Anil Ambani owned Reliance Communications might have several catalysts to unlock value, and one of them could be an ‘inevitable’ telecom tower deal with Reliance Industries, according to a brokerage report by CLSA.
There have been many reports of a possible tower sharing deal between Reliance Communications’ tower subsidiary Reliance Infratel, and Mukesh Ambani-owned Reliance Industries (RIL). RIL is in the process of rolling out its high-speed data services via broadband wireless access (BWA). But both companies have not made any official comments on a possible tie up till date.
“Reliance Industries is the only pan-India 4G spectrum owner. 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’s financial health and accretion to FY14 CL EBIDTA (earnings before interest depreciation, tax and amortisation) is likely to be significant by 10-15%,” the report said.
RCom had a massive debt of around Rs 36,700 crore. The debt is now at 5.6 times its EBIDTA. This lofty leverage, as the foreign brokerage refers it as, is making it maintain a ‘sell’ call on the stock. In the past, Reliance Communication tried various ways to reduce debt and one of them was to monetise its tower assets. Its deal with GTL Infrastructure fell apart, after it tried to hit the markets twice with an initial public offer which did not go through as well.
The company even tried to sell a part of its stake in Flag Telecom but failed to get any 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 also says that the company management revealed their extensive efforts to revive revenue and rationalise costs. The revenue per minute (RPM) of the company is now at 43 paise which is comparable to industry leader, Bharti Airtel. The RPM is ahead of Idea Cellular which is at 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 the offerings of Bharti, Vodafone and Idea. “On the costs front, RCom’s EBIDTA margin at 31.5% may improve further with its ongoing efforts, including the latest Alcatel Lucent-managed services contract, which will move 4,000 employees to its partner rolls,” the report said. RCom’s stock went up around seven% in today’s trade to close at Rs 89 per share, as per data available on the Bombay Stock Exchange.