Rel Jio, RComm rings high on sentiments: Udayan

Udayan Mukherjee, managing editor, CNBC-TV18, says that investors need to separate sentimental from the material impact, which is attached to the Rs 1200-crore nationwide fibre optic network sharing deal between Reliance Jio Infocomm, the 4G telecom arm of Mukesh Ambani's Reliance Industries, and Anil Ambani-owned Reliance Communications.

RComm's basic business is struggling and the company has a mountain of debt of Rs 38,000 crore, so this deal of Rs 1,200 crore will not have any material impact on the company. If tower sharing deal happens then one can read this deal with slightly more optimism but none of these actually follow from what came through yesterday and the stock has already moved up 11-12 percent. Below is the edited transcript of his interview. Q: What about the deal itself? What kind of an impact will it have on Reliance Communications?
A: One needs to separate the sentiment from the material impact. Ambani brothers' business has a lot of sentimental feeling for the market because of the history attached to it. The news will grab media headline so there will be lot of expectation for more and yesterday’s event signals something bigger. RComm's basic business is struggling and the company has a mountain of debt of Rs 38,000 crore, so this deal of Rs 1,200 crore will not have any material impact on the company.
There is a possibility that a big tower sharing deal may happen but it is not a necessarily. If tower sharing deal happens then one can read this deal with slightly more optimism but none of these actually follow from what came through yesterday and the stock has already moved up 11-12 percent.
Sentiment can take the stock a little bit higher but Reliance Communications has much bigger problems to deal with. So, unless Reliance comes in today and says that the company will fix its problems off its balance sheet by inking deals on the tower side which are much larger in proportion which will enable Reliance Communications to de-leverage its balance sheet – but nothing came through yesterday, so I think it was one big sentimental rush. After a big rally and open interest that was built up on the counter, one can see some extension. Q: What about the entire group as a whole because as you pointed out yesterday, now that the more credible of the two brothers is backing it up, perhaps the other possibility of a stake sale can come through as well?
A: We need to see more. Just based on Rs 1,200-crore deal, I don't think investors would jump in to buy Reliance Infratel's stake. But if Reliance Industries, Reliance Jio comes in and says that they will sign a much bigger tower sharing contract with Reliance Communications which has ramifications for serious annual cash flows, then that would give the confidence for a potential investor to come in and pick up a Reliance Infratel’s stake - that has not happened yet.
So, I think for other group companies it is even more sentiment that Reliance Communications. For Reliance, at this stage it means little because it's a giant and this is just a small drop of money. So, I think one should just restrain oneself.