Things felt by Investors, Creditors, Business Partners, Govt..etc went wrong for Anil Ambani’s RCom.
The answer is simple – They failed as a business by going bankrupt.
So, What went wrong For RCOM ?( Reliance Communications Ltd on NSE )
The single line answer is – Debt
The Rise and Fall of RCom !
At one point RCom share price hit the high of Rs. 844 per share (2010) after listing on exchange way back in 2006 for ~Rs. 310 and made all time low of Rs. 0.5 and It’s current market price is Rs. 0.85.
In 2002, when the mobile phone used to be a luxury, Reliance Infotech (now Reliance Communications) provided mobile services to people in just Rs 500. When the competition increased in the industry – cheap call rates, introductory offers by introducing new business models in the industry. Later this model was adopted by all the big telecom companies. Although companies like Airtel, Jio, Idea and Vodafone are still firmly in the market, RCom had now gone bankrupt in May 2019.
Industry experts are convinced that nothing can be said about the way RCom has increased the debt and the subscribers have continued to run away. Experts say that RCom was the flagship company of Anil Ambani Group, who was in trouble due to the wrong expansion plan.
Anil has put a target to 100 Million subscribers by the end of 2010 and company achieved 125 Million subscribers ( Anil’s Networth was $45 Billion in 2010) by that time company is having Rs. 25,000 Cr in debt and gradually it increased and reached Rs. 45,000 Cr in 2019.
Now, he is no more a Billionaire
The debt grew on the company, the company which was unable to repay. At the same time, after the introduction of Reliance Jio in the telecom industry, the pricing war was started, due to lack of funds for operations, RCom could not stay in the competition. That’s why they are lagging behind other big companies.
Today, it is not included in the top 5 in the subscriber terms. Fortune Fiscal Director Jagdish Thakkar says that when the business was divided between Mukesh Ambani and Anil Ambani, then the telecom company came in Anil Ambani’s share. As of 2010, it was the Anil Ambani Group’s flagship company.
By 2010, RCom’s market share was 17 percent in the telecom industry and it was the second largest company. The company’s number of subscribers was also good. At the same time the debt started to grow on the company’s expansion and its proper management could not be found.
Competition from Peers
After the arrival of Reliance Jio, the telecommunication industry data war ran in, RCom was difficult to sustain. Companies like Jio, Airtel and Idea and Vodafone increased spending to maintain their customer base. So that their customer base got swept by their peers. At the same time RCom got behind in this game.
Market Capitalization (Source – NSE )
His prime and average customers all went away from him.The market cap of the company has fallen more than 99.5 %. In Jan 2008, the market cap of RCom was close to Rs 1.66 lakh crore, which dropped to Rs 230 crore as of March 8, 2020.
Some analysts believe that the fall in RCom is also part of Anil Ambani’s continuous weakness in Anil Dhiru Ambani Group. According to Bloomberg’s data, in the last 10 years compounded annual growth rate, the sales of ADAG Group has been positive, but the profit and returns have gone negative. Sales growth during this period was 9.4 per cent, while profit growth was 12.6 per cent and returns growth was 1.7 per cent.
On the other hand Mukesh Ambani’s Reliance Group’s sales growth stood at 11.2 per cent, profit growth at 9.4 per cent and return rate of 17.8 per cent.
Subscriber Base as on Dec 31st 2019 (Source – TRAI)
As per the latest information released by TRAI, Reliance Jio has become the largest telecom operator in India with 369.93 million and market share close to 35.04 % in the telecom sector, as far as Airtel is concerned It is with a user base of 327.30 million users that gave it a 29.35 % market share.
Vodafoen Idea stands second with a user base of 332.65 million with a market share of 30.4 % but with losses in hand.
Recovery of Debt
NCLT had filed three petitions in the Tribunal for recovery of debt against Reliance Communications and its affiliates since the company gone Bankrupt. A company of telecom equipment maker, Ericsson, which has been approved and Ericsson signed a 7-year deal with the company in 2014. Under this deal, he had secured the responsibility of managing Reliance Communications’s nationwide telecom network. Ericsson has claimed Rs. 1,155 crores from RCom and its two subsidiaries.
NCLT has ordered RCom to plan a Resolution and stated to consider two Important points,
- Consider the Association of all the 38 lenders
- After Executing Rs. 23,000 Cr recovery should happen for Secured Debt
After finishing the Resolution plan and Informing the same to all the 38 Lenders and they were set to vote on Feb 24, 2020 for the Resolution Plan but most of the Lenders didn’t participated in Voting and they told we’re yet to discuss about this with our Board of Directors (BoD) and we’ll come back after taking approval from our BoD.
Final Decision on Mar 4, 2020
On Mar 4th, SBI approved Resolution Plan and Voted for it and SBI is the Leading Lender and 90% of the times when SBI approves something then rest will take the same path and it happened in this case as well. Committee of Creditors (CoC) also started voting process.
Current Offers for RCom
They are quite a few offers for RCom and out of which there are 2 big offers, ie;
- Mukesh Ambani’s Reliance Jio Infocomm &
- UV Asset Reconstruction Company
The Combined Bid Amount is Rs 21,000 Cr.
Impact on Investors
The stage is set for CoC to find the Buyers for;
- RCom Assets
- RCom Subsidiaries &
- RCom Ltd as a whole
According to NCLT, all the money which came from sale of Assets and Subsidiaries were given to creditors and lenders and not for Investors. ( Not even a penny for who Invested in this )
But the people who hold these shares can get benefited when Anil Ambani’s RCom as a company is brought by some other company and starts to revive the operations. This is the Best Possible Scenario for Investors.
Let’s end this by praying that CoC will probably find that one buyer who is able to buy RCom Ltd as a whole because if the above stuff is brought by different buyers then their is nothing Investors gonna get out of this, even if they get that is Negligible.
Finally My View on Anil Ambani’s RCom is;
Anil Ambani’s Reliance Communications failed to communicate It’s Reliance
Until then, this is Rushi. Happy Trading!