Reliance Comm worth $8 bn on debut

By : |March 5, 2006 0



Shailendra Bhatnagar

NEW DELHI: Reliance Communications debuted on the stock market with an $8 billion price tag, creating a top-15 listed Indian firm with access to the world’s fastest growing and cheapest mobile phone market.

Spun off to shareholders of India’s energy conglomerate Reliance Industries, Reliance Communications Ventures Ltd. ranks second in terms of mobile customers behind $17.5-bilion rival Bharti Tele-Ventures Ltd., India’s only other listed telecoms firm with a nationwide footprint.

India is home to the cheapest mobile phone tariffs anywhere, at between 2 and 3 U.S. cents a minute for a local mobile call, and has over 83 million wireless users — more than the population of Germany.

A further 4.5 million users sign up every month, and still only 8 of every 100 Indians owns a mobile phone.

Fourth-ranked Indian telecoms firm Hutchison Essar Telecom Ltd., the Indian mobile unit of Hong Kong’s Hutchison Telecommunications International Ltd., plans an Initial Public Offering (IPO) this year.

Shares in Reliance Communications rose as high as 309 rupees on their first day of trading on Monday, ahead of the 225-300 rupees range forecast by four analysts surveyed by Reuters, before slipping back to around 290.

On the Mumbai and National Exchanges, some 42.4 million shares were traded — about 13.3 percent of total volume.

“The stock has opened around expected levels,” said Arun, strategist at research firm KRIS.
The spin-off of Reliance Communications was part of the settlement of a dispute over control of the Ambani family’s Reliance empire between brothers Mukesh and Anil Ambani.

Reliance Industries’ 2.3 million shareholders received 100 new shares in the telecoms firm for every 100 shares held.

Reliance Communications first day as a listed firm left it valued some way below Bharti.
Bharti trades at a price earnings multiple of 34 based on forecast earnings for 2005/06, compared with an estimated 28 for Reliance Communications based on third quarter results, analysts say.

Reliance Communications has a market share of 19.6 percent, compared with 22.1 percent owned by Bharti.

FOREIGN HOLDING LIMIT

Reliance Communications is seeking shareholders’ approval to raise the foreign fund holding limit to 74 percent from 26 percent. Analysts expect the process to take about two months, but they say it should boost the company’s share price.

The firm is seen as having strong earnings growth prospects.

“Growth will come not only from voice, but from global bandwidth business and value-added services,” said Deven Choksey, managing director at K R Choksey Shares & Securities, who sees 10 percent growth in earnings before interest, taxes, depreciation and amortisation for 2006/07. Choksey forecast the stock could rise to 350 rupees in less than a year.

Reliance Communications is the holding company for top CDMA-operator Reliance Infocomm Ltd., GSM-services firm Reliance Telecom Ltd., bandwidth company Flag Telecom Ltd. and Reliance Communication Infrastructure Ltd.

It is now also the listed flagship of Anil Ambani’s Anil Dhirubhai Ambani Enterprises group, which also has interests in utilities, mutual funds, financial services and media.

Industry partners see the firm as a growth vehicle too. “Reliance is a great opportunity for us because of the scale, quality and size of its broadband infrastructure,” said John Adelus, director of software giant Microsoft’s Internet Protocol TV business for the Asia Pacific.

Microsoft expects to be a software provider for Reliance Communications’ proposed new IPTV venture for the fast growing and potentially huge market.

With 19.33 million phone customers, including 16.35 million mobile users, Reliance Communications competes mainly with Bharti and with unlisted state-owned Bharat Sanchar Nigam Ltd.

Releasing results for the first time in late February, Reliance posted profit of 3.1 billion rupees on revenue of 33.27 billion for its fiscal third-quarter ended Dec. 31.

More than half the sales came from the wireless and 46 percent from bandwidth and overseas calls services, analysts say.

In comparison Bharti, 30.8 percent owned by Singapore Telecommunications Ltd., posted a quarterly profit of 5.45 billion rupees on sales of 30.26 billion.

Akhil Gupta, Bharti’s joint managing director, told Reuters in Singapore on Monday that his company was on the prowl, eyeing opportunities to acquire mobile operators in the Indian subcontinent.

(Additional reporting by Hiral Vora and Kaustav