PowerYourTrade: Multibagger – Reliance Communications

Combined GSM Plus CDMA monthly adds may surpass Bharti Airtel: Reliance Communications has recorded cumulative 8.3 million wireless users in the first two months of its pan-India GSM foray. We forecast its GSM subscriber base at 36 million by FY10, accounting for 35.1% of the total base of just over 100 million. We have assumed average monthly additions of about 2.5 million over the next two years, which would surpass Bharti’s estimated run rate of about 2.2 million/month.

Earnings ramp up seen beyond FY10; Retain BUY: Reliance Communication is likely to witness earnings pressure on higher interest cost in FY10 as interest income may not be enough to cover charges on its estimated Rs 266 billion debt in FY10. This could weigh in the near-term stock performance. However, as capex intensity declines, the company is expected to generate free cash flow to the tune of Rs 18 billion in FY10. Reduce FY10E EPS by 15.1% as we trim our revenue (by 5%) and OPM (by 100 bps) estimates. However, valuations appear attractive (6.5x FY10E P/E) and earnings may ramp up 31% yoy in FY11. Retain BUY.

Y/e 30 Mar (Rs Mn) F9/08 F9/09E F9/10E F9/11E

Revenues

188,274

227,820

271,552

317,493

yoy growth (%)

9.5

21

19.2

16.9

Operating profit

79,587

88,850

105,634

124,457

OPM (%)

42.3

39

38.9

39.2

Reported PAT

54,011

55,545

49,714

64,991

yoy growth (%)

53

2.8

-10.5

30.7

EPS (Rs)

26.2

26.9

24.1

31.5

P/E (x)

6.1

5.9

6.6

5.1

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