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UBS Investment Research
Reliance Communication Limited
Potential deleveraging possibility
„ Event: RCom in talks to sell stake in Reliance Infratel
RCom has been in talks with strategic investors to sell its stake in Reliance Infratel,
according to CNBC. In addition, CNBC-TV18 reported that American Tower
Company (ATC) has valued Infratel at Rs195bn while Crown Castle has given an
offer of Rs210bn implying EV/tower of Rs3.9m and Rs4.2m respectively vs. UBSe Rs5.0m. The stock has outperformed Sensex by 13.5% in the last 10 trading days
on the back of this news.
„ Impact: RCom’s FY12E Net Debt/EBITDA can decline to 3.3x
We believe RCom is unlikely to sell its entire stake in the tower arm as the tower
investor would like RCom to have stake in the business. Assuming RCom sells
51% stake in Reliance Infratel (RITL) at EV/tower of 3.9m, we estimate RCom’s
FY12E net debt/EBITDA and FY12E net debt/equity could decline to 3.3x and
0.4x respectively (from 4.0x and 0.8x currently).
„ Action: Reiterate Buy with a SoTP based PT of Rs195
We believe RCom could rerate on the potential sale of its tower assets as high
leverage is one of the key concerns on the company. However, we believe many
investors would like to see completion of the deal before they invest in RCOM
(RCom has been looking to sell tower assets for last 1-2 years). Our valuation for
RCom could come down by Rs27 (-14%) at EV/tower valuation of Rs3.9m. At
current levels, we believe RCom offers excellent risk reward for investors with a
higher risk appetite as the stock trades below our estimate of worst case value of
Rs158.
„ Valuation: Our PT of Rs195 is SoTP based
RITL is valued at Rs67/share and contributes 36%/34% to our EV/equity value.
Q 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.
Q Statement of Risk
We believe risks for RCOM include potential inefficiency related to operating
two different networks (GSM and CDMA), the challenge of scaling up and
executing well in light of the rapid growth in India's mobile penetration, and the
risk that the company might not be allocated additional 2G and 3G spectrum.
There is low visibility for capex associated with the GSM strategy, as it will
depend on the amount of spectrum allocated as well as which circles can be
allocated additional spectrum. Intense competitive environment prevailing in
India is also a risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Reliance Communication Limited
Potential deleveraging possibility
„ Event: RCom in talks to sell stake in Reliance Infratel
RCom has been in talks with strategic investors to sell its stake in Reliance Infratel,
according to CNBC. In addition, CNBC-TV18 reported that American Tower
Company (ATC) has valued Infratel at Rs195bn while Crown Castle has given an
offer of Rs210bn implying EV/tower of Rs3.9m and Rs4.2m respectively vs. UBSe Rs5.0m. The stock has outperformed Sensex by 13.5% in the last 10 trading days
on the back of this news.
„ Impact: RCom’s FY12E Net Debt/EBITDA can decline to 3.3x
We believe RCom is unlikely to sell its entire stake in the tower arm as the tower
investor would like RCom to have stake in the business. Assuming RCom sells
51% stake in Reliance Infratel (RITL) at EV/tower of 3.9m, we estimate RCom’s
FY12E net debt/EBITDA and FY12E net debt/equity could decline to 3.3x and
0.4x respectively (from 4.0x and 0.8x currently).
„ Action: Reiterate Buy with a SoTP based PT of Rs195
We believe RCom could rerate on the potential sale of its tower assets as high
leverage is one of the key concerns on the company. However, we believe many
investors would like to see completion of the deal before they invest in RCOM
(RCom has been looking to sell tower assets for last 1-2 years). Our valuation for
RCom could come down by Rs27 (-14%) at EV/tower valuation of Rs3.9m. At
current levels, we believe RCom offers excellent risk reward for investors with a
higher risk appetite as the stock trades below our estimate of worst case value of
Rs158.
„ Valuation: Our PT of Rs195 is SoTP based
RITL is valued at Rs67/share and contributes 36%/34% to our EV/equity value.
Q 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.
Q Statement of Risk
We believe risks for RCOM include potential inefficiency related to operating
two different networks (GSM and CDMA), the challenge of scaling up and
executing well in light of the rapid growth in India's mobile penetration, and the
risk that the company might not be allocated additional 2G and 3G spectrum.
There is low visibility for capex associated with the GSM strategy, as it will
depend on the amount of spectrum allocated as well as which circles can be
allocated additional spectrum. Intense competitive environment prevailing in
India is also a risk.
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