Mukesh Ambani second-richest Asian

Bloomberg

Mukesh Ambani has elbowed past Li Ka-shing to become Asia’s second-richest man as investors rallied behind his efforts to arm India’s poor with cheap data-loaded phones. Some analysts are beginning to focus on the costs of his ambition.
The chairman of Reliance Industries Ltd. has added $12.5 billion to his wealth this year, according to the Bloomberg Billionaires Index, as shares of his refining-to-telecom company surged to a record. Spurring the rally on is optimism that a new $23 phone launched last month will expand the market for Ambani’s fourth-generation mobile network into India’s hinterland. The whistles and applause that greeted the JioPhone obscured the fact that by one measure the company’s debt has climbed to at least a 15-year high.
The telecom business, Ambani’s seven-year labour of love, has sucked in more than $31 billion in investments and is yet to earn him and his shareholders any profits. It’s contributed to a near tripling of the group’s total debt since March 2012 and sparked a vicious price war in the world’s second-largest mobile-phone market. About 90 percent of Reliance’s revenues continue to come from its legacy refining and petrochemicals units, with retail, media and energy exploration contributing the rest.
Local brokerage Kotak Securities struck a note of caution when it downgraded Reliance’s stock to reduce. “We remain wary of high capex run-rate and rising net debt levels,” wrote Mumbai-based analysts Tarun Lakhotia and Akshay Bhor. The company’s net debt-to-EBITDA ratio has quadrupled in the five years to March 2017 and is at the highest level since 2002, when Bloomberg began tracking the data. Analysts consider EBITDA a gauge of a company’s operating profit, or the money it makes before paying taxes, interest on loans and accounting for depreciation and amortization.
A Reliance spokesman didn’t respond to an email seeking comment about the company’s growing debt.
Ambani described Jio as “a jewel” among Reliance assets
during the company’s annual general meeting on July 21. “Its
business and societal value will grow immensely over the next decade,” he said. “Jio will be
come India’s largest provider of data service, products and application platforms.”
To be sure, Kotak Securities is among a minority of four brokerages with a sell rating on Reliance, compared with 13 hold and 21 buy recommendations among firms Bloomberg tracks. The company’s stock, which has climbed 48 percent this year, closed 0.7 percent lower at 1,603.55 rupees in Mumbai on Tuesday. That compares with a 12-month target of 1,619.20 rupees.
IDBI Capital Market Services cut its recommendation to ‘accumulate’ from ‘buy’ last month citing the recent share surge, while
Macquarie Research re-initiated coverage of Reliance with an ‘underperform’ call.
Since carrier Reliance Jio Infocomm Ltd. is a new business, it will have to account for “significant” depreciation and amortization charges, which will result in losses till the year ending March 2021, Macquarie Research analyst Aditya Suresh wrote in a July 25 report. Depreciation and amortization allow a company to spread out an asset’s cost over its life.
Ambani’s ambitions aren’t limited to a phone service. The company has started offering fixed-line internet connections to households and tied up with AirWire Technologies to offer a device that connects to a car for diagnostics, Wi-Fi and other services.