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Reliance Industries (RELI.BO)
Neutral Equity Research
Policy boost for telecom launch; growth from core segments key
What's changed
The guidelines of the draft New Telecom Policy (NTP) were released this
week and seem to have some interesting takeaways for Reliance
Industries’ planned telecom venture. The policy recommendations by the
telecom minister included a focus on convergence and encouraging VOIP
and permitting spectrum pooling, sharing and trading of spectrum would
likely benefit RIL, in our view. We expect RIL to launch its LTE services in
India in 2QCY12E, which, as per the company, will primarily entail data,
although it has been silent on the voice-based services either over VoIP or
cellular network. We believe RIL will look at voice-based services since the
EBITDA margin of a data-only operator is low, typically 15%-25%.
Implications
While the ministry’s recommendations are likely positive for RIL’s telecom
ambitions, pricing and execution of the product offering would be critical
for the impact on the sector as well as on RIL’s profitability. We note that
despite VOIP’s presence in most developed telecom markets, traditional
voice business has held up well. However, we also note that the impact on
VOIP from newer technologies like LTE is yet to be seen. The pooling and
trading of spectrum can allow RIL to have a larger telecom presence
despite its late entry than would be likely possible from the broadband
wireless spectrum alone, in our view. However, there would be some risk
of cannibalization between VOIP and traditional voice subscribers.
Valuation
NPV for RIL’s BWA venture would range from US$1.2bn-US$3.2bn for a
WACC ranging between 14% and 12%. We remain concerned about the
lack of clarity on its sustainable growth drivers, particularly the uncertainty
on D-6 ramp-up, and about the deployment of surplus cash. Retain Neutral
rating and our 12-m SOTP-based TP of Rs960/share (16% upside).
Key risks
Weak refining/petchem margins; faster-than-expected KG-D6 ramp-up.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Industries (RELI.BO)
Neutral Equity Research
Policy boost for telecom launch; growth from core segments key
What's changed
The guidelines of the draft New Telecom Policy (NTP) were released this
week and seem to have some interesting takeaways for Reliance
Industries’ planned telecom venture. The policy recommendations by the
telecom minister included a focus on convergence and encouraging VOIP
and permitting spectrum pooling, sharing and trading of spectrum would
likely benefit RIL, in our view. We expect RIL to launch its LTE services in
India in 2QCY12E, which, as per the company, will primarily entail data,
although it has been silent on the voice-based services either over VoIP or
cellular network. We believe RIL will look at voice-based services since the
EBITDA margin of a data-only operator is low, typically 15%-25%.
Implications
While the ministry’s recommendations are likely positive for RIL’s telecom
ambitions, pricing and execution of the product offering would be critical
for the impact on the sector as well as on RIL’s profitability. We note that
despite VOIP’s presence in most developed telecom markets, traditional
voice business has held up well. However, we also note that the impact on
VOIP from newer technologies like LTE is yet to be seen. The pooling and
trading of spectrum can allow RIL to have a larger telecom presence
despite its late entry than would be likely possible from the broadband
wireless spectrum alone, in our view. However, there would be some risk
of cannibalization between VOIP and traditional voice subscribers.
Valuation
NPV for RIL’s BWA venture would range from US$1.2bn-US$3.2bn for a
WACC ranging between 14% and 12%. We remain concerned about the
lack of clarity on its sustainable growth drivers, particularly the uncertainty
on D-6 ramp-up, and about the deployment of surplus cash. Retain Neutral
rating and our 12-m SOTP-based TP of Rs960/share (16% upside).
Key risks
Weak refining/petchem margins; faster-than-expected KG-D6 ramp-up.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
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