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UBS Investment Research
Reliance Communication Limited
De-leveraging & Execution are the key
Event – India mobile sector is going through paradigm shift
We believe India mobile sector is going through paradigm shift with leading
players increasing tariffs as the current pricing is not sustainable. We believe that
improving pricing environment and regulatory outlook will lead to rerating of the
sector. We expect RCom also to be a beneficiary.
Impact – RCom to benefit from de-levering & performance improvement
Of the listed players in the Indian mobile space, RCom has the highest financial
leverage with Net/Debt to EBITDA of 3.5x. RCOM is exploring de-leveraging
options that include sale of majority stake in Reliance Infratel and a stake sale in
Reliance Communications. We believe RCom needs to de-lever as well as improve
its operating performance to regain investor confidence.
Action – Raise our price target to Rs200 (vs. Rs195 earlier)
Our EBITDA estimates for FY12E/13E/14E have increased by 2%/3%/2% as we
factor in higher realizations. Our EPS estimate for FY12E has remained flat while
for FY13E/14E it has increased by 4%/1% respectively. RCom is reporting
1QFY12 results on 13 August 2011. Minutes growth and realization will be the key
metrics to watch out for.
Valuation: Maintain Buy with a SoTP based PT of Rs200
Our PT of Rs200 is SoTP based with Reliance Infratel valued at Rs66 per share.
We have used a WACC of 13.2% in our DCF to value RCom. At current levels, we
believe RCom offers excellent risk reward for investors with a higher risk appetite.
The key risk to our positive thesis on RCom is poor execution.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Reliance Communication Limited
De-leveraging & Execution are the key
Event – India mobile sector is going through paradigm shift
We believe India mobile sector is going through paradigm shift with leading
players increasing tariffs as the current pricing is not sustainable. We believe that
improving pricing environment and regulatory outlook will lead to rerating of the
sector. We expect RCom also to be a beneficiary.
Impact – RCom to benefit from de-levering & performance improvement
Of the listed players in the Indian mobile space, RCom has the highest financial
leverage with Net/Debt to EBITDA of 3.5x. RCOM is exploring de-leveraging
options that include sale of majority stake in Reliance Infratel and a stake sale in
Reliance Communications. We believe RCom needs to de-lever as well as improve
its operating performance to regain investor confidence.
Action – Raise our price target to Rs200 (vs. Rs195 earlier)
Our EBITDA estimates for FY12E/13E/14E have increased by 2%/3%/2% as we
factor in higher realizations. Our EPS estimate for FY12E has remained flat while
for FY13E/14E it has increased by 4%/1% respectively. RCom is reporting
1QFY12 results on 13 August 2011. Minutes growth and realization will be the key
metrics to watch out for.
Valuation: Maintain Buy with a SoTP based PT of Rs200
Our PT of Rs200 is SoTP based with Reliance Infratel valued at Rs66 per share.
We have used a WACC of 13.2% in our DCF to value RCom. At current levels, we
believe RCom offers excellent risk reward for investors with a higher risk appetite.
The key risk to our positive thesis on RCom is poor execution.
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