Nomura Financial Advisory and Securities has maintained 'Neutral' on Reliance Communications (RCom) with target price of Rs 120 as against current market price (CMP) of Rs 121 in its report.

Commenting on the investment rationale, Nomura said, ''RCom's 1Q revenue and EBITDA were 1-4% below consensus expectations. NPAT of Rs 1.3 billion was 6% below.

RCOM recently raised Rs 61 billion or USD 1 billion in capital (via QIP and issue of warrants to promoters) which is expected to be used towards repaying debt. The QIP was completed on July 2nd and warrants allotted on August 7th. However, it has also raised debt of USD 350 million at its subsidiary GCX (Global segment), we note.

Overall, net debt to EBITDA (annualised) should reduce from 5.4x at the end of 1Q15 to 4.9x (post these 2 events). The company intends to lower its net debt further to Rs 250 billion in the next 12 months. It also expects Rs 6 billion in interest cost savings annually

The company has taken first steps to de-lever, which has been a key concern, and there is more to go. The R- JIO deals have potential for driving upsides where it has to date inked 3 agreements and revenue contribution is modest at this stage. However, it will also need to bridge the gap in operational performance to peers in wireless for a sustainable re-rating we think.''

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