Interestingly, all the positive news flow happened to come from just one media house, leading to higher share prices for all ADAG companies
Last week, shares of almost all Anil Dhirubhai Ambani Group (ADAG) companies suddenly rallied together owing to a string of 'positive' (planted?) news, which appeared only in the newspapers belonging to one media group. Over the weekend, the business daily from the same media house also published a story, sourced from an agency this time, that there is no manipulation in last week's rally in ADAG companies' shares! But who was asking? What was the group/the agency/the media house clarifying?
The reason why the agency copy (clarifying that there was no manipulation) had to be planted was because all the 'positive' news stories except one, are false and exaggerated.
It all started with scrapping of the non-compete agreement between Anil Ambani and his elder brother Mukesh Ambani. While every other media house wrote a number of stories about how the deal is profitable for the elder sibling, Moneylife argued that in reality the deal is one-sided and is not scrapped, but extended. (Read more http://www.moneylife.in/article/8/5688.html). We also argued that the Reliance truce means little in real terms. (http://www.moneylife.in/article/8/5563.html).
However, what followed later was a number of 'positive' looking news articles appearing in one business daily, which sharply boosted share prices of ADAG companies-against the overall market downtrend. Last week Reliance Media World Ltd (RMWL) shares hit the upper circuit twice, mainly on reports that the company was in talks with US-based CBS Corp and may form a joint venture to launch television channels.
Interestingly, RMWL shares have been falling since December 2009. In the last week of May, its shares hit a new 52-week low on a full year net loss of Rs76.1 crore. For the year to end-March, RMWL reported a net loss, mainly on debt-servicing cost, depreciation and amortisation, it said in a release. During FY10, its total revenues were Rs180 crore. However, on 31st May, news about RMWL's possible joint venture appeared in the same daily prompting the shares to hit the upper circuit. The same movement was witnessed in RMWL shares on Friday where it hit the upper circuit of Rs61.7 again. Overall, during the week that ended on 4th June, RMWL shares rose 26%, courtesy the 'positive' news in one paper! Never mind, just last month the company reported a huge net loss for the year to end-March. This news died its natural death, eventually.
Over the next two days, the business and general daily belonging to the same media house published two-three different 'positive' stories on ADAG companies. The reports said, 'Reliance Communications Ltd (RCom) could re-open merger talks with South Africa's MTN' and 'UAE-based Etisalat was in talks with RCom to buy 25% stake in the ADAG company for Rs18,000 crore'. No wonder, shares in RCom, India's second-largest mobile carrier, ended 6.4% higher on Thursday after gaining 11% on Wednesday, cutting its losses for the year, after being one of the worst performers in the 30-share main BSE index. RCom shares ended the week 14% higher at Rs168.5 from the previous week's closing of Rs147.5 on the Bombay Stock Exchange. Just a fortnight ago, RCom shares hit a 52-week low of Rs131.8 on 21 May 2010.
On Sunday (6th June), the board of directors of RCom approved sale of 26% stake in the company at an appropriate premium to the prevailing market price and also to examine and pursue other appropriate strategic combinations or consolidation opportunities. According to media reports, three companies, Etisalat, MTN and US-based AT&T are the frontrunners to buy 26% stake in RCom. Passing a resolution is one thing. Closing a deal is another.
Another ADAG company that was trading at its 52-week low during the past fortnight and has moved up on 'positive' flow of news is Reliance Capital Ltd (RelCap). On 21 May 2010, RelCap shares ended at Rs611.30 on the BSE. Then, the same newspaper came up with a story that RelCap is in the race to buy stake in Over-The-Counter Exchange of India (OTCEI). The news pushed up the share price of RelCap by 5% over the week to end at Rs679.2 on Friday.
The 'positive' news flow about ADAG companies that continued during the past 10 days or so, also boosted the share price of Reliance Natural Resources Ltd (RNRL) by 3% to Rs54.52, Reliance Infrastructure Ltd (RInfra) by 5% to Rs1,110.7 and Reliance MediaWorks Ltd (RelMedia) by 6% at Rs182 at the end of trade on 4th June. With market regulator Securities and Exchange Board of India (SEBI) and the stock exchanges pretending that we have manipulation-free markets, everyone seems to be having fun.
On Monday, RCom shares closed 4.6% higher at Rs175.9 while RMWL ended 4.9% up at Rs64.8 on the Bombay Stock Exchange (BSE). While RNRL shares fell 2.7% down at Rs52.7, RelMedia declined 0.7% at Rs180.6 and RInfra closed 2.4% down at Rs1,083.90 while the benchmark Sensex ended the day 2% down at 16,781 points.
A look at the commercial vehicles segment, what makes it click and the financial challenges that it faces
The commercial vehicle market in India has traditionally been divided into approximately three wide segments, for purposes of technical demand-supply equations, as well as financial segregations.
a) Large institutional customers: This comprises State Transport Undertakings and other government, defence and paramilitary, large private customers, the mining industry and similar sectors. Securing payments and organising finance here is usually not an issue for the manufacturer, and where there are issues, there are always time-tested solutions.
b) Smaller corporate and regularised sector customers: Schools, colleges, hospitals, factories, fleet owner/operators come under this segment. Securing finance is usually not an issue for these customers, too, and the manufacturer therefore secures his fiscals through established routes involving banks or non-banking financial institutions.
c) Single vehicle owning/operating: This is probably the biggest segment for the manufacturer, varying with end usage, and barring the cash-down type of customer, financing a vehicle is extremely difficult for most of the others. It usually involves a host of intermediaries, which increases transactional costs, and reduces efficiencies for the end customer.
