Go short on RCom :: Business Line

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Lags behind peers… • RCom :: ICICI Securities, link

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Rcom - Incremental steady-state EBITDA of INR7b-7.5b post tower deal :: Motilal Oswal

Incremental steady-state EBITDA of INR7b-7.5b post
tower deal
Increasing target price by 14%; maintain Neutral
 Reliance Communications (RCOM) and Reliance JIO Infocomm have signed an
agreement for sharing tower infrastructure with an aggregate value of INR120b.
 The deal will enable Reliance JIO to utilize up to 45,000 sites from RCOM's existing
network.
 We estimate incremental revenue of ~INR8b per year and incremental EBITDA of
INR7b-7.5b per year for RCOM, assuming that Reliance JIO ramps up to 45,000 sites.
 We are upgrading FY14/FY15E EBITDA by 1-2% and target price by 14% to INR111.
 The stock trades at an EV of 7.5x FY14E and 6x FY15E EBITDA. Maintain Neutral.

Rcom: Mixed quarter with in-line revenues and lower-thanexpected margins; watch for further deals with RIL :JPMorgan

Reliance Communications (RCom) reported a mixed quarter (4QFY13) with
in-line revenues, while EBITDA margins decreased modestly Q/Q (vs. our
expectation of increase). Wireless revenues grew 2.5% Q/Q, while GEBU
(Global & Enterprise) revenue growth at 0.5% Q/Q was below our estimates.
EBITDA margins contracted 30 bps Q/Q. Operating metrics remained mixed.
 Revenue growth was in-line with expectation. Revenues of INR 54.1 billion
(excluding one-off i.e. INR 5.5 billion reversal of provision for business
restructuring) came in-line with our and consensus expectations. Wireless
revenue growth of 2.5% Q/Q was as per our estimate, but GEBU revenues fell
1.5% short of our expectation. RCom registered Y/Y revenue growth of 1.8%
Q/Q in 4QFY13 compared to 12.9% for Idea & 8.4% for Bharti (India & SA).
 EBITDA margins decreased 30 bps Q/Q (excluding reversal of provision
for business restructuring) despite sharp decline in Employee costs (versus
our expectation of modest margin expansion). We expected expansion in
margins due to lower SG&A & expected improvement in ARPMs. Surprisingly,
Employee costs decreased 33% Q/Q marking the lowest absolute quarterly
employee costs since FY06. Wireless and GEBU EBITDA margins remained
broadly flat Q/Q at 26.7% and 23.1%, respectively, below our estimates.
 Mixed operational metrics. Volume/total minutes growth of 2.3% Q/Q was
primarily driven by increase in MoUs. ARPMs remained broadly flat Q/Q
despite increase in tariffs in Sep-12 quarter. Notably, Tariff hikes impact
ARPMs for 2-3 quarters after the hike because of incremental shift of existing
customers to higher tariffs. RCom has again announced to increase tariffs by
about 20-30% in May-13. We need to see increase in ARPMs in the coming
quarters to see the effectiveness of these tariff increases.
 The highlight of the quarter was RCom’s agreement with Reliance Jio
(RIL) to share its inter-city optic fiber network. RCom suggested that this is
the first step in a series of a ‘comprehensive framework of business cooperation’ between the two companies. Notably, further large deals with
Reliance Jio are a key risk to our UW rating on RCom’s stock. See our note,
"Signs optic fiber network sharing deal with Reliance Industries; needs much
more to relieve balance sheet stress” dated April 2nd, 2013.
 Investment view. We have UW rating on RCom’s stock as it continues to lose
subscriber & revenue market share and leverage remains uncomfortably high.
However, further sizable asset sharing deals with RIL and asset monetization
remain key risks to our UW rating.

Stock Strategy: Consider bear call spread on RCom :: Business Line

Technical Query-Central bank, Ambuja Cements, SpiceJet, RCom, Balkrishna Industries, Everest Industries, Gravita ::Business Line

 

Technical-Central bank, Ambuja Cements, SpiceJet, RCom, Balkrishna Industries, Everest Industries, Gravita ::Business Line

 

Reliance Communications (Rs 74.6): SELL:: Business Line

Consider short strangle on RCom :: Business Line

Reliance Communication : TP: INR53 Neutral ::Motilal oswal

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.

