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Buy RComm, target of Rs 350: Motilal Oswal

Posted on: June 2nd, 2009 and is filed under Brokerage Recommendations.

Motilal Oswal has maintained its buy rating on Reliance Communications with a target price of Rs 350 in its May 30, 2009 research report.

“RCOM is seeking shareholders’ approval to raise funds through equity/equity-linked instruments which could result in potential equity dilution of up to 25%. As per the company, the funds would enable it to strengthen its balance sheet and equip it to participate in the upcoming 3G/Wi-Max auctions. RCOM’s shareholders have approved the scheme of arrangement for demerger of RCOM’s optic fiber division to Reliance Infratel. RCOM and its subsidiaries hold 94.5% stake in Reliance Infratel, financial investors hold 5%, while employee welfare trust holds 0.5% stake. As per RCOM’s notice convened for shareholders’ meeting, net consideration for the transfer of optic fiber assets would be Rs 67.2 billion.”

“We are upgrading our March 10 target price to Rs 350 which now reflects nil discount to DCF (v/s 10% earlier) and incorporates a lower WACC of 12.8% v/s 13.5% earlier given reduced leverage concerns. Maintain ‘Buy’ on likely operational turnaround post recent GSM launch, and abating concerns on high leverage,” says Motilal Oswal’s research report.

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