Rising tide lifts all boats
CHANGE
Cutting estimates; retain BUY on improving industry outlook
We are cutting our revenue, EBITDA and EPS estimates for RCOM on the
back of weaker than expected operating performance and changes in
global revenue accounting. Over the last 2 quarters, the wireless business
shows some recovery and going forward we expect better performance
driven by tariff hikes and data contribution (EVDO as well as 3G).
CATALYST
Balance sheet de-leveraging through asset sales, ARPM increase
De-leveraging the balance sheet through asset sales could be a catalyst
for RCOM. RCOM’s net debt/EBITDA increased from 0.3x in 1QFY08 to 5.0x
in 1QFY12 due to huge capex on GSM business, 3G spectrum acquisition
and decline in EBITDA. While the business outlook is improving, due to
tariff hikes and likely data upside, de-leveraging is key for the stock.
VALUATION
REDUCE TP; Valuing at significant discount to peers
We value RCOM based on DCF. We are reducing our TP from INR200 to
INR95 factoring in lower profitability and higher cost of capital. Our
implied EV/EBITDA for RCOM is 6.0x on FY13E compared to our target
EV/EBITDA for Bharti and Idea at 7.5x. Risk to our thesis is continued
deterioration of core business performance and inability to de-leverage.
CHANGE
Cutting estimates; retain BUY on improving industry outlook
We are cutting our revenue, EBITDA and EPS estimates for RCOM on the
back of weaker than expected operating performance and changes in
global revenue accounting. Over the last 2 quarters, the wireless business
shows some recovery and going forward we expect better performance
driven by tariff hikes and data contribution (EVDO as well as 3G).
CATALYST
Balance sheet de-leveraging through asset sales, ARPM increase
De-leveraging the balance sheet through asset sales could be a catalyst
for RCOM. RCOM’s net debt/EBITDA increased from 0.3x in 1QFY08 to 5.0x
in 1QFY12 due to huge capex on GSM business, 3G spectrum acquisition
and decline in EBITDA. While the business outlook is improving, due to
tariff hikes and likely data upside, de-leveraging is key for the stock.
VALUATION
REDUCE TP; Valuing at significant discount to peers
We value RCOM based on DCF. We are reducing our TP from INR200 to
INR95 factoring in lower profitability and higher cost of capital. Our
implied EV/EBITDA for RCOM is 6.0x on FY13E compared to our target
EV/EBITDA for Bharti and Idea at 7.5x. Risk to our thesis is continued
deterioration of core business performance and inability to de-leverage.
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