Sunday, June 05, 2016

In December 2015, RCOM entered into a non-binding and
Photo: The Telegraph
exclusive agreement to sell towers owned by its subsidiary— Reliance Infratel Limited (RITL, unrated)—to two investment companies, Tillman Global Holdings, LLC (unrated) and TPG Asia, Inc (unrated). 

RCom has made a public commitment to use the entire proceeds from the sale for DEBT REDUCTION.

According to Nidhi Dhruv, Moody’s Vice President and Senior Analyst: "RCom has also re-prioritized its strategies again, and now plans to announce the final binding tower sale transaction within two months from the completion of discussions with Aircel". 

This means that, if the dates are to be taken as sacroscanct, then within two months we can expect, a substantial reduction of Reliance Communication Ltd's debts. 

Cumulatively, these transactions, when consummated, could benefit RCom substantially. Hence any tangible benefit to RCom’s financial and credit profile is now likely to happen within the next 6-9 months.

Upon the completion of the share swap transaction with Sistema Shyam Teleservices (SSTL unrated), RCOM will have adequate spectrum. However, should the company participate in the upcoming spectrum auctions, its leverage metrics will be further pressured.

RCom has about $450 million (Rs.30262.50 C) in debt falling due in the quarter ending 30 June 2016, which includes a $350 million ECB facility at Reliance Infratel (unrated), which is guaranteed by RCOM and has a cross-default with other debt. Management is still in the process of renewing this facility with the banks and expects to complete the refinancing ahead of maturity.

Unless there are some unexpected regulatory developments in the Indian telecommunications sector RCom is likely to continue to grow revenues and earnings of its core-Indian operations by increasing the number of subscribers and data revenue without compromising its EBITDA margins. After the same of its tower business it would be more efficient to generate positive free cash flow on a sustained basis and this will improve its liquidity profile significantly or its adjusted debt/EBITDA could fall to 4.0x-4.5x and its adjusted EBITDA margins could come between 30%-35%, in the next 6-9 months. 

RCom is an integrated telecommunications operator in India (Baa3 stable) with a presence across wireless, enterprise, broadband, tower infrastructure and DTH businesses. Through its wholly-owned subsidiary, GCX Limited (B2 stable), the company also provides data connectivity solutions to major telecommunications carriers and large multinational enterprises in the US, Europe, Middle East and Asia Pacific which need multi-national IP-based solutions and connectivity.

RCom is the fourth-largest mobile operator in India by number of subscribers, which totaled 109.1 million or approximately 10.7% of the total market share by subscribers (pro forma for Sistema acquisition) as of 31 January 2016 according to the Telecom Regulatory Authority of India (TRAI).

Moreover, its tie up, with Mukesh Ambani's Reliance Jio Ltd is likely to work wonders very soon. 

Meanwhile, Mr.Gurdeep Singh, CEO for Consumer Business  said during a conference call: “Integration of MTS business with RCom is on track. We expect to complete the integration in August. We expect to make announcement with respect to Aircel merger anytime in June. Once we complete the Aircel transaction, we will go for the tower deal. With completion of these deals, we expect RCom’s debt to reduce by 75 per cen". 

RCom and Aircel talks, if successful, would lead to a combined entity holding 19.3 per cent of the total spectrum allocated to the industry — the highest by an entity.

The new entity, which is in the works, would hold spectrum across all allocated bands — 800 MHz, 900 MHz, 1800 MHz, 2100 MHz and 2300 MHz — for 2G, 3G and 4G services.

RCom also expects approval from the government for spectrum liberalisation in four circles — Kerala, Karnataka, Tamil Nadu and Rajasthan — by tomorrow. The company has paid over Rs 1,200 crore for liberalising spectrum in these circles.

DoT has already approved liberalisation of RCom’s CDMA spectrum in 17 out of 22 telecom circles. The company is using liberalised CDMA spectrum to offer 4G service to its customers. 

Earlier,  Mukesh Ambani’s Reliance Jio Infocomm Ltd and Anil Ambani’s Reliance Communications Ltd signed a Rs.12,000-crore deal that lets Reliance Jio use the telecom towers of RCom to launch its fourth-generation (4G) services — a pointer to the growing camaraderie between the brothers.

Reliance Jio — the telecom arm of Reliance Industries — will use up to 45,000 ground and rooftop-based towers of R-Com’s nationwide network for the rollout of its 4G services.

Reliance Jio will pay Rs 12,000 crore over the entire period of the contract.

Though both the companies were tightlipped about the time frame of the contract, sources put it at 15 years, in which case R-Com will get around Rs 800 crore annually.

A press statement issued by both the groups said they would explore the possibility of building new towers as well.

RCom's consolidated net profit in the last quarter of ended March 31, 2016 declined by about 22% at Rs.177 crore from Rs.228 crore a year ago.

However, coming out with profits, even though it is having huge debts (or in tight liquidity conditions), speaks volumes about the resilience of the company. 

The promoters holding in the company stood at 58.85% while Institutions and Non-Institutions held 28.77% and 11.94% respectively.

A Foreign Institutional Investors (FII) have recently bought nearly 1% stake in this ADA Group telecom company, for about Rs.87 crore through open market.

In such a positive environment, I would suggest you to BUY in BULK, the stock of Reliance Communications Ltd (Rs.48.95), like you are doing in case of Unitech Ltd (Rs.3.89) and keep holding for 4-6 months to MORE than DOUBLE your INVESTMENT CAPITAL.

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