Waiting for the winds of change
Still struggling operationally
For RCOM, bringing about a consistent turnaround in operational
trends appears to be a challenge. Despite identifying itself as a
challenger, and opportunities with GSM, the company’s revenue
market share in wireless has gone from 12% in Sep-09 to 11% in Jun-
10 – while many others with new circle launches have seen an
increase in revenue market share. News flow on potential transactions
had helped the stock to rally from the YTD low seen in May, but we
believe it is still some way off from a fundamental re-rating.
Optimistic on 3G, no significant change to capex
RCOM is also working on its application and content ahead of the 3G
launch. The company has partnered with VAS provider GetJar for the
rollout. We think the availability of CDMA spectrum with RCOM
provides it with an opportunity, particularly for products such as
Reliance NetConnect, as broader market awareness for wireless
broadband and data improves. RCOM doesn’t expect significant
additional 3G capex – current guidance for FY11F capex is INR30bn.
We have factored in some early benefits of data and expect ARPU
declines to flatten out from FY13F. This drives our revenue/earnings
forecasts up by 1-4%. Our revised price target is INR140 per share.
Deleveraging remains a priority
RCOM notes that, internally, deleveraging remains a priority. Among
regional telcos, RCOM has one of the most stretched balance sheets,
with net debt to EBITDA of around 4x as of 1Q FY11. From an M&A
perspective, based on discussions with the company, we believe
RCOM sees in-market consolidation as a priority and doesn’t have
plans for overseas acquisitions.
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