Reliance Communications Ltd: Buy

CMP: Rs.75.10

Anil Dhirubhai Ambani-owned company, Reliance Communications Ltd (Rs.75.10) which is India's fourth largest mobile phone operator by subscribers, reported an 85% jump in net profit for Q3FY15, boosted by lower cost of financing debt and as more of its subscribers used the pricier data services.

It posted a net profit of Rs.201 crore for the October-December period. Revenue rose 1.2% on year to Rs.4,799 crore. The company's net finance cost fell to Rs.652 crore from Rs.749.3 crore a year back. In May, Reliance Communications raised Rs 6,000 crore from a share sale to institutional investors to reduce its debt and ready itself for the upcoming airwave auction. It used funds raised from the sale of shares to institutional players to repay loans earlier this financial year.

According to the Economic Times, 14 February, 2015: 

The telecom industry in India has benefited from reduced competition ever since the Honorable Supreme Court cancelled 122 licences in February 2012, which allowed operators to cut down on promotional offers such as free-call minutes and raise effective call rates. Additionally, a surge in the use of smartphones has pushed up the use of premium high-margin data services. These have helped most telcos improve their key parameters such as average revenue per user (ARPU) and average realisation per minute (ARPM). The carrier's data customer base grew 5.7% to 31.4 million, of which 16.7 million were on its 3G services. Total data traffic increased 16.2% on quarter and 83.3% on year, due to a rise in data subscribers and higher data usage per customer, the company said. Data services offered at a premium and add to the spending per customer, making them more lucrative for telecom companies.

Reliance Communications had net debt of Rs.36,330 crore ($5.9 billion) at the end of September, 30, 2014, down from Rs.40,220 crore three months earlier, according to a company filing. 

The company may also bid in a government auction of wireless spectrum next month, which is expected to raise as much as $15.6 billion from service providers and put at risk their efforts to reduce borrowing, ICRA Ltd said in January. All licenses held by the company in the most popular 900 megahertz frequency band are up for renewal, according to the local arm of Moody’s Investors Service. 

Recently, there were media reports that  Reliance Communications has awarded a contract for technology overhaul of its business process outsourcing centres to US communications systems major Avaya for an undisclosed sum. A person familiar with the matter, however, said the contract may mean an outflow of Rs.400-500 crore for Reliance Communications (RCom) over three months, followed by about 15% of that to service it over the next three years. Under the agreement, Avaya will modernise tools, processes and best practices resulting in operational efficiencies by managing cost through consolidation.

Another person familiar with the deal said the move was in anticipation of work from Reliance Industries' Jio Infocomm. Reliance Communications Ltd (RCom) has a deal with Mukesh Ambani-owned Jio, under which RCom will manage the call centre operations for Jio. The Jio agreement also said RCom would upgrade its technology and fibre for the purpose. At the moment, RCom uses its legacy IVR, or interactive voice response system. Technology today allows more efficient approaches to ensure fewer drops and call back options to maintain continuity of conversation.

Besides, according to The Financial Express, 10 February, 2015:

Facebook has tied up with Reliance Communications to offer free access to subscribers of Anil Ambani-led firm to the social networking site as well as about three-dozen general information websites. Besides accessing Facebook, RCom subscribers can also access 33 websites offering news and information on weather, jobs, government services, and health without incurring data charges.

According to the Deccan Herald, 17 February, 2015:

Reliance Communications Ltd, part of the Anil Ambani-led group, which is the global telecom sponsor of the ICC World Cup 2015, has partnered with Twitter to provide its customers with a platform to follow the global commentary as the world's 14 best cricketing nations compete for the tag of the champion team, with no data charges. Customers who do not have a Twitter account can also access cricket-related Tweets by logging on to www.rcom.co.in/cricket on their mobile phones throughout the duration of this global event -- from Feb 13 to March 31, 2015, a company statement said here Tuesday. 

According to the Reuters, 17 February, 2015: 

India's Reliance Industries  and seven other firms including top mobile phone operator Bharti Airtel  have applied to participate in next month's auction for mobile phone airwaves, several people directly involved in the process said.

All these makes Reliance Communications Ltd as one of the most happening stocks in the telecom sector.. The scrip should cross Rs.100, within the next six months. The investors are strongly suggested to buy the stock at the CMP of Rs.75.10, for a short term target of Rs.84-97. This could be another Pipavav Defense and Offshore Eng Ltd (Rs.69.10), which was recommended on September 28, 2014 at Rs.38.75; after which it made a 52-week high of Rs.74.40 on 12/02/2015.