Volumes for two-wheeler companies were weak and below expectations, while companies in passenger vehicles (PV) and medium heavy commercial vehicles (MHCV) segments reported better-than-expected numbers
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