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India Equity Research Reports, IPO and Stock News
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http://content.icicidirect.com/mailimages/ICICIdirect_RelianceCommunication_%20EventUpdate.pdf
R C o m ‘ F l a g ’ s o f f s t e p t o r e d u c e d e b t …
Reliance Communication (RCom) has announced that it is evaluating the
launch of an initial public offering (IPO) of its undersea cable unit Flag
Telecom on the Singapore Stock Exchange through a Singapore business
trust. According to media sources, Flag Telecom could be valued in the
range of | 7500 - | 10000 crore. This is the first active step taken by the
company to address its huge debt. Also, the company has been looking
at selling its tower business as well to help ease the debt. Though the IPO
of Flag Telecom and a possible sale of the tower business is a significant
step in addressing the more apparent issue of huge net debt, the
stagnation in revenues is another major concern making the long term
outlook for RCom not very bright. We remain sceptical about the outlook
of RCom and reiterate our HOLD rating on the stock.
Flag Telecom divestment to help address huge debt
The management has confirmed that RCom is evaluating the launch of an
IPO of its undersea cable unit Flag Telecom on the Singapore Stock
Exchange. RCom generated a gross revenue of | 7506.9 crore from its
global business in FY11. We assume ~ 35-40% of the global business
revenue would have been contributed by Flag Telecom in FY11.
According to media sources, Flag Telecom could be valued in the range
of | 7500 - 10000 crore.
Weak fundamentals remain a major concern
Though the divestment in Flag telecom and possibly Reliance Infratel can
help ease the net debt, another major concern of RCom remains its
weakening fundamentals. The wireless (core) revenue of RCom has been
declining at a CQGR of 0.7% from Q1FY10 to Q3FY12 from | 4793.1 crore
to | 4447.1 crore while that of Bharti and Idea have increased by 1.8%
and 5.2%, respectively. Also, RCom has reduced its capex guidance to
| 1500 crore for FY12 while that of Bharti and Idea remains at | 10000
crore and | 4000 crore, respectively. We believe this may affect the
network depth and cause a loss of market share to its peers
Possible divestment in tower business can also help
RCom has been trying to sell its tower business on multiple occasions but
the deal has not gone through as yet. Reliance Infratel currently has ~
50,000 towers. Assuming a valuation of | 35-45 lakh per tower, the tower
business could be valued in the range of | 15000 - 20000 crore. This
would further help reduce the debt. However, nothing concrete about the
divestment in tower business has been confirmed by the management.
Outlook & valuation
Though the IPO of Flag Telecom is a significant step in addressing the
more apparent issue of huge net debt, the stagnation in revenues is
another major concern rendering the long term scenario for RCom not
very bright. The company may also lose market share to its peers on
account of its reduced capex guidance as compared to its peers. We
remain sceptical about the outlook of RCom and reiterate our HOLD rating
on the stock.
At the CMP of | 94, the stock is trading at 24.9x FY12E EPS of | 3.4 and
39.1x FY13E EPS of | 2.2. We have valued the stock using the DCF
methodology and arrived at a target price of | 84/share, assuming 4.6%
CAGR in revenue over FY11E-FY20E and terminal growth rate of 3%. Our
target price implies a downside of 2%. We maintain our HOLD rating on
the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://content.icicidirect.com/mailimages/ICICIdirect_RelianceCommunication_%20EventUpdate.pdf
R C o m ‘ F l a g ’ s o f f s t e p t o r e d u c e d e b t …
Reliance Communication (RCom) has announced that it is evaluating the
launch of an initial public offering (IPO) of its undersea cable unit Flag
Telecom on the Singapore Stock Exchange through a Singapore business
trust. According to media sources, Flag Telecom could be valued in the
range of | 7500 - | 10000 crore. This is the first active step taken by the
company to address its huge debt. Also, the company has been looking
at selling its tower business as well to help ease the debt. Though the IPO
of Flag Telecom and a possible sale of the tower business is a significant
step in addressing the more apparent issue of huge net debt, the
stagnation in revenues is another major concern making the long term
outlook for RCom not very bright. We remain sceptical about the outlook
of RCom and reiterate our HOLD rating on the stock.
Flag Telecom divestment to help address huge debt
The management has confirmed that RCom is evaluating the launch of an
IPO of its undersea cable unit Flag Telecom on the Singapore Stock
Exchange. RCom generated a gross revenue of | 7506.9 crore from its
global business in FY11. We assume ~ 35-40% of the global business
revenue would have been contributed by Flag Telecom in FY11.
According to media sources, Flag Telecom could be valued in the range
of | 7500 - 10000 crore.
Weak fundamentals remain a major concern
Though the divestment in Flag telecom and possibly Reliance Infratel can
help ease the net debt, another major concern of RCom remains its
weakening fundamentals. The wireless (core) revenue of RCom has been
declining at a CQGR of 0.7% from Q1FY10 to Q3FY12 from | 4793.1 crore
to | 4447.1 crore while that of Bharti and Idea have increased by 1.8%
and 5.2%, respectively. Also, RCom has reduced its capex guidance to
| 1500 crore for FY12 while that of Bharti and Idea remains at | 10000
crore and | 4000 crore, respectively. We believe this may affect the
network depth and cause a loss of market share to its peers
Possible divestment in tower business can also help
RCom has been trying to sell its tower business on multiple occasions but
the deal has not gone through as yet. Reliance Infratel currently has ~
50,000 towers. Assuming a valuation of | 35-45 lakh per tower, the tower
business could be valued in the range of | 15000 - 20000 crore. This
would further help reduce the debt. However, nothing concrete about the
divestment in tower business has been confirmed by the management.
Outlook & valuation
Though the IPO of Flag Telecom is a significant step in addressing the
more apparent issue of huge net debt, the stagnation in revenues is
another major concern rendering the long term scenario for RCom not
very bright. The company may also lose market share to its peers on
account of its reduced capex guidance as compared to its peers. We
remain sceptical about the outlook of RCom and reiterate our HOLD rating
on the stock.
At the CMP of | 94, the stock is trading at 24.9x FY12E EPS of | 3.4 and
39.1x FY13E EPS of | 2.2. We have valued the stock using the DCF
methodology and arrived at a target price of | 84/share, assuming 4.6%
CAGR in revenue over FY11E-FY20E and terminal growth rate of 3%. Our
target price implies a downside of 2%. We maintain our HOLD rating on
the stock.
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