CLSA maintains the ‘Buy’ rating on Reliance Communications

CLSA maintains the ‘Buy’ rating on Reliance Communications. There was a good response to GSM launch. In January RCom’s added 5 million users, bringing the total to 66 million subscribers. These additions include CDMA and GSM subscribers, accounting for 33-35 % of total industry additions, though RCom is yet to release details, including circle-wise breakdowns to the GSM-industry body.

Research: CLSA
Rating: Buy
CMP: RS 155

RCom has rolled out GSM service across 14,000 towns, while targetting to up dual-network coverage to 24,000 towns and 600,000 villages. However, these schemes coupled with Idea Cellular’s latest offers in select circles may trigger the industry’s growing share of dual SIM and inactive subscribers. We estimate the company will be eligible for incremental 2G spectrum in 14 circles at 11 million new GSM subscribers.

Recently, RCom cut its FY09 capex by 15% to $5.3 billion and guided FY10 at $3.2 billion. The firm has $1.7 billion in investments and a net debt-to-equity ratio of 0.64x. CLSA expects a boost to RCom’s valuation with confidence of a successful execution and improving market share in revenue.

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