Update on RCOM’s submarine cable assets’ IPO :: Nomura research,

Preliminary submarine cable prospectus released on 5th July
RCOM released the preliminary prospectus for the listing of its cable
assets as a business trust in Singapore last week. At this stage the
pricing hasn’t been determined, but press articles indicate a pricing
range of USD1.09-1.32 per unit, with an implied market cap of USD1.27-
1.54bn. The prospectus states a payout of at least 90% of distributable
free cash in dividends and projects USc12.5 for FY13F. This implies a
9.5%-11.5% yield at the offer price indicated as per press, which is
attractive vs the average telco yield of 6-7% across the region. However,
this pricing range also implies a listing EV/EBITDA of ~10-12x FY13F
(on pro-forma EBITDA forecast of USD131mn with no debt at end of
FY12F). Hence, we recommend some caution, and also given the lack of
clarity/ inconsistency around group strategy, a ~10% yield alone may not
be enough to entice many investors. We are, in general, positive on
submarine cable businesses given their inherent cash/margin potential,
but we don’t have enough comparables/ details to assess the merits of
this transaction yet. (Source: Reliance’s GTI Said to Offer Up to 11%
Yield in Singapore, Bloomberg, July 9 2012).

Stock Strategy: RCom, Sun TV to remain under pressure ::Business Line

 

RELIANCE COMMUNICATIONS LTD- A House of Cards: Vertias

A HOUSE OF CARDS
Reliance Communications Limited (“RCom” or the “Company”) is entering a
phase of maximum uncertainty. In our view, macro-economic conditions in
India are deteriorating at a rapid rate. Fractured policy making, high inflation,
an uncontrollable fiscal deficit, in addition to a hyper-competitive
telecommunication business, are highly detrimental to the prospects of RCom.
Exceedingly high financial leverage, accompanied with debt repayment
obligations of approximately $U.S. 2.2B over the next twenty-four months, at a
time when EBITDA in core business operations is stagnating, is a significant
challenge for the management team.
In order to tide over the cash crunch, we believe that RCom has been scaling
back its capital expenditures (“capex”) and has put assets on the block.
However, given the weak competitive position of the Company in the Indian
wireless sector, we believe that curtailed capex will be detrimental to the
Company’s prospects going forward. We believe that RCom is at a
disadvantage in terms of its GSM spectrum position in most of its footprint
compared to its peers, and to tide over its spectrum deficit the Company
needs to incur higher capex to maintain quality of service. RCom has been
disproportionally affected by the entry of new players in the market and its
ARPU has suffered more than its peers.

Technical Query :IndusInd Bank, Sun TV, Geodesic, Sterlite Industries, Hindustan Zinc, RCom, Grasim Industries, :Business Line

Reliance Communications Target Price (INR) 59 Concerns on growth remain :Avendus

Reliance Communications Ltd announced its consolidated Q4 FY2012:: Microsec Research

Hold Reliance Communication; Target :Rs 84 :ICICI Securities, PDF link

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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.

Kotak Sec:: PDF link: DLF, Essar Oil, Tata Power, IDFC, RCom, Shriram Transport Finance, Reliance Capital, Eros, MTNL, Puravankara, JSW steel, Sun TV, Tata Steel, IndusInd Bank,

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily13022012.pdf


Daily Alerts
Results
DLF: Right course but still in rough waters
Oil India: Country cousin steals a march
Tata Power: Coal production ramps up, low cost coal gives Mundra hope
IDFC: Growth strong, core in line
Reliance Communications: Weak results but do they matter?
Shriram Transport: A flat quarter
Reliance Capital: A mixed quarter
Eros International: Growing up
MTNL: Operational strife continues
Puravankara Projects: In-line results, poor sales


Results, Change in Reco
JSW Steel: Reports consolidated loss; stock expensive
Sun TV Network: A rainy quarter; Sun hides behind the clouds
Change in Reco
Tata Steel: Negatives out of the way
IndusInd Bank: Limited risks to business; valuations cap returns in the near
term


