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RCom up 5% after NCLAT allows conditional sale of tower assets

The Supreme Court had, on Thursday, given the company permission to go ahead with the sale of its spectrum, real estate, and other assets. It had the company to approach the NCLAT for a verdict on the sale of its towers.
Reliance Communications (RCom) has received conditional clearance from the National Company Law Appellate Tribunal (NCLAT) to go ahead with the sale of its tower assets. However, the proceeds of the asset sale would have to be kept in an escrow account. This decision is a significant relief to RCom as the company would now be able to continue with its asset monetization plan.

The Supreme Court had earlier halted the sale of assets after accepting a petition from some of RCom’s creditors. However, the Supreme Court, on Thursday, reversed most its decisions while referring the matter of tower assets to the NCLAT.

Rcom had initiated an asset monetization plan which would have seen the debt of the company reduce from ~Rs45,000cr to ~Rs6,000cr. As part of this plan, the company would sell its B2C telecom business, tower assets, spectrum, and real estate holdings.

Reliance Communications (RCom) is a diversified telecom service provider offering wireless, wireline, and DTH services. It is a dual technology (GSM + CDMA), wireless player. It has RMS of 5% and a subscriber base of 10.3cr as on March 31, 2016.

We expect revenue CAGR of only 2% on account of RCOM’s strategy to migrate CDMA subscribers to 3G/4G services. However, the customers may not want to upgrade their services (3G/4G) and switch to other service provider offering better plans. This will impact the revenue visibility of the company. Besides, the entry of new telecom player Reliance Jio will also affect RCom’s revenue. This is because RJio is offering 4G plans at low rates (Rs5ps per MB to Rs50 for 1GB). The structure of the RCom-Aircel deal and the amount of equity infusion into the merged entity is still unclear. Further, the stock is trading at an expensive valuation of EV/EBITDA of 7x (FY17E) vs. its competitor IDEA- EV/EBITDA 5x (FY17E).

Reliance Communications Ltd is currently trading at Rs24.50, up Rs1.15, or 4.93%, from its previous close of Rs23.35 on the BSE.