By Ruma Dubey

Pipavav is in a sad state today. The stock has held on firmly to being the top loser and the pain is expected to continue for a day or two more.

In an ideal world, when a company which is struggling to keep its head above the water, gets bought over by a group which is well known and has an established brand equity, one would have expected the marketmen to heave a sigh of relief, leading to a surge in the stock price. But here, though news has been around for quite some time now that the promoters are on the lookout for selling their stake, the news that the acquirer is ADAG’s Reliance Infra cused more pain than happiness.

There is nothing about this behavior of Pipavav which would require any deep contemplation. Two simple reasons for the disenchantment – firstly, the offer price is well below the market price; the market is miffed with this ‘discounted’ price. People love discounts but not when it comes to open offers!

Secondly, the markets might have even digested the lower price but what further added salt to injury was the acquirer – the market is not happy at all that after talks about foreign buyers and other renowned companies rumoured to take over, the promoters go and sell to Anil Ambani group. They would most certainly have tolerated Mukesh Ambani but their dislike for ADAG is also one of the prime reasons for this fall today.

And therein lay the story – why this dislike for Anil Dhirubhai Ambani Group (ADAG) companies? Actually, it is pretty deep rooted. It’s a question of lost trust. When trust and faith is broken, like a cracked mirror, no amount of Fevikwick can hide the crack – it’s a permanent damage.

The loss of trust began ever since people lost money in Reliance Power IPO. It is probably a watershed moment in India’s IPO market. And that pain of the loss continued for years, with scores of investors taking a vow to never touch ADAG companies.

From there began this dislike. People had not yet forgiven Anil Ambani for the IPO when he went on an expansion/acquisition spree, setting up new ventures and mega projects. This was looked upon with a lot of mistrust and growing apprehension as debt kept on piling up, eating away margins and pushing his companies into debt trap. His borrowings in many ways just drove the disdain deeper. Reliance Communication is sitting on a debt of Rs.42,000 crore, Reliance Infra has debt of Rs.24,5000 crore and Reliance Power’s debt stands at over Rs.30,000 crore. So three ADAG companies alone have borrowings to the tune of Rs.96,000 crore. People have a major aversion to debt and in that context, ADAG scored very high.

Also over the years, the various projects delays, be it the Metro or UMPP, all led to many in the market believing that Anil Ambani aspired to grow bigger, too fast and too soon. His overambition in many ways, became a huge risk factor. Before buying into any of ADAG stock, the first thought which comes to mind – can the company deliver and will it make enough money to service the debt?

Thus with all these factors playing in mind, when news came in that the very same ADAG has taken over Pipavav, concern mounted. Pipavav has an impressive work portfolio in the defence sector but all the profit that it makes is eaten away by interest payments. Sitting on a debt of around Rs.7000 crore, the worry is also whether Reliance Infra itself having huge debt will be able to get the company going. There is no question of debt coming down just because Reliance took over but over the next 2-3 years, once operations stabilize, the prospects of the company will look up.

For now, Pipavav, which enjoyed quite a bit of investor fancy will have to deal with this change of  poor investor perception. And for the 'dislike' to change to 'like', ADAG will have to bring down debt and improve things fundamentally; till then ‘dis’ will continue!