The Anil Dhirubhai Ambani Group (ADAG) stocks have seen severe price destruction. In fact, some of these stocks have lost 30 to 40 per cent in just 3-4 trading sessions.
The shares have come crashing down after Reliance Communications (RCom) last week said that it would file for bankruptcy as it had been unable to sell assets to repay debt over the past year and a half.
It had informed the exchanges on Sunday that it planned to propose a similar debt resolution plan in the tribunal as was being earlier pursued with creditors. One has to still understand the consequences that the RCOM debt might have on group companies.
However, as independent entities, some companies like Reliance Infrastructure and Reliance Capital have reached ridiculous levels of valuations. Let us take a look.
The dividend yield on Reliance Capital is now way above the interest earned on bank deposits. Reliance Capital gives you a dividend yield of 9.59 per cent, with the share price at Rs 116. Banks can at best give you a yield of 8 to 8.5 per cent depending on the tenure of the deposit.
The price to book of Reliance Capital is at 0.16 times, and the p/e is slightly above 2 times. These kind of valuation metrics is ridiculous. The shares have collapsed from a level of Rs 529, to the current levels.
Reliance Capital has interests in asset management and mutual funds; life, general and health insurance; commercial & home finance; equities and commodities broking; wealth management services; distribution of financial products; asset reconstruction; proprietary investments and other activities in financial services.
In fact, Reliance Mutual Fund is amongst the top Mutual Funds in India with over six million investor folios. Reliance Nippon Life Insurance and Reliance General Insurance are amongst the leading private sector insurers in India.
This is another stock that has come crashing down like Reliance Capital. At the current market price of of Rs 110, the dividend yield on the stock is in excess of 8.5 per cent. The shares are available at a p/e of 2.82 and a price to book of 0.11. Most analyst would find this absymally low.
Reliance Infrastructure is a player in energy, infrastructure and defense. Again, like Reliance Capital the shares have been hammered down. In fact, the 52-week high of the shares are at Rs 489, which it achieved in Sept 2018. It has fallen dramatically from these levels.
Are these shares worth buying?
The problem with the markets these days, is that even if there is a slight problem, they are hammered down mercilessly.
If we look at group companies like Reliance Capital and Reliance Infra, they are pretty sound entities. Reliance Capital the holding company has some solid subsidiaries, including the insurance business and the mutual fund business. On the valuations front and the dividend yield front too, the shares look cheap. If one is willing to take the risk, these stocks may worth be holding. However, as we mentioned there is always an element of risk in buying these stocks, but, if there is a recovery, you could also make a bountiful.
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