Reliance Com to get Rs 240cr annually from Jio deal: Expert

Karan Mittal, telecom analyst, ICICI Direct believes the Reliance Communications-Reliance Jio Infocomm deal will earn an incremental contribution of Rs 240-250 crore per annum to RCom.

"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. Reliance Jio Infocomm, the 4G telecom arm of Reliance Industries has signed a Rs 1200 crore agreement for sharing Reliance Communications nationwide optic fibre network. Below is the edited transcript of Mittal's interview to CNBC-TV18. Q: What are your initial thoughts on what this may do to bring down the debt of Reliance Communication? How would you approach the stock now? A: This is a very positive deal from a long-term perspective because it gives some kind of a visibility to the tower business for Reliance Communication which doesn't have external tenant as of now. The revenue contribution or its implication on the debt should be limited because even if they have about 50,000 towers, assuming an external tenancy of say 0.4, the rent would not be Rs 30,000-40,000 because a lot of that is passed through the energy charges. The incremental contribution should come out to Rs 240-250 crore per annum from this deal. So, though it doesn't give a lot of leeway in terms of debt reduction but the overall long-term visibility and also the valuation for the tower company could improve which could help Reliance Communication in disinvesting its stake in the company. Q: What would your view be on the stock itself if you are quite bullish on the long-term visibility? Do you think there could be an incremental upside beyond the Rs 65 level? A: I would not like to comment right away. We want to wait for what the management has to say and for the nitty grities of the deal because this was one part of the overall scenario. However, in the mobility side the revenue has not been growing at a good pace for Reliance Communication. Though the industry overall is in a bad shape but Reliance Communication is not doing even as good as its peers. So, we will have to wait and watch how the mobility business pans out in the longer run. Q: How easy do you think it will be for RComm to monetise the tower assets because that has been the big question mark for the company? A: The main contention for it would be on the valuation front but then this deal should definitely help. The valuations might improve. So, it will definitely help on the disinvestment side.