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UBS Investment Research
Reliance Communication Limited
Incrementally positive news flows
Sale of tower assets = potential deleveraging
According to CNBC, four bidders have shown interest in Reliance Infratel with
American Tower Company (ATC) emerging as the highest bidder valuing tower
assets at Rs180-200bn. While the implied valuation of tower assets at EV/Tower of
Rs3.5m-Rs3.9m is lower than the earlier announced GTL deal (Rs6.3m) or UBS-e
(Rs4.5m), we believe that potential sale will be positive for RCom as it will
deleverage balance sheet.
Formal closure of loan facility from CDB implies better liquidity
The formal closure of US$1.93bn of loan facility from China Development Bank
(CDB) addresses few of the concerns on the company’s liquidity front. RCom has
US$374m & US$1,182m of FCCBs due on May’11 and Mar’12 respectively. The
formal closure of these loans will allay some of the concerns regarding RCom’s
ability to refinance FCCBs.
Execution remains the key risk for RCom
Syed Safawi, Wireless head, is trying hard for operational turnaround. He has been
with RCom for over a year and has taken number of initiatives to bring RCom back
on track. The key risk to our positive thesis on RCom is poor execution.
Valuation: Maintain Buy and SoTP based PT of Rs195
At current levels, we believe RCom offers excellent risk reward for investors with
higher risk appetite. We have done a worst case valuation for RCom by estimating
the replacement cost of all its assets (see table 1 for details). The stock is trading
below our estimate of worst case value of Rs158.
Reliance Communication Limited
Reliance Communications (RCOM) was formed in the wake of the
reorganisation of the Reliance group. RCOM's businesses have been structured
into three strategic business units (SBUs)-wireless, global and broadband. The
mobile services group provides CDMA mobile services across India in 23
telecom circles, and GSM mobile services in eight circles. RCOM has a
subscriber market share of 17%. The global business group provides national
and international long-distance calling services. The broadband group has a
portfolio of enterprise voice, data, video, internet and IT infrastructure services.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Reliance Communication Limited
Incrementally positive news flows
Sale of tower assets = potential deleveraging
According to CNBC, four bidders have shown interest in Reliance Infratel with
American Tower Company (ATC) emerging as the highest bidder valuing tower
assets at Rs180-200bn. While the implied valuation of tower assets at EV/Tower of
Rs3.5m-Rs3.9m is lower than the earlier announced GTL deal (Rs6.3m) or UBS-e
(Rs4.5m), we believe that potential sale will be positive for RCom as it will
deleverage balance sheet.
Formal closure of loan facility from CDB implies better liquidity
The formal closure of US$1.93bn of loan facility from China Development Bank
(CDB) addresses few of the concerns on the company’s liquidity front. RCom has
US$374m & US$1,182m of FCCBs due on May’11 and Mar’12 respectively. The
formal closure of these loans will allay some of the concerns regarding RCom’s
ability to refinance FCCBs.
Execution remains the key risk for RCom
Syed Safawi, Wireless head, is trying hard for operational turnaround. He has been
with RCom for over a year and has taken number of initiatives to bring RCom back
on track. The key risk to our positive thesis on RCom is poor execution.
Valuation: Maintain Buy and SoTP based PT of Rs195
At current levels, we believe RCom offers excellent risk reward for investors with
higher risk appetite. We have done a worst case valuation for RCom by estimating
the replacement cost of all its assets (see table 1 for details). The stock is trading
below our estimate of worst case value of Rs158.
Reliance Communications (RCOM) was formed in the wake of the
reorganisation of the Reliance group. RCOM's businesses have been structured
into three strategic business units (SBUs)-wireless, global and broadband. The
mobile services group provides CDMA mobile services across India in 23
telecom circles, and GSM mobile services in eight circles. RCOM has a
subscriber market share of 17%. The global business group provides national
and international long-distance calling services. The broadband group has a
portfolio of enterprise voice, data, video, internet and IT infrastructure services.
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