Buy Reliance Communication: DSP ML

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Broking house, DSP Merrill Lynch is bullish on Reliance Communication and has recommended buy rating on the stock.

 

DSP Merrill Lynch report on Reliance Communication

 

 

Plans for aggressive wireless expansion 

 

We visited Reliance Communication (RCom) as part of ML's Asia telecom tour.  The company emphasized that its wait for GSM spectrum is being over-analysed  by investors. The company has aggressive expansion plans on CDMA towards sustaining competitiveness in the marketplace. Also, in its existing GSM circles, Reliance continues to deepen network rollout. 

 

Positive fallout from expansion of tower portfolio 

 

RCom has an existing tower portfolio of ~12,000 towers and is working to add  another 20,000 towers in FY08E. RCom believes that the relatively recent  expansion of its tower portfolio will allow it to dimension its network for greater  infrastructure sharing versus operators that built out towers earlier. RCom has  received shareholder & court approvals for de-merger of its tower portfolio into a  separate company. At this stage, RCom has no plans to dilute its equity stake in  the tower company below 76%. 

 

Flag IPO soon 

 

RCom believes that its FLAG undersea cable business offers much greater  predictability of demand, pricing & cash flows compared with the euphoria over  global bandwidth businesses a decade ago. According to the Co, the soleownership  model of RCom vs the consortium approach of most other bandwidth  providers will allow the company to have speed of execution. The company is  working towards the overseas listing of FLAG, and also towards pre-sales &  procurement for its US$1.5bn FLAG NGN project.

 

Retail broadband & DTH rollout by end-CY07 

 

Integrated rollout of RCom's IPTV and DTH offerings is expected by end-CY07.  The IPTV launch will allow the company to utilize its existing metro ethernet  network across 110 cities with relatively low incremental capex.