Reliance's ghost companies: Rich on paper, weak in reality

Summary: A stock trading below the value of its own cash sounds like the kind of opportunity investors dream about. And when the promoter is a corporate powerhouse, the temptation only grows stronger. Yet, there’s a reason these “bargains” remain bargain-priced — and it isn’t obvious at first glance. Imagine you find a company worth about Rs 6,517 crore on the market, sitting on Rs 5,570 crore of cash and investments. Strip out that cash, and you’re paying barely Rs 947 crore for the whole operating business. Based on the last four quarters’ profit of roughly Rs 568 crore, that’s a P/E of 1.7x for the business. Sounds great, right? That’s Just Dial for you. And it’s not alone. DEN Networks and Hathway also look “too cheap to be true” once you net off their large piles of cash and investments. In fact, in both their cases, the cash and current investments are bigger than the market value. Moreover, all three share another trait: Reliance sits in the promoter seat. That’s a dream cocktail: cash-rich and backed by India’s most formidable corporate. But we don’t think they are a catch. Let’s understand why. Just Dial Let’s start with Just Dial. Reliance walked in during 2021, hoping to plug Just Dial’s vast SME directory into its retail and “new commerce” rails. The finances today look reassuring: a large investment book with “cash and investments” standing at a hefty Rs 5,570 crore and steady profits. But zoom out, and the growth story is more stop-start th