Motilal Oswal has maintained neutral rating on Reliance Communications with a target of Rs 96, in its January 21, 2013 research report.
“Recent meeting with RCom's wireless business CEO Mr Gurdeep Singh reaffirmed our view that focus on RPM and profitability improvement has increased across operators. As mentioned in our telecom sector report "Consolidation, pricing improvement inevitable; increased focus on profitability" dated January 7, 2013, voice pricing improvement is likely the only major lever available for the industry given high leverage, tapering traffic growth and significant spectrum liabilities. RCom's wireless RPM has been steady over the past 10 quarters. Sustained industry-wide RPM improvement would require lowering of RPM discount for challengers v/s the leader in the respective circles.”
“Company has identified its "3G 900" and "3G metro" circles as pockets of strategic strength (account for ~50% of its wireless revenue). In "3G 900" circles, RCom has ~13% adjusted gross revenue (AGR) market share vs 10% in "3G metro" and ~6% in the balance. Post continued decline in AGR share, RCom gained ~100bp during 1HFY13 to reach 7.7% in 2QFY13. Key focus areas for cost reduction include network costs, subscriber acquisition, and employee costs. Management outlined plans for reduction in network costs by 10-12% and lowering subscriber acquisition/employee costs. Our estimates imply 5% opex CAGR over FY13E-15E.”
“RCom has low spectrum liability (~INR37b) and high sensitivity to RPM improvement but high leverage remains a concern. Given initiatives on market share improvement and cost reduction, coupled with expected industrywide RPM improvement, we upgrade FY14/15 EBITDA by 7%/12% (FY13-15E EBITDA CAGR of 13%) and TP from INR79 to INR96 based on 6x FY15E EV/EBITDA. Neutral,” says Motilal Oswal research report.
Institutional holding more than 40% in Indian cos
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