RCom's #10YearChallenge and what huge debts have turned this once telecom-disruptor into

Last Updated: Tue, Feb 05, 2019 18:48 hrs
Anil Ambani, Chairman of Reliance Communications, speaks to shareholders during the company's annual general meeting in Mumbai

This was a disruptive telecom player in 2003. Its revolutionary pricing strategy coupled with ability to offer both CDMA and GSM mobile services in later years had made it a service provider to millions of subscribers Fifteen years later, the company's board of directors confirmed that they were pushing for insolvency.

On Friday, soon after RCom announce its intention of pursuing insolvency, Twitter went berserk making several comparisons. One of them was how RCom has continually bled and become a "wealth-destroyer". At one time during 2008 the stock was priced at over Rs 800 levels, but today the stock is valued at single digit. 

The curtains seem to be falling on the company that was once the 'Giant Goliath' of India's telecom sector and had its adage as 'Roti, Kapda, Makaan aur Mobile'. Here is a look at its colorful history and how it seems to have lost the game with high debts.

Early Beginnings:

28th December 2002 was that big day. Reliance's telecom venture was inaugurated on the 70th birthday of India's Polyester man, Dhirubhai Ambani.

During the early 2000s, Mahape, a small yet industrious town known for a few BPOs, GTL and manufacturing entities was suddenly all over the news. Reliance was settling in with a whopping 140 acre setup of its telecom venture. Consumers were to be shocked with a disruptive pricing strategy. Voice mails, call waiting and even incoming calls were free.

The pricing too was truly disruptive - a tariff structure of 10 paisa for talking 15 seconds. This was in line with the vision of Dhirubhai Ambani - making telecom accessible to all.

The two brothers together were to change the course of telecom sector. By 2003, reports equated the Wharton educated Anil with stalwarts such as Wipro's Azim Premji, Infy's NRN Murthy, Ratan Tata, and KM Birla. Elder brother Mukesh Ambani was enigmatic.

Until early 2006, Anil was the second richest Indian and the first was elder brother Mukesh Ambani. This changed in 2007 when DLF Group's KP Singh became the second richest Indian. Even then, Anil's assets were pegged at Rs 1.09 lakh crores.

By end of 2004, issues between the brothers soon snowballed into talks of a split for stakes that were as high as Rs 75,000 crores. The slicing of assets was tough to balance considering Dhirubhai did not leave a will. Ramesh Oza, the spiritual guru from Sandipan Vidyaniketan, ICICI bank's KV Kamath and the Ambani matriarch Kokilaben Ambani were the mediators between the brothers. The split finally was executed in 2006 and Anil's part of Reliance was labelled ADAG (Anil Dhirubhai Ambani Group).

10 years and insurmountable debts:


2009:

  • Total mcap of ADAG was in range of Rs 3,25,000 crores. Net assets were valued at Rs 115,000 crores.

  • RCom's market capitalisation at April 2009 stood at Rs 45,000 crores, while the stock was trading at an average of Rs 220 during the month of April.


2010:

  • Total market-capitalisation of RCom was Rs 34500 crores

  • RCom subscriber base reportedly crossed 100 million in this year. The company followed quite an aggressive strategy, investing approximately Rs 5800 crores to buy 3G spectrum in 13 circles including Delhi and Mumbai.

  • Among the prominent news items this year was a withdrawal of a Rs 10,000 crore defamation suit that Anil Ambani had filed against his elder brother Mukesh Ambani and the New York Times over a story. The case pertained to the Supreme Court decision on the gas exploration issue.

  • After the Supreme Court's decision, investors questioned the financial health of companies under the ADAG banner. The concerns over the 2G scam had also begun around this time. Average price during the month of April 2010 hovered around Rs 130.


2011:

  • In 2011, the combined wealth of India's richest 100 fell to $241 billion (Forbest report of 2011). Anil's riches too sagged and so did RCom's fortunes.

  • The market-capitalisation of Reliance Communications tanked to Rs 21,300 crores in the month of April. Average share price on BSE was Rs 105.

  • The initial pricing strategy of free incoming calls and predatory pricing was questioned. Also, Reliance was among the first to offer both CDMA and GSM based services. This strategy added to expenditures but did not offer comparative revenues.

  • Reports from that year say that the company's debts stood at $7.5 billion. Efforts to recover these debts did not materialize.


