ICICIdirect has upgraded Reliance Communications (RCom) to 'Hold' with target price of Rs 130 as against current market price (CMP) of Rs 123 in its report.
Commenting on the investment rationale, ICICIdirect said, ''RCom reported flat QoQ revenue growth to Rs 53.54 billion. This was mainly due to lower-than-expected expansion in realisations to 43.8 paisa vs. expectations of 44.1 paisa. Moreover, the poor performance of global operations, which declined 15% QoQ and 5% YoY also marred revenues
The EBITDA came in at Rs 16.94 billion, up 5.6% YoY due to lower operating expenses. The EBITDA margins of the global business continued to be subdued for a second consecutive quarter at 15.9%. PAT came in at Rs 1.32 billion (vs. expectation of Rs 438 million), higher due to lower interest expenses of Rs 7.67 billion as the impact of lower debt was visible from this quarter itself.
RCom recently raised Rs 61 billion via QIP and allotment to promoters and used the proceeds to trim down its debt, thus resulting in interest cost savings as visible in the lower interest cost in the quarter. RCom had high debt levels of about Rs 413.23 billion (as on FY14), which has now reduced to Rs 355 billion as on date. The company has guided further debt reduction through securitisation of tower deal receivables from Reliance Jio, monetisation of real estate assets & sale of its non-core business. Though the operating performance of RCom remains subdued relative to its peers, the progress towards debt reduction augurs well for it. Hence, we upgrade the stock to HOLD but reduce the target price to Rs 130 on DCF methodology due to subdued operating performance.''
