RELIANCE COMMUNICATIONS (RCom) is the largest CDMA player in India with a subscriber base of 46.2 million. It also offers GSM services in eight circles and has a subscriber base of around 9.8 million.
RELIANCE COMM
Beta: 1.3
Institutional Holding: 18.5%
Dividend Yield: 0.35%
P/E: 7.7
M-Cap: Rs 45,356 cr
CMP: Rs 220
It plans to expand its GSM network across the country. It has an overall market share of 18% in the wireless telephony space. It also offers a host of other related services in and outside the country. In India, it offers broadband services to companies and data-card internet services to retail customers. It has a very strong fibre optic network in India and offers services like virtual private network (VPN), audio and video conferencing among others.
Outside India, it offers voice and data services across geographies. Its international calling cards are very popular among Indians residing outside the country. The company also offers voice traffic to corporate customers and has a 30% share of wholesale in-bound traffic. It has made a number of acquisitions internationally to strengthen its position in international voice, data and managed network services, among others. Recently, it entered the direct-to-home (DTH) business under the ‘Big TV’ brand.
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FINANCIALS:
The company’s operating revenue for the financial year ’07-08 grew at around 32% to Rs 18,827 crore, while the operating profit increased by a little over 44% to Rs 7,960 crore. It maintained a steady growth in operating margin till the quarter ended March ’08. However, the margin has declined slightly since then and it currently stands at a little below 40%.
The company’s RoCE is a little lower (~10%) because of higher capital employed in operation. Its global and broadband businesses, which account for around onethird of its consolidated revenues, is growing at a faster rate than its wireless business. But one of the main concerns is its volatile operating cash flow.
Its consolidated net debt has almost increased by 50% in the past six months, though the debt-equity ratio is still at a comfortable level of 0.5.
GROWTH DRIVERS:
RCom has a diversified presence across different service lines. The immediate growth driver could come from its pan-India presence in the GSM service. At the same time, it can also be a challenge for the company to attract new GSM subscribers, as the competition in the segment is increasing by the day with the entry of new players. The company has been investing heavily in different value-added and allied services. If RCom manages to get 3G spectrum, that will help it in offering better products. Reliance Big TV is another growth driver for the company.
RISKS:
The company’s trying to move from CDMA to GSM space and there’s chance of cannibalisation.
OUR TAKE:
RCom is venturing into a number of segments which, if executed successfully, will generate higher operating cash flows. Further, the new GSM business lines, if successful, will also help it to gain higher subscriber market share. This may be a better bet for investors who love courting risks.
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