Management interaction takeaways
Industry highly leveraged; RCom better placed due to no license/
spectrum payouts
The industry, including Reliance Communications (RCom), has become highly
leveraged. RCom is relatively better placed v/s GSM incumbents, as there are no
imminent payouts related to license renewal/spectrum re-farming.
Competitive pressure remains high; higher spectrum costs/balance
sheet stress should restore rationality
Competitive pressure remains high, given overcapacity in the telecom sector.
Potential higher outlay towards spectrum should restore rationality among
all operators.
No operational impact due to FLAG IPO not getting through
FLAG IPO could not go through due to tough market environment and
differences in valuation expectations.
However, this has no immediate operational impact on RCom, as the proposed
fund raising was aimed as de-leveraging at consolidated level and not towards
any specific plans/projects.
Reduction in 3G data prices positive for development of data market
The industry has significantly lowered 3G data prices to induce demand.
Lower data pricing has been the key requirement towards developing the
data market and is a positive step.
Valuation and view
RCom trades at EV/EBITDA of 6.7x FY13 and 5.9x FY14.
Maintain Neutral with a target price of INR53/sh based on 6x FY14 EV/EBITDA.
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