Two of every five promoters of listed companies lost their dollar-billionaire tag in 2011, due mainly to the sharp erosion in their companies’ market capitalisation and the rupee’s depreciation versus the dollar.
According to a DNA Money analysis of promoters’ networths, the number of dollar-billionaires has reduced from 56 at the start of the calendar year to 33 as on December 26.
The total networth of these 56 promoters, with stakes in single or multiple listed companies, has come down 41% to $145 billion.
Among those who have lost their dollar-billionaire tags are Sajjan Jindal (65% drop in networth to $0.86 billion), Karan Thapar (down 66.6% to $0.61 billion), Ramesh Chandra (down 74.8% to $0.48 billion), L Madhusudan Rao (down 87% to $0.31 billion) and Naresh Goyal (down 80% to $0.24 billion).
The cocktail of adverse macroeconomic events, including a slowdown in industrial activity, high cost pressures, lack of availability of raw materials apart from legal and environmental issues, is to blame.
While Sajjan Jindal’s flagship company, JSW Steel, was hit by non-availability of iron ore, the Karan Thapar-led Crompton Greaves was hit by weak overall industrial production activity and corporate governance issues.
Sanjay Sinha, founder, Citrus Advisors, believes infrastructure companies face a double whammy of high interest rates and lack of future earnings visibility, while airline stocks also face a debt burden.
“They carry a high interest rate burden, which has affected their working capital. The situation would only change once interest rates come down. Secondly, order books have shrunk or vanished altogether in many cases. This will improve only if there is some initiative from the government,” said Sinha.
The 18% fall in the rupee versus the dollar during this period was also responsible for some of the promoters like Murali K P Divi (of Divis Lab) and H Bangur (of Shree Cement) missing out on the dollar-billionaire tag despite the rise in their networths in rupee terms.
The rupee has fallen from 44.71 to the dollar at the start of year to 52.73 against the dollar as on December 26.
In absolute terms, the biggest wealth erosion has been for Mukesh Ambani group, with a whopping $13.94 billion fall to $20.70 billion. The other big promoters who have been hit by sharp fall in share prices are Anil Agrawal of Vedanta Group ($12.59 billion reduction in networth to $3.85 billion), Anil Ambani ($8.39 billion drop) and Gautam Adani ($7.21 billion drop).
“The biggest concern for Mukesh Ambani group has been lower gas output and lack of investment plans, which have led to subdued performance from the company and a resultant fall in the share price of Reliance Industries. On the other hand, Anil Ambani-led stocks have been losing market cap continuously and the issues are more serious with high debt pressure on all the companies, be it Reliance Communications, Reliance Capital, Reliance Infra or Reliance Power,” said S P Tulsian, an independent analyst.
The other factor that contributed to a fall in networth for promoters like Tulsi Tanti of Suzlon, Anu Aga of Thermax and Naresh Goyal of Jet Airways was their lack of diversification.
Sunil Mishra, chief executive officer at Karvy Private Wealth, believes the single-stock risk that wealthy promoters run should be reduced through diversification. “Promoters are often tempted to redeploy surplus cash back into their companies since in growing economies like India, often the greatest returns come from the business itself.”
“We advise promoters to deploy at least a portion of their surplus into other equities, and into fixed income products. Currently, a large portion of their other investments are into realty,” he said.
Going ahead, experts believe companies with strong cash flows and low debt will see a reversal in their fortunes once the macro environment improves.
“Though groups like Vedanta have seen huge erosions, they have strong cash flows, and therefore I am not too worried on such companies,” said Tulsian.
Comments