(This piece is written in angst. Anil Ambani used to be one of my "icons". The kind of person I thought was the poster boy of modern India. He runs the marathon. He is smart. He is young. He is dynamic. But what has gone wrong?)
How can one of the top industrialists of India....Anil Ambani.... allow to get his companies into a situation where SEBI has to ban two of his companies and him personally from investing in the stock market? I know he has not "admitted" charges, but still what about the loss of reputation? Is not admitting charges, but agreeing to pay the damages, acceptable on the grounds that the case could have dragged on for many months or years? That its smarter to settle and move on? I dont think so.
As a shareholder in many of ADA's companies, I feel betrayed. I feel like I have invested in a group that doesnt care for ethics. Even earlier.....the TRAI has held his RCOM guilty of under-reporting revenues so that license fees payable to the government would be lower. There was under-payment of Rs 315 crores in license and spectrum fees to the government. It doesnt matter if this matter is right or wrong.....whether it is proven or not. Even before that, there was the case of masking international calls as domestic calls to avoid some payments to BSNL (BSNL levied a charge of some Rs 100 crores). In this case, the Supreme Court ruled against RCOM. Of course, this happened at a time with the Reliance group was undivided.....but in public memory, it was an ADAG company that got hit by the SC. Its not surprising then to see the situation RCOM finds itself in. Though it is the 2nd largest telco in the country after Airtel....with hardly a gap of 20% in subscriber base, its revenues are only one-third of Airtel's and its market capitalization is just about one-fifth of Airtel's. This means its ARPU is way lower than Airtel's. RCOM's revenues are smaller than even Idea's.....a much smaller company, but coming from a reputed group. Why is it that the better off subscribers have deserted RCOM? It cannot be because Airtel launched earlier than RCOM. In this industry, there is so much churn.....why didnt the better subs go to RCOM? Why have the investors started deserting RCOM?
Company after company in the ADAG has done similar things. In one infrastructure project after another, there are delays. There is huge cost escalation. Of course, they have a story too.....and maybe its correct. That government permissions are delayed and so on. But then, how is Reliance Infra any different from any public sector undertaking? They always bid the cheapest.....win the contract......and then much later, when many delays have happened, they increase the quotes. This is a steady pattern. In the past, when ADAG and MDA group were the two bidders for the Sewri-Nava Sheva sea link in Bombay.....MDA sought some 75 years to recover investments thru tolls. ADA offered to do it in just 9 years or so. ADAG won the contract. Those were the heady days of conflict between the brothers.....the success must have meant a lot to ADAG. But very soon, they must have realized that they would lose money. Suddenly one day.....the government announces that the project specs had been changed.....and that the sea link needs to be 6 lanes and not 4......and the contract awarded to ADAG was canceled. What a relief it must have been to ADAG. Or was it all just a very well orchestrated plan to get out of a difficult situation????
In the past, investors used to invest merely on the back of the reputation of Dhirubhai Ambani. The man had never let his investors down. I used to work in Mudra about 15 years back. I had heard stories of how office boys had been given loans by Dhirubhai Ambani to buy the stocks of RIL when the company first listed. And how they had become millionaires. That's what the word Reliance meant. This was the reputation that the two brothers inherited from their great father. I am not sure many investors feel that way about ADAG any longer.
In contrast, MDA has been a lot more careful. His group prefers to stay out of the news. I am not saying that there is no hanky-panky going on in that group.....I am just saying that in public perception, MDA group has stuck to the values that Dhirubhai stood for. For a lot of people in this country, trust is an important dimension in any relationship. That trust has not been broken by MDA yet. Today, the RIL group is valued at around Rs 3.5 lac crores (the largest private group in the country) while the ADAG group is valued just a little over 1/3rd of this.
Everyone manages the government. People know this. In fact, investors value this ability to manage government. Investors know that the two Ambani brothers do a very good job of managing policy making in Delhi.....but there is a difference in the way it is handled. Never have such accusations been levelled against MDA group......at least not in the public domain. Nor against Ratan Tata or Sunil Mittal or Godrej. That matters to investors. Public perception is very important.....even if the facts are the same. I am happy to stay invested in MDA but not in ADA. So if you cannot be as clean as Narayanmurthy, at least be as smart as MDA.
I am making an appeal here to Mr. Anil Ambani. I want to be your fan again. Please do something. Please remember investors value reputations of promoters a lot. While returns on investments are important, reputations of big promoters like you are even more important. High returns only attracts short term capital......a good reputation attracts long term investments. It's so much like politics really. It doesnt matter if you are corrupt or not.....but what matters is what people believe. The truth seldom matters. That's the real truth