Edelweiss believes the arrangement is a key positive for RCom as the brokerage perceives it as a right step in monetising its assets and thus deleveraging balance sheet. However, RIL’s entry in the telecom business could be foreseen as entry of a serious player with considerable balance sheet muscle
Reliance Communications (RCom) on Tuesday inked a definitive agreement with Reliance Jio Infocomm (RJI) in which the latter will share RCom’s nation-wide optic fibre network to roll out its 4G services. RJI, Reliance Industries’ 4G arm, will pay RCom a one-time fee of Rs12 billion for the same. The agreement also grants RCom access to the optic fibre infrastructure to be built by RJI. Edelweiss in its brokerage report said that the deal is intended to be a comprehensive framework for business co-operation between the two companies. It can also pave the way for further agreements in the tower assets, which may enhance Reliance Infratel’s tenancy ratios (RCom) has 50,000 towers in its tower arm Reliance Infratel).
• RCom to receive Rs12 billion as one-time indefeasible right to use fees for sharing its nation-wide inter-city fibre optic network infrastructure.
• RJI will utilise multiple fibre pairs across RCOM’s 120,000 km inter-city fibre optic network to provide a robust support for rolling out its state-of-the-art 4G services.
• RCom will have reciprocal access to optic fibre infrastructure to be built by RJI.
• The agreement provides for joint working arrangements to be put in place immediately for upgradation of the optic fibre network.
• This agreement is the first in an intended comprehensive framework of business co-operation between the two companies to provide for optimal utilisation of existing and future infrastructure.
Outlook and valuations: Positive; maintain ‘HOLD’
Edelweiss believes the arrangement is a key positive for RCom as the brokerage perceives it as a right step in monetising its assets and thus deleveraging balance sheet. However, Reliance Industries’ entry in the telecom business could be foreseen as entry of a serious player with considerable balance sheet muscle. Edelweiss maintains a ‘HOLD/Sector Underperformer’ with target price of Rs80 (based on DCF).
On the other hand, Nomura Equity Research says the deal is a win-win for both collaborators, but adds that a lot more work needs to be done. If there is further collaboration between RCom and RIL, this will create another well-funded player in the market with networks, distribution, customers, spectrum and importantly, cash flows. RIL is a net cash company while RCom has around $7.5 billion in net debt. This could benefit both RIL (in terms of accelerating the rollout) and RCom (in terms of deleveraging its balance sheet). However, there are likely to be regulatory, and various other, hurdles to overcome such as spectrum sharing, etc.
According to Morgan Stanley, over the past five years growth expectations have moderated into fair territory and corporate India’s earnings could rise 15%-20% over the next 12 months
RIL’s investment in Reliance MF schemes, made over a period of last eight months, comes as a clear departure of the oil-to-retail conglomerate’s earlier stance of parking surplus funds into almost all the mutual funds, expect on those run by the Anil Ambani-led group
The Mukesh Ambani-led Reliance Industries (RIL) has parked more than Rs800 crore in various mutual fund schemes of younger sibling Anil-led Reliance Group.
RIL has made these investments, totalling over Rs800 crore, mostly in the Fixed Maturity Plans and other debt schemes of Reliance Mutual Fund, market sources said.
Reliance MF is part of Anil Ambani-led group’s financial services arm Reliance Capital.
Incidentally, RIL and Anil Ambani group yesterday announced their first business partnership since a bitter family split in 2005. The two groups have agreed to share optical fibre cables and other telecom infrastructure including telecommunications towers for their respective ventures, Reliance Jio Infocomm and RCom in a Rs1,200-crore deal.
The two groups, which about three years ago had scrapped a non-compete agreement between them, have now also agreed for a comprehensive framework of business cooperation.
RIL’s investment in Reliance MF schemes, which has been made over a period of last eight months, comes as a clear departure of the oil-to-retail conglomerate’s earlier stance of parking surplus funds into almost all the mutual funds, expect on those run by the Anil Ambani-led group.
At the end of fiscal ended 31 March 2012, RIL had invested over Rs8,700 crore in various mutual fund schemes, including Fixed Maturity Plans (FMPs), but they did not include any scheme of Reliance MF.
In contrast, RIL has always figured prominently in the stock portfolios of various schemes of Reliance Mutual Fund.
At least 13 schemes of Reliance Mutual Fund had RIL as one of the biggest stock in their respective portfolios as on 31 March 2012 and together these funds held RIL shares worth well above Rs500 crore.
According to market sources, there was a clear change in RIL’s investment strategy in the last fiscal 2012-13 in terms of deployment of excess cash in mutual funds.
RIL holds one of the biggest cash balance among all the corporates in the country.