2012

  • A sell rating from Canadian research agency Veritas Investment caused a giant market-fall in January. Market-Capitalisation slipped to Rs 18,200 crores in the month of April. The average price of the stock was Rs 85 in the month of April.

  • The worries on debts had acquired serious proportions by now. There were reports that said employee costs were down by 20% from the previous year.


2013:

  • Stock price hovered around Rs 85 in the month of March, but market-capitalisation was down to Rs 17,700 crores.

  • A company that was once referred to as the disruptor, a telecom company with over 100 million subscribers, saw its debts soar to Rs 38,000 crores.

  • Interest outgo was reported at Rs 2800 crores.

  • RCom's market share dropped from 14.82% in 2012 to 13.92% in February 2013.


2014:

  • The stocks gained some momentum owing to rumours of a reunion between the brothers. Stock was trading back at levels of Rs 130 per share.

  • Market capitalisation soared to Rs 27,100 crores.

  • RCom's retail investors also thought that the issue of huge debts could be resolved.

  • Net debts by September came down by Rs 5,000 crores. That, by raising Rs 4800 crores from QIP proceeds.


  • 2015:

    • Average Share price stutters to Rs 70 per share in April, and market capitalisation slips to Rs 17,400 crores.

    • Rumours of the merger with Aircel spreads like wildfire, RCom is also reportedly considering an investment in the India unit of Russia's Systema Teleservices.

    • As on March 2015, Consolidated debt of Reliance's group companies was reported as Rs 1,08,000 crores. This came down marginally from Rs 1,21,000 crores.


    2016:

    • Stock price reaches levels of Rs 55 in February, and market-capitalisation slips to Rs 14,270 crores.

    • Major announcements were made from ADAG about the launch of Reliance Defence. There was also news about the tie-up with French company Dassault Aviation.

    • From Rcom perspective, the office in Ballard Estate was to be given on lease while officials would work from the new Global Headquarters in Santa Cruz. Talks of monetising by leasing the land at DAKC for a revenue of Rs 6,000 crores acquires shape.


    2017:

    • Market capitalisation halves to Rs 8450 crores, even as stock crashes to Rs 33 in April.

    • 10 million customers were impacted after RCom announces closure of 2G and 3G Services.

    • For September 2017, the company announces a loss of Rs 2821 crores. Debts soar to Rs 45,000 crores.

    • RCom decided to get out of the wireless business, its telecom market share in October 2017 drops to 5.20%.


    2018:

    • The stock slips to a low of Rs 28.74 in April, market-capitalisation slips to Rs 7,900 crores.

    • The stock rallied during the first week of January after talks of spectrum trade deal with Jio Infocomm. But that did not materialize and Ericsson pulled RCom to the NCLT tribunal over charges of Rs 550 crores towards providing telecom equipment.

    • During the 14th AGM, Anil Ambani thanked his elder brother and referred to exiting the telecom business altogether. He was referring to Jio's acquisition of assets of RCom. Anil said, post discontinuation of the telecom business, the residual business would be the enterprise, data centres, undersea cables and international voice calling verticals etc that are expected to serve some 35,000 businesses. He said half of the revenues from this line of activity will be from overseas.

    • Looking at the telecom sector, he also said that there has been a "creative destruction" of the telecom sector, that has resulted in creation of oligopoly, which is going towards a duopoly and may be even a "monopoly in the future". Banks are saddled with over Rs. 7.7 lakh crore in debt and the financial troubles of operators have resulted in over 20 lakh job losses, he had said back then.

    • By end of 2018, the concerns had become serious. During a courtroom proceeding, Senior Lawyer, Kapil Sibal told during a Supreme Court hearing, "Jio has not given us a penny. We are waiting for DoT to give us NoC for the sale of assets. The moment DoT gives us the NoC, within a week we will pay."


    2019:

    • The stocks slipped soon after reports over insolvency surfaced on 1st Feb 2019.

    • On 4th Feb, the stock ended the trading session at Rs 7.55 per share, down by over 25% in intra-day trading. The market capitalisation reflected on BSE website read Rs 2087.98 crores.

    • A day later, the stocks slipped further to Rs 5.55 and the market capitalisation read Rs 1504.45 crores.


    Here are some reactions on Twitter:

    Disclaimer: Data has been curated from readily available market-data. Stock related information has been taken from historic data available from BSE. Images have been sourced from our Archives.