Rel Comm jumps 6% post Rel Jio deal; ADAG stocks surge

Moneycontrol Bureau

Buyers lapped up Reliance Communication stocks on Wednesday as the firm inked a Rs 1200 crore deal with Reliance Jio Infocomm (4G arm of Reliance Industries). The stock was quoting at Rs 67.05, up Rs 3.75, or 5.92 percent on the BSE.

Other Anil Ambani's group stocks including Reliance Power, Reliance Capital and Reliance Broadcast gained around 2 percent each.

As per the deal, Mukesh Ambani's Reliance Jio will utilise Rel Comm's multiple fiber pairs across 120,000kms inter-city network to roll out its 4G service.

Most analysts feel this is the right move for Rel Comm. According to Karan Mittal, telecom analyst, ICICI Direct the deal will earn an incremental contribution of Rs 240-250 crore per annum to Rel Comm.

"Though the deal doesn't give a lot of leeway in terms of debt reduction but the overall long-term visibility and the valuation for the tower company could improve," he said an interview to CNBC-TV18.

Edelweiss feels that arrangement is a key positive for Rel Comm as the arrangement with help to monetise its assets and deleverage balance sheet. However, the brokerage maintains hold/ sector underperformer rating on the stock with a target price of Rs 80.

However, JP Morgan is underweight on Rel Comm. JP Morgan explains that Rel Comm has weak operational performance and stretched balance sheet. "If Reliance Jio enters into more significant agreements to use Reliance Communication's tower assets, it could be a big positive for the company," it said.