In addition, for quite some time now, there is also the export market-which does in some ways influence what the domestic market will eventually also get, but which does not impact the financing part of the domestic market. Your correspondent has worked on ships which carried Tata trucks and buses for export way back in the seventies, and even then, the "export" models had aspects that were simply not found in vehicles for the "domestic" market-but were then seen on Indian roads a few years later. Air-conditioning, for example, in buses and power steering in trucks.
The third category, the single vehicle owner/operator, is perceived to currently be the largest by size. Although data is not available, this category is supposed to be between one-third and two-thirds of the overall market, depending on kind of vehicle and the usage it is put to. This is very important-the kind of usage determines many aspects of the ownership and resale experience-thus impacting, also, the financing part. In the three-wheeler commercial vehicle segment, for example, it should be almost 100% single vehicle owner/operator, but in actual fact there are many single entities who "control" large fleets in their spheres of influence, so the financing and re-financing part is skewed accordingly-set absolutely against the single owner/operator.
This segment is also, because of the way things work, the worst off as far as anything on the roads is concerned. At all stages, the decks are loaded against the aspirational single vehicle initiate, who first has to be a cleaner, then a conductor and finally a driver before he can hope to be an owner-operator. The inertia levels stacked against him and the totally opaque system that works against them are usually impossible to crack. Incidentally, this is also the way things work in India in three industries-films and entertainment, real estate and construction, as well as road transport. The inertia levels that exist make it very difficult for new entrants to break the vicious cycle of financier, re-financier and others, all of whom operate with the strength of the system, aka "the government" behind them.
This, however, appears to be set to change. A quiet revolution has been brewing in the small commercial vehicle segment for the past few years, and is set to explode, if predictions are to be believed. However, finance remains the biggest stumbling block, and the interest rates are terribly stacked against those trying to get in.
So the next obvious question is this-why do people wish to get into this line? The answer is simple, the alternate option is to go back to pushing a cycle rickshaw, or worse, starve in a village somewhere, working as bonded slaves if nothing else.
Ask any ex-small village driver in the public transport industry in any city on why he left his village or small town and the answer is always the same, first it is "there was nothing else to do", followed by "to escape the bandhua (bonded labour) system".
So there I am, young, male, unmarried, maybe with an education but with hardly any literacy, running away from whatever fate had in store for me, in the big city, with a driving licence for commercial vehicles secured from the Regional Transport Office (RTO) in the jurisdiction by whatever means possible, sleeping under the stars or in a slum somewhere in an unrecognised settlement, dreaming of buying a small truck, or if nothing else, just an auto-rickshaw. And then I go to the dealer, new or second-hand commercial vehicles, and ask for a loan to buy my own little yellow-plate wonder. That's where my real education begins.
As stated before, there is a small commercial vehicle revolution about to sweep the country, like no other before, and it will probably impact the sub-three-tonne payload segment the most. And the way things are going, the day and age of the single owner/operator is around the corner too. The question is-will the financing products and services be available, ready, for this growth?
Chances are, from all appearances, that change is in the air. And where there is change, there will be resistance.
(This is the second part of a two-part series on commercial vehicles)
Mr Mukherjee advised European and American policymakers to follow regulatory mechanism on the lines of the Indian banking system
India's proposal to regulate banks instead of imposing a tax to fund future bailouts was "by and large accepted" at the recently concluded meeting of G-20 Finance Ministers in South Korea, reports PTI.
Finance minister Pranab Mukherjee, who returned from Busan yesterday, said here that India had suggested to the rich nations that it was better to regulate banks through policy instruments like the cash reserve ratio (CRR) rather than imposing a tax.
CRR is the portion of deposits that banks are required to keep with the central bank.
"On the financial regulation, we are not in favour of having taxation on the banks. We suggested that ultimately you please take it up through the regulatory route... By and large it was accepted," he said.
Mr Mukherjee advised European and American policymakers to follow regulatory mechanism on the lines of the Indian banking system.
India, Australia and Canada are opposed to the proposal to tax banks to fund the cost of future bailouts and financial institutions while the European Union (EU), the US, and Britain are in its favour.
Referring to the risks that the crisis in Greece could pose to the global economy, the finance minister said, "It is Europe's responsibility to contain the contagion...because faster recovery in Europe is essential for the developing countries both for foreign direct investment (FDI) and exports."
Europe accounts for 20%-22% of India's exports of about $176 billion.
Mr Mukherjee conveyed it to the finance ministers and the chiefs of the central banks of the 20 most influential countries in the world that the global recovery was still fragile.
"We analysed the overall global financial situation, and in that context I gave my perception that still the recovery is fragile. In between, the events in the euro zone, particularly the crisis in Greece, have taken place," he said.
The G-20 Finance Ministers meeting took place weeks ahead of the summit of the grouping, which will be attended by prime minister Manmohan Singh in Canada.