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Thursday, July 13, 2017

Reliance Communications Ltd: What to do?
CMP: Rs.24.30
Photo: Evolution Athletics
Off late the shares of RCom has been moving up, on the news of a debt restructuring (debt reduction) plan and stake sell. It has steadily moved upngrom the 52 -week low price of Rs.17.80 to the CMP of Rs.24.30 in both the exchanges.

It is pertinent to mention here that, the telecom sector is passing through a financial crisis. There is a huge combined debt of more than Rs.4.5 lakh crore on the mobile operators. RCOM has a debt of more than Rs.42,000 crore, while its EBITDA is about Rs.4,600 crore. The government has set up an inter-ministerial group to address the issue of financial stress of the telecom companies.

Also, RCOM wrote a letter to IMG on 4th July, asking it to do away with the 10% cross holding norm, so that it will be able to sell its equity to the existing operators. In such a situation, only two companies are in a position to buy RCOM’s equity – Bharti Airtel, which is market leader, and Reliance Jio. In last couple of years, Bharti has bought spectrum from Vodafone, Aircel, Tikona and Telenor.

However, Reliance Jio seems to be a major contender to buy equity in RCOM. It will help the company as it will get control over whole spectrum of RCOM. It will give further lease of life to RCOM and will give more time to set its house in order and sell its properties to ease debt burden.

Though both the moves look apparently positive, but the risks involved in the short term are very high.

Since the last few months, Narendra Modi has been in limelight for all the wrong reasons: (a) Fruitless demonetisation to curb black money which swelled the death toll basket to 100 - plus, with not much effect on curbing fake notes -- bleeding the exchequer of more than Rs.10,000 crore in the form of printing new notes and logistic costs and wasting the productive banking hours, apart from keeping the bank officials busy with unnecessary works and making their lives Hell.
(b) Taxing Indians hard and making the life of businessmen miserable in the name of GST,
(c) Visiting scores of Islamic countries and burning foreign exchange (generated from poor tax payers money) for "Improving relations" and generate more investments in the form of FDI and FPI and then landing up in Modi - like stupid blunder of visiting Israel to draw their wraths, especially Iran who is a bitter enemy of Israel and finally,
(d) The unnecessary military brinkmanship in the Chinese border at the behest of a tiny neighbour, who can't even manufacture a bicycle on its own. India has $70.8 billion trade relationship with China, Narendra Modi's moronic border pursuits is out to destroy all that has been built over the years; by the prudent foreign diplomacy of his predecessors. Narendra Modi's much advertised Chinese visits have already proved to be, "Just Waste of Time and Money".  Narendra Modi is himself a product of blunder by the people of India, who believed his words and voted him, thinking that he would usher in "Ram Rajya".

Firstly, the government of India or Narendra Modi's government is involved, which has done more harm to the telecom sector than good. In fact the BJP's vocal diatribes during the UPA Regime regarding its allegations of a botched - up, discovery price of telecom spectrum has already ended-up in a smoke. In other words, the last failed spectrum sale by the NDA government once again proved the futility of the tall claims of the BJP leadership, of an imagined Rs.1.5 lakh crore loss to the exchequer.

2ndly, according to a recent article in Financial Express, a consortium of lenders to Reliance Communications (RCom) is unwilling to accede to the telco’s demand for Rs.600 crore of additional credit. The funds sought were primarily in the form of non-fund-based bank guarantees.

In such circumstances, I feel it would be prudent to book profits in the short term at Rs.24-25 ranges and wait for the scrip to break above the strong resistance zone of Rs.25.50 - 26.50 ranges. Having said this, the long term investors can keep holding with a SL at Rs.22.20.


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