Anil Ambani-owned Reliance Communications might have several catalysts to unlock value, and one of these could be an inevitable’ telecom tower deal with Reliance Industries (RIL), said a report by brokerage CLSA.
Many reports have spoken of a possible tower sharing deal between Reliance Communications’ tower subsidiary, Reliance Infratel, and Mukesh Ambani-owned RIL, which is rolling out its high-speed data services through broadband wireless access (BWA).
However, so far, both companies haven’t made any official comment on a possible tie-up.
“Reliance Industries is the only pan-India 4G spectrum owner. The service roll-out is reported to be in 2013 and its best option remains to lease towers from Reliance Infratel. Incremental tenancies will improve RCom (Reliance Communications)’ financial health and accretion to FY14 CL (consolidated) Ebitda (earnings before interest, depreciation, tax and amortisation) is likely to be significant by 10-15 per cent,” the report said.
At the end of the quarter September, RCom’s debt stood at about Rs 36,700 crore. The debt is now 5.6 times its Ebitda. This “lofty leverage”, as the brokerage terms it, is making it maintain a sell’ call on the stock.
In the past, Reliance Communication tried to reduce debt in various ways; one of these was monetising its tower assets. Its deal with GTL Infrastructure fell apart, after it tried to launch an initial public offering, which also failed to materialise. The company also tried to sell a part of its stake in Flag Telecom, but failed to see a positive response from investors.
“We look for tower value unlocking deals, as well as an easing of the company’s debt burden,” the report said. Reliance Infratel has 48,139 towers.
The report added the company’s management revealed its efforts to revive revenue and rationalise costs. The company’s revenue per minute (RPM) stood at 43 paise, comparable to industry leader Bharti Airtel’s and ahead of Idea Cellular’s (41 paise).
This is because of RCom’s efforts to ramp up its CDMA data-card business and focus on GSM post-paid services, which are cheaper than the offerings of Bharti, Vodafone and Idea.
“On the costs front, at 31.5 per cent, RCom’s Ebidta margin may improve further with its ongoing efforts, including the latest Alcatel Lucent-managed services contract, which would move 4,000 employees to its partner rolls,” the report said.
Today, the RCom stock closed at Rs 89 on the BSE, a rise of about seven per cent compared to its previous close.
Rs 600-cr broadband investment in Q3
Reliance Industries made fresh investments of Rs 600 crore in Infotel Broadband, its telecom business, during the third quarter of this financial year, brokerage CLSA said in its report.
During the nine-month period of this financial year, the company has made fresh investments of Rs 1,700 crore in the business. The company is gearing up to launch its broadband-based telecom services by June this year but has been plagued by delays. Reliance has not made any official announcement on when it would launch its services.
RIL, India’s largest private firm, re-entered the telecom business in June 2010 after it bought 95 per cent in Nahata-owned Infotel Broadband for Rs 4,800 crore.
RIL Chairman and Managing Director Mukesh Ambani was forced to hand over the telecom business to his brother Anil Ambani when they broke up the Reliance empire in 2005.