The Hindu Business Line : Reliance Communications sees renewed buying

Chennai, Sept. 3 The stock of Reliance Communications has been witnessing renewed buying interest in the last couple of days. The stock has jumped about 12 per cent since September 1, and closed on Thursday at Rs 290.7. The stock today gained over 5 per cent. Trading volumes also jumped to 55.12 lakh shares against the two week average of 23.18 lakh shares.

According to marketmen, the stock has been on the upswing after reports that the company is planning to raise Rs 5,000 crore through a public issue by its tower arm – Reliance Infratel.

An analyst who met the company management recently said Reliance Communications plans to re-file its red herring prospectus for Reliance Infratel. The company plans to tie-up with more operators for towers in the next two months, he added.

Tie-up with S Tel

The company recently announced an infrastructure sharing agreement with S Tel that includes sharing of Telecom Infrastructure (TI), transmission BTS and fiber backbone. S Tel is one of new operators in India with licenses in six C circles – Orissa, Bihar, Himachal Pradesh, Northeast, Assam and J&K. S Tel plans to launch wireless services before end 2009.

“We expect the deal to ramp-up over the next 6-12 months and reach steady run-rate after 12 months. Given limited incremental investments, typical margins on such deals are quite high,” said a JP Morgan report, which maintained neutral rating on Rcom.

Revival measures

According to Citi report, “RCom has been able to reverse the losing trend declining revenue share trend. In fact, it made up for the entire loss from June-09 to March-09 in the June-09 quarter itself. With free minutes on GSM gradually going out, it stands a good chance of sustaining its share.”

Another report from domestic brokerage Alchemy, said: “RCom wireless growth slowed down from 42 per cent in FY2008 to 14 per cent in FY2009 as it was predominantly a CDMA player and had lower profile CDMA customers. However, the company launched pan India GSM services in 4QFY2009. While we do agree the competitive intensity in the sector remains at elevated levels, 1QFY2010 performance of RCom was much better than peers. Further, we have seen pick up in the metrics post expiry of free minutes on GSM and significant improvement in traffic growth in the last quarter.”

According to the analyst, the company targets revenues of Rs 10,000 crore by FY2011.

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