ET Now: If I take the clock
back, last year in September you had raised concerns regardingKingfisher Airlines and you believed that the
airlines was heading towards bankruptcy. The recent media reports indicate that
the lenders are looking to sell non-core assets. So, what is your view on
Kingfisher Airlines and do think it is a matter of time that Kingfisher
Airlines will actually shut down?
In an interview with ET Now, Neeraj Monga, EVP & HoR,Veritas
Investment Research, shares his views on Kingfisher Airlines, RComm
and DLF. Excerpts:
Neeraj
Monga: All the issues that we had raised in our Kingfisher report of September
2011 have actually come to pass in the marketplace... and it is interesting. It
is a small airline carrier, with very little market capitalisation. So I do not
believe that the company can survive. Lenders are already signalling their
intent by deciding to sell the fixed assets of the company. What is going to be
interesting to see is what will be the recoverability on these loans.
Meanwhile, the company continues to shrink and I believe sooner or later, it
will shut down.
ET Now: You had also raised
concerns regarding corporate governance and accounting practices of RComm. What
is your view on telecom companies? Will
they meet similar fate as KFA?
Neeraj
Monga: I do not believe Reliance Communications is going to meet the same fate as
Kingfisher Airlines. That has never been the intent of our research, and we
have never positioned it as such. The questions we have raised regarding
Reliance Communications have to do with aggressive accounting,
misrepresentation of financials and the fact that the company has reported book
activity which may not be as trustworthy as some people would like to believe
it to be... and that perhaps there are a lot of conjectures surrounding the businesses
of the organisation.
The market has been focused on
the asset divestiture strategy at Reliance Communications and our research
suggests the valuation being according to the assets that are most likely to be
sold i.e. its Reliance Infra tower business. We have not included the optical
fibre cable assets into those businesses or the IPO being considered for the
sub-sea cable asset in Singapore. Both these assets we believe are unlikely to
get the valuation in the market up. Our valuation of the tower assets is
somewhere between Rs 12500 and 15000 crore and our valuation of the sub-sea
cable asset is approximately -- in a best case scenario -- $800 million. In
both the cases, the market will eventually find out that Reliance
Communications' deleveraging strategy is not going to come through as expected;
and therefore, the stock is overvalued. That being said, I do not believe
Reliance Communications is going to meet the same fate as that of Kingfisher
Airlines.
Neeraj Monga: My view on DLF is
unlikely to change in the short term, given the significant corporate
governance issues that we have already raised about the company. We can also
not ignore the fact that the company is in deep financial distress, in terms of
the debt that it has on its balance sheet and the cash flow obligations of
approximately Rs 3500 crore -- to meet its interest obligations and the
preferred and common dividend obligations on its books. We believe that the
company has no credible plans to deleverage its balance sheet. If you look at
the results reported by the company on May 30th 2012 -- in spite of selling
approximately Rs 1750 crores worth of other assets, the company's net debt
declined by approximately Rs 33 crores over a 3-quarter period. This suggests
that all these asset sales were not able to help the organisation deliver.
Currently, the market is anticipating the sale of additional assets, including
the wind power assets. Our valuation of Rs 100 a share already incorporates all
the valuation of these assets. However, adjusted book value for the company is
in a range of Rs 100 to Rs 110 per share, which is a fair value for the
company.
ET Now: So do you believe that
with the Prime Minister taking over the Finance Ministry, investors
globally are expecting some action on the reforms and policy front?
Neeraj Monga: Investors globally
are unsure of who is in charge in India and unsure about who will make these
decisions that are going to propel the country forward and launch the next
phase of reforms. The fact that the Prime Minister has taken charge of the
Finance Ministry, it is neither here nor there... because every time a decision
is made in India, it is either in West Bengal or in Gujarat or some other state
where there is a powerful chief minister -- who actually stands up and talks
about it or against it. In terms of a coalition government, where everybody is
trying to make all stakeholders happy, nothing ever gets done. So this policy
paralysis -- which continues to take place in India -- is detrimental to
India's perception as an investment destination, and it is even more
detrimental for the people of India who actually have to live there and make a
living on a daily basis.
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