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RCOM’s discussions to sell its majority stake in Infratel
may not imply any significant upside for the stock.
Valuation is likely to be US$100-120k/tower; the implied
EV/EBITDA of ~8x does not imply any meaningful
arbitrage vs. its current valuation (7.2x FY12E).
RCOM’s net debt could, however, decline to a much
more palatable ~2.0x EBITDA, giving it some flexibility
to effectively compete in the market.
While this could be negative at the margin for the
ongoing recovery, new regulatory charges could nullify
that and be the key trigger for an uptick in RPM in FY13
Tower sale on the cards? According to media reports
(Bloomberg, dated 9th June), RCOM is talking with
strategic/financial investors to offload its majority stake in
Reliance Infratel (RCOM owns 95%). Based on the last few
reported deals, Infratel’s valuation could be EV/tower of
US$100-120k/tower, i.e., EV of US$5-6bn.
No significant arbitrage in valuation. Based on estimated
FY11 EBITDA of towerco at Rs32bn (est. Infratel EBITDA of
Rs42bn less OFC/backhaul revenues of likely ~Rs10bn), a
US$120k/tower valuation would imply EV/EBITDA of 8.4x.
This is not materially different from RCOM’s current multiple
(7.2x FY12E). The residual equity value would also work
out close to current PT at 7.5x FY12E EBITDA (ex-towers).
A “back-on-its-feet” RCOM could slow the recovery. We
estimate RCOM’s net debt/EBITDA can potentially decline
to as much as 2.0x (from 4.0x) if the towerco sale goes
through. This could help RCOM regain some of its
competitive capacity though it may not accord the flexibility
to cut tariffs. Industry tariffs have been relatively stable for
the past 4-6 quarters as operators have displayed restraint
given “unviable” tariffs and stretched balance sheets.
New spectrum policy – a key trigger for tariffs. The long
delayed spectrum policy could, however, offset some of the
balance sheet gains for RCOM. In fact, additional spectrum
payments for the GSM incumbents and the likely redistribution/re-pricing of spectrum (through spectrum
trading/auctions) still remains the key trigger supporting our
view for an uptick in RPM in 2H FY12/FY13.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
RCOM’s discussions to sell its majority stake in Infratel
may not imply any significant upside for the stock.
Valuation is likely to be US$100-120k/tower; the implied
EV/EBITDA of ~8x does not imply any meaningful
arbitrage vs. its current valuation (7.2x FY12E).
RCOM’s net debt could, however, decline to a much
more palatable ~2.0x EBITDA, giving it some flexibility
to effectively compete in the market.
While this could be negative at the margin for the
ongoing recovery, new regulatory charges could nullify
that and be the key trigger for an uptick in RPM in FY13
Tower sale on the cards? According to media reports
(Bloomberg, dated 9th June), RCOM is talking with
strategic/financial investors to offload its majority stake in
Reliance Infratel (RCOM owns 95%). Based on the last few
reported deals, Infratel’s valuation could be EV/tower of
US$100-120k/tower, i.e., EV of US$5-6bn.
No significant arbitrage in valuation. Based on estimated
FY11 EBITDA of towerco at Rs32bn (est. Infratel EBITDA of
Rs42bn less OFC/backhaul revenues of likely ~Rs10bn), a
US$120k/tower valuation would imply EV/EBITDA of 8.4x.
This is not materially different from RCOM’s current multiple
(7.2x FY12E). The residual equity value would also work
out close to current PT at 7.5x FY12E EBITDA (ex-towers).
A “back-on-its-feet” RCOM could slow the recovery. We
estimate RCOM’s net debt/EBITDA can potentially decline
to as much as 2.0x (from 4.0x) if the towerco sale goes
through. This could help RCOM regain some of its
competitive capacity though it may not accord the flexibility
to cut tariffs. Industry tariffs have been relatively stable for
the past 4-6 quarters as operators have displayed restraint
given “unviable” tariffs and stretched balance sheets.
New spectrum policy – a key trigger for tariffs. The long
delayed spectrum policy could, however, offset some of the
balance sheet gains for RCOM. In fact, additional spectrum
payments for the GSM incumbents and the likely redistribution/re-pricing of spectrum (through spectrum
trading/auctions) still remains the key trigger supporting our
view for an uptick in RPM in 2H FY12/FY13.
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