Sector
Consumer products: Hale and hearty, for now
Economy
Economy: IIP growth likely to be near the bottom

Sell Reliance Communication; Target : Rs 84:: ICICI Securities, (pdf link)

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http://content.icicidirect.com/mailimages/ICICIdirect_RelianceCommunication_Q3FY12.pdf


S u b d u e d   t r a f f i c   g r o w t h …
Reliance Communication reported its Q3FY12 numbers, which were
below our expectations on the topline front. Revenues for the quarter
stood at | 4824.1 crore against our expectation of | 5066.1 crore primarily
on account of lower than expected growth in traffic, growing 0.7% QoQ.
The EBITDA for the quarter stood at | 1383.1 crore against our
expectation of | 1483.5 crore, growing 1.9% QoQ. The EBITDA margin for
the quarter stood at 28.7% expanding by 35 bps QoQ. However, on the
bottomline front, the company reported better than expected numbers.
Net profit for the quarter stood at | 186.2 crore against our expectation of
| 165.3 crore primarily due to higher other income, which stood at | 228
crore against our expectation of | 100 crore.
Highlights of quarter
The traffic on the network grew marginally by 1.0% QoQ to 99.9 billion
minutes while the ARPM remained stable at 45 paisa. ARPU and MoU,
however, continued with their declining trend, falling from | 101 and 227
minutes to | 100 and 224 minutes, respectively. Subscriber net adds
continued to decline with the company adding 3.0 million wireless
subscribers in this quarter. Data revenues contributed to over 20% of the
total revenues.
V a l u a t i o n
The quarter was marked by subdued growth in traffic suggesting price
elasticity among subscribers. In the wake of higher interest cost in the
future as guided by the management, we have revised our estimates for
FY13 from | 4.0 to | 3.8. At the CMP of | 94, the stock is trading at 26.5x
FY12E EPS of | 3.5 and 24.9x FY13E EPS of | 3.8. We have valued the
stock using the DCF methodology and arrived at a target price of | 84,
assuming 4.7% CAGR in revenue over FY11E-FY20E and terminal growth
rate of 3%. Due to the recent rally in the stock, we rate it as SELL.

Sell Reliance Communication; Target : Rs 84 ::ICICI Securities

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H u g e   d e b t !   S t i l l   a   c o n c e r n …
RCom with the second highest subscriber base has very low VLR
subscribers resulting in huge diversification in subscribers (16.8%) and
revenue (8.2%) market share. The company is in the process of cutting
down free minutes on the network resulting in lower MoU growth than
peers.  Also,  huge  net  debt  levels  of  5.8x  FY11  normalised  EBITDA  are  a
huge concern for RCom. Interest costs would rise, going ahead, as RCom
replaces its FCCB with higher coupon debt. Several attempts to monetise
tower assets have been unsuccessful while the current market scenario
and regulatory overhang would make it all the more difficult to get
desired valuations. The only silver lining is increase in external tenancy on
RCom’s towers backed by RIL’s BWA rollout. We have not factored in any
revenue from external tenancy till a formal announcement is made. We
rate RCom as SELL with a target price of | 84.
Huge debt remains a concern
RCom has a huge debt of about | 33699.5 crore as on September 2011.
The normalised net debt/EBITDA stood at 5.8x in FY11 as compared to
3.0x and 3.1x for Bharti Airtel and Idea Cellular, respectively. Though the
company has refinanced some of its debt through cheaper Chinese debt
with longer maturity, the long term issue still remains. Also, it impacts the
company’s network rollout capex. With capex guidance much lower than
its peers, we believe RCom may lose out on network depth and quality.
Tower deal – A ray oh hope
The company has also been looking at diluting its stake in the tower
business to repay its debt. However, we believe given the market
scenario it would be difficult to get the desired valuations for Reliance
Infratel while the regulatory uncertainty would make equity dilution in the
parent company more difficult. Increase in external tenancy would be a
game changer for RCom. The company has announced it is in talks with
Reliance Industries for renting out towers for the latter’s LTE roll out.