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UBS Investment Research
Reliance Communication Limited
A contrarian play
„ RCom is scripting an operational turnaround
We believe RCOM is on the midst of an operational turnaround in its wireless
business (60% of revenues, 73% of EBITDA) under the leadership of Syed Safawi.
We believe data points in the next few quarters confirming the turnaround is likely
to induce some investors to consider investing in RCOM.
„ UBS View: Management is focussed on the right metrics
We believe that Syed Safawi is focused on profitable growth and empowering
people on the ground to run an efficient business. The quarterly variable incentive
program that rewards revenue market share and profitability is likely to get the
company's execution on track.
„ We choose to become more conservative
Though RCOM is likely to emerge as a beneficiary of improving regulation and
competition, we choose to take a more conservative view on RCOM as: (1) Etisalat
has signed an agreement to lease towers from Reliance Infratel has not yet rolled
out services and could potentially risk losing its spectrum (2) RCOM stock has
been a big under-performer as the analyst/investor community is skeptical of the
operational turnaround. We have raised our WACC to 13.6% (from 11.9%) and
also lowered our valuation of Reliance Infratel by 18%.
„ Valuation: Reiterate Buy
RCOM offers excellent risk reward for contrarian investors with higher risk
appetite. We lower our FY12E/13E EPS by 17% and 19% to 10.52/19.51. Our
SoTP based Price target is lowered to Rs215 (from Rs270 earlier).
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