What is wrong with Anil Ambani group?
By Binu Paul, SiliconIndia   |   Thursday, 17 February 2011, 13:50 IST   |    5 Comments
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What is wrong with Anil Ambani group?
Bangalore: What is wrong with the Anil Ambani camp? Why are the series of lawsuits, business setbacks, and growing corporate governance concerns haunting the Anil Dhirubhai Ambani Group (ADAG)? Does the Reliance Group see a green light in the near feature or can Anil Ambani put things back on track? It should be noted that in the last ADAG has lost 70 percent of its value and the stock market benchmark BSE Sensex has jumped up by 8.8 percent in the same period. The combined profits of the six listed entities of ADAG have seen a 24 percent decrease, going down to 6,920 crore in the last two years. With having very powerful presence in areas such as telecom, entertainment, capital, power, health and infrastructure, the ADAG Group has been threatened with the fact that their big projects with high growth potential are yet to get off the ground. It all started with the much-talked-about initial public offer from R-Power of which the stock ended day one 17 percent lower than the IPO price and even now, it is being traded at a 51 percent discount to its issue price. On October 8, 2008, Anil took his brother's Reliance Industries to the court to uphold a memorandum of understanding to get a share of the cheap gas from the KG basin. But adding more to his woes, in May 2010, the Supreme Court ruled against him and in favor of Mukesh Ambani. In January 2011, it was reported that SEBI barred Anil Ambani and four top officials of his group from investing in the secondary market until December 2011 on charges of misquoting certain investments in the books. Besides imposing a charge of Rs 50 crore, the market regulator also barred R-Infra and RNRL from investing in the secondary market till 2012, the news which Anil Ambani has denied by saying that they settled the SEBI probe voluntarily. Reliance Communications with its GSM and CDMA services has seen severe setbacks in the last few years resulting in RCom scoring the worst leverage ratio among telcos and having debts of 38,000 crore. Although the R-power has bagged a number of projects, not many are off the ground due to improper execution. In the power section, the company has got ultra mega power projects and approvals for coal, but hasn't set up any plants yet. Latest in the series, Anil Ambani was questioned for three hours by the CBI on his firms stand on the 2G scam. Sources say that he was questioned about the transfer of Swan Telecom's ownership from ADAG to DB Realty. CBI has also reportedly asked about RCom's dual technology licenses, which allowed GSM-based mobile services. RCom's recent war of words with the Tata Group on the same issue has further weakened his corporate status. Impulsive venturing into areas in which they did not have much experience, lack of an effective executive management team, no strict following of corporate governance measures and non sustainability has gripped the future of ADAG. Anil Ambani needs to revamp his empire and resurrect it, for which he needs a great team with sheer execution capability. Hope his lessons learnt at Wharton will guide him in his endeavor.