Friday, September 4, 2009

[Investors Please Listen] RCOM Company Update ; Raising target on improved tower prospects ; HOLD ; Target: Rs303

Reliance Communications

 

Raising target on improved tower prospects


HOLD

 

CMP: Rs276                                      Target Price: Rs303


The recent deals signed by Reliance Infratel (RITel) with Etisalat DB, S-Tel, Aircel, Shyam Sitema, and TTSL would not only bring external tenancy on RITel's towers but also benefit from cost savings and create value for RITel as a standalone business. With transfer of optic fiber assets from RCOM to RITel, the company not only provides passive infrastructure but also transmission and carriage services. RITel currently has a portfolio of 50,000 towers with tenancy of 1.6x entirely coming from captive usage by RCOM CDMA & GSM. While the contract signed with Etisalat would increase the tenancy to 2.2x, RITel aims to achieve tenancy of 3x by FY11 helped with contracts with other operators.

Considering the contracts signed for tower business and the incremental profit accretion from external tenants, we increase our value for Infratel opportunity from Rs25/share to Rs78/share assuming external tenancy of 1.4x on 40,000 towers. Subsequently we increase our target price on the stock to Rs303 (from Rs225 earlier) due to increased value of infratel opportunity from Rs25 per share to Rs78 per share. Retain HOLD rating on the stock.


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Safe Harbor:

The information contained and provided on this Website provides Investment advice for the education of investors. The posts are an information service only. Recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. We do not assume any responsibility or liability resulting from the use of such information, judgment and opinions for Trading or Investment purposes.
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