The Hindu Business Line : Reliance Comm declines on merger uncertainty

Reliance Communications stock suffered from weakness in view of uncertainty over its proposed merger with MTN. The stock on Monday declined 1.51 per cent to close at Rs 535. In the past one week it has shed 3.43 per cent.

According to Mr Anurag Purohit, telecom analyst at Religare, uncertainty over the structure and future of the deal has been causing short-term weakness in the stock. He, however, felt the current valuation more or less reflects its fundamentals.

Last week, Dolat Captital was also positive about the stock’s growth. Based on SOTP valuation, it had valued RCom at Rs 812 for core business (EV/EBIDTAof 13x and 11x FY10E EBIDTA for wireless and global with broadband respectively) and Rs 88 for RTIL on June 12.

Mr Purohit felt that the recent Maharashtra Government demand of Rs 200 crore for laying of broadband and other cables on Reliance Communications arm Giga Solutions could be seen as routine claim and not having much bearing on the stock.

Upside, downside

Mr Arun Kejriwal of KRIS felt that the MTN issue apart, the stock fundamentally did not have much room for upside.

According to certain market sources, despite opposition, an announcement regarding the proposed deal between Reliance Communication and MTN may be announced later this week. An MTN team is here to continue negotiations with Reliance Communications.

According to Mr Nitin Prakash Dada, telecom analyst with Microsec, Reliance Communications EBIDTA margin, highest among the local telecom players, is likely to move up if it can come to a strategic alliance with MTN, which is a more profitable company than Reliance Communications.

A section of market participants, however, felt a prolonged legal battle between the two Ambani camps are most likely on the cards. “In such a scenario, valuation may not relate to fundamentals, but other esoteric,” said one senior official of a merchant banker.

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