DB Realty, Unitech rally up to 20% on 2G spectrum case verdict

On Thursday, former telecom minister A Raja, DMK MP Kanimozhi and all other accused were acquitted in the 2G spectrum allocation scam case.

By: ENS Economic Bureau | New Delhi | Updated: December 22, 2017 11:59:54 am
DB Realty, Unitech rally up to 20% on 2G case verdict While shares of DB Realty jumped 19.89 per cent after the verdict, Unitech rose 11.86 per cent. (Express Photo)

After the 2G verdict on Thursday that acquitted all accused in the 2G scam, the companies named in the scam and listed on the stock exchanges witnessed a relief rally of up to 20 per cent. While that may seem very attractive, a look into the current status, business and the financial health of those companies shows that the judgement may not change the fundamentals of these companies and may not make them worthy of investment. The fact that the Thursday judgement has come from a Special Court and that CBI has already made it clear that it will appeal against the verdict in Delhi High Court, only goes on to show that the share prices of these companies may remain vulnerable to further investigations in the case and judgements by higher courts in the future.

While shares of DB Realty jumped 19.89 per cent after the verdict, Unitech rose 11.86 per cent. Shares of Videocon Industries, Sun TV and Reliance Communication rose by over 4 per cent on Thursday. Experts say that this is a kind of relief rally and investors should stay ways from these companies and stocks.

“What we have seen today is a bit of relief rally but the matter is not over yet. I think the financial impact of this has already happened and investors should not be wary of entering them for short-term gains,” said Vikas Khemani, CEO, Edelweiss Securities.

The CEO of a mutual fund said that investors should not get lured by these gains after the special court’s judgement. “They should stay away from these companies as they have not only seen an erosion in their fundamentals but also because the case will move into higher courts.”

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The companies accused in the 2G spectrum scam have over the last seven years saw a significant erosion in their business and profitability. A look into the financial performance of these companies over the last nine years shows how the companies have seen a decline in profit generation. While the net profit for Unitech fell from Rs 739 crore in 2008-09 to a loss of Rs 439 crore in 2016-17, that of Relaince Communications fell from a net profit of Rs 4,802 crore to a loss of Rs 1,796 crore in the same period. Even in case of DB Realty, the company saw the numbers decline from a profit of Rs 227 crore in 2009-10 to a loss of Rs 82.5 crore in 2016-17. While Unitech Group brought in Telenor as a partner after having received the spectrum, DB Realty Group brought in UAE’s Etisalat as its partner.

On Thursday, former telecom minister A Raja, DMK MP Kanimozhi and all other accused were acquitted in the 2G spectrum allocation scam case.

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The fifteen other accused that were allowed to walk free include former Telecom Secretary Siddharth Behura, Raja’s erstwhile private secretary R K Chandolia, Swan Telecom promoters Shahid Usman Balwa and Vinod Goenka, Unitech Ltd MD Sanjay Chandra and three top executives of Reliance Anil Dhirubhai Ambani Group (ADAG) — Gautam Doshi, Surendra Pipara and Hari Nair. The Reliance Anil Dhirubhai Ambani Group welcomed the judgement of the special court acquitting its three top executives and Reliance Telecom Ltd.

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