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Key Takeaways
Competitive environment improving
The worst of the competitive intensity is behind the sector.
With tariff hikes taken by operators controlling 80-90% of the revenue market, the
pricing environment has improved.
Voice RPM improvement will be driven by recent tariff hikes flowing through to more
subscriptions as they come up for renewal.
Advanced due diligence for tower company sale underway
The tower company transaction is in an advanced due diligence stage and could be
completed over the next 2-3 months. Media reports indicated a potential valuation
of USD5b for the tower assets.
The sale will involve the transfer of Reliance Communications' (RCom) tower assets.
Optic fiber assets will not be a part of the proposed transaction.
Leverage high
RCom has net debt of ~INR320b and the blended cost of debt is less than 5%.
The only major debt re-payment required over the next one year is related to the
outstanding FCCB (~USD1.1b due in May 2011).
RCom has drawn down ~USD1.3b from China Development Bank to re-finance shortterm
rupee loans related to 3G license fees. A further limit of ~USD0.6b is available.
Beside external capital raising, operating FCF should be healthy given expected
FY12 EBITDA of ~INR68b and limited capex requirement of ~INR15b.
Huge untapped data opportunity
With a large disparity between voice penetration (60-65%) and broadband
penetration (1-2%), there is significant opportunity in the data business yet to be
tapped.
The 3G customer base is ~2m. RCom has launched a tablet (priced INR12,999,
manufactured by ZTE). As the prices fall, data penetration should reach a threshold
level.
Valuation and view
RCom trades at EV/EBITDA of 6.7x FY12E and 5.1x FY13E. We have a Neutral
rating with a target price of INR83.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Competitive environment improving
The worst of the competitive intensity is behind the sector.
With tariff hikes taken by operators controlling 80-90% of the revenue market, the
pricing environment has improved.
Voice RPM improvement will be driven by recent tariff hikes flowing through to more
subscriptions as they come up for renewal.
Advanced due diligence for tower company sale underway
The tower company transaction is in an advanced due diligence stage and could be
completed over the next 2-3 months. Media reports indicated a potential valuation
of USD5b for the tower assets.
The sale will involve the transfer of Reliance Communications' (RCom) tower assets.
Optic fiber assets will not be a part of the proposed transaction.
Leverage high
RCom has net debt of ~INR320b and the blended cost of debt is less than 5%.
The only major debt re-payment required over the next one year is related to the
outstanding FCCB (~USD1.1b due in May 2011).
RCom has drawn down ~USD1.3b from China Development Bank to re-finance shortterm
rupee loans related to 3G license fees. A further limit of ~USD0.6b is available.
Beside external capital raising, operating FCF should be healthy given expected
FY12 EBITDA of ~INR68b and limited capex requirement of ~INR15b.
Huge untapped data opportunity
With a large disparity between voice penetration (60-65%) and broadband
penetration (1-2%), there is significant opportunity in the data business yet to be
tapped.
The 3G customer base is ~2m. RCom has launched a tablet (priced INR12,999,
manufactured by ZTE). As the prices fall, data penetration should reach a threshold
level.
Valuation and view
RCom trades at EV/EBITDA of 6.7x FY12E and 5.1x FY13E. We have a Neutral
rating with a target price of INR83.
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