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Reliance Communication Limited
C hoosing to be more conservative
�� Event – RCOM stock has been a big under-performer ytd
RCom stock has under-performed Nifty by 26%, Bharti Airtel by 50% and Idea by
83% ytd. We believe that investor concerns are: 1) High financial leverage (Net
Debt/LTM EBITDA of 3.5) 2) Poor operational performance (While Idea and
Bharti have increased their quarterly mobile revenue by 108% and 49% in the last
12 quarters, RCom’s mobile revenues has increased by 5% during the same period)
�� Impact – Revise down our PT to Rs140
We reduce our price target for RCom to Rs140 (from Rs200) on account of 1)
lower earnings (from RCom ex Infratel) 2) lower valuations for Reliance Infratel.
We now value Infratel at Rs50 vs. Rs66 earlier as we lower our tower and tenancy
estimates given the current oversupply in the sector. 3) We increase WACC for
RCOM to 15% (from 13.2%) and Reliance Infratel to 14% (from 13%).
�� Action – Maintain Buy
At current levels, we believe RCom offers good risk reward for investors with a
higher risk appetite. The key risk to our positive thesis is poor execution. We think
RCom needs to de-lever as well as improve its operating performance to regain
investor confidence.
�� Valuation – Our PT of Rs140 is SoTP based
Our PT of Rs140 is SoTP based with Reliance Infratel valued at Rs50 per share.
We are lowering our consolidated earnings estimates for FY12E/13E by 52%/55%
as we factor in lower revenues from global enterprise business, higher interest
expense and lower contribution from Infratel.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Communication Limited
C hoosing to be more conservative
�� Event – RCOM stock has been a big under-performer ytd
RCom stock has under-performed Nifty by 26%, Bharti Airtel by 50% and Idea by
83% ytd. We believe that investor concerns are: 1) High financial leverage (Net
Debt/LTM EBITDA of 3.5) 2) Poor operational performance (While Idea and
Bharti have increased their quarterly mobile revenue by 108% and 49% in the last
12 quarters, RCom’s mobile revenues has increased by 5% during the same period)
�� Impact – Revise down our PT to Rs140
We reduce our price target for RCom to Rs140 (from Rs200) on account of 1)
lower earnings (from RCom ex Infratel) 2) lower valuations for Reliance Infratel.
We now value Infratel at Rs50 vs. Rs66 earlier as we lower our tower and tenancy
estimates given the current oversupply in the sector. 3) We increase WACC for
RCOM to 15% (from 13.2%) and Reliance Infratel to 14% (from 13%).
�� Action – Maintain Buy
At current levels, we believe RCom offers good risk reward for investors with a
higher risk appetite. The key risk to our positive thesis is poor execution. We think
RCom needs to de-lever as well as improve its operating performance to regain
investor confidence.
�� Valuation – Our PT of Rs140 is SoTP based
Our PT of Rs140 is SoTP based with Reliance Infratel valued at Rs50 per share.
We are lowering our consolidated earnings estimates for FY12E/13E by 52%/55%
as we factor in lower revenues from global enterprise business, higher interest
expense and lower contribution from Infratel.
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