgan analysts said that the regulator's findings do not "speak well of the company's investment practices.''
Among other domestic fund houses, Religare, which has a "buy" rating on the R-Infra stock with a target price of Rs 1,390, said that the Sebi order does not restrain the companies from selling their investments. "While this consent order takes away a long standing overhang, we don't think that the stock will outperform, unless transparency level on balance sheet items improve,'' the Religare analysts noted.
A host of analysts have come out with cautious to negative reports on Reliance Infrastructure (R-Infra), mainly highlighting their concerns about the investment management practices of the company.
On Monday, among the leading companies from the group, while the R-Infra stock closed 7.8% off at Rs 736, Reliance Capital lost 6.5% to Rs 574, Reliance Communications lost 4.8% to Rs 132 and Reliance Power 6.1% to Rs 138. Among others, Reliance Mediaworks was down 8.5% to Rs 182, while Reliance Broadcast was off 6.2% at Rs 73.
The losses came on the back of market regulator Sebi's consent order on Friday that said ADAG chairman Anil Ambani will not be allowed to invest in shares of listed companies during 2011, while two of his group companies, Reliance Infrastructure and Reliance Natural Resources (RNRL), which has since been merged with Reliance Power, will face similar restrictions on investments till 2012. Sebi had also imposed bars on investments till December 2011 on other directors of R-Infra-Satish Seth, S C Gupta, Lalit Jalan and J P Chalasani. The order relates to Sebi's investigations about ADA group companies investing funds raised through ECB and FCCB in the domestic stock market, which is not allowed under the current rules.
Sebi, through this consent order which was voluntarily proposed by ADA group companies, said that the companies and the directors have already paid a settlement charge of Rs 50 crore On Sunday, in a press meet Ambani said that the Sebi ban on the two companies and himself were self-imposed, and added that the order was grossly misrepresented.
In a report on R-Infra, Kotak Institutional Equities noted that deployment of cash and equivalents has been a contentious issue with R-Infra, with its liquid balance sheet comprising Rs 10,300 crore of cash (and equivalents) at the consolidated level. "The bone of contention has been the deployment of funds in inter-corporate deposits (Rs 2,770 crore) and redeemable preference shares (Rs 3,500 crore). We note that of the Rs 7,200 crore raised by R-Infra over the past four years through equity issuance (Rs 4,700 crore), NCDs (Rs 850 crore) and ECBs (Rs 1,600 crore), substantial funds remain deployed in contentious investments such as inter-corporate deposits (ICDs) and redeemable preference shares,'' the report by Murtuza Arsiwalla and Shubham Satyarth noted.
"The current consent order still leaves questions on utilization of the cash unanswered; only suggesting that prima-facie investigations suggest misrepresentation of investments in the annual report,'' the analysts added. However, Kotak retained its target price on the stock at Rs 1,060 but said it would revisit the `cautious' rating and target price once better clarity emerges on end-utilisation of funds.
Analysts at foreign broking house JP Morgan downgraded R-Infra to "neutral" from "overweight" and revised its price target drastically to Rs 950 from Rs 1,360. The downgrade was done mainly because of the absence of catalysts for higher valuation of the stock. On the Sebi order, JP Morgan analysts said that the regulator's findings do not "speak well of the company's investment practices.''
Among other domestic fund houses, Religare, which has a "buy" rating on the R-Infra stock with a target price of Rs 1,390, said that the Sebi order does not restrain the companies from selling their investments. "While this consent order takes away a long standing overhang, we don't think that the stock will outperform, unless transparency level on balance sheet items improve,'' the Religare analysts noted.
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