“Investors have been mindful of how the ADAG companies have performed since the past few years and the debt they have on their books. Since the past few months, there could have been expectations of the company becoming proactive in managing its debt obligations and hence the stocks may have reacted accordingly. The recent rally could be news
and anticipation-driven,” says Amarjeet Maurya, assistant vice-president for mid-cap research at Angel Broking.
Last week, Reliance Power
announced plans to raise Rs 1,325 crore by issuing preferential shares and warrants to its parent, Reliance Infrastructure. It will issue up to 59.5 crore equity shares and up to 73 crore warrants convertible into equivalent number of equity shares at Rs. 10 each by conversion of debt, to Reliance Infrastructure. With this, Reliance Power's standalone debt will reduce by Rs 1,325 crore and along with its other planned debt reduction in subsidiaries, its consolidated debt will further fall by Rs 3,200 crore in FY22, which will reduce its debt-equity ratio to 1.80:1, the company said in a statement. READ ABOUT IT HERE
The power sector, according to Ambareesh Baliga, an independent market analyst, has done well in the past few months. This has had a rub-off effect on all power sector stocks
, including Reliance Power, he said. “Investors must be careful now and not chase the frenzy,” he cautions.
That said, analysts advise against investing in these stocks given the run up and suggest investors instead park their money in fundamentally sound companies where they see revenue visibility, clean balance-sheet and a good track record of the promoter.
“There have been a number of instances where people have lost money chasing momentum and the stocks of companies that have weak balance-sheet and not much coming their way in terms of revenue. Though the momentum can lift ADAG stocks
higher as the company embarks on a debt reduction mission, investors must be careful and do their homework diligently before putting in money now,” says A K Prabhakar, head of research at IDBI Capital.
ADAG companies, including Reliance Communications
and Reliance Naval and Engineering Ltd have been dragged to the bankruptcy courts by lenders after they failed to repay their debt. Reliance Communications, for instance, said in December that the group owes around Rs 26,000 crore to Indian banks and financial institutions. READ HERE
Indians banks, vendors and other creditors, reports suggest, have made claims of around Rs 86,000 crore on the company which is currently going through insolvency proceedings.
In May, HDFC sold shares of Reliance Infrastructure worth over Rs 43 crore, which were held by it through the invocation of pledged shares. READ ABOUT IT HERE
The move comes after selling 52,88,507 shares, equivalent to 2.01 per cent, of Reliance Infrastructure for over Rs 22.86 crore earlier in that month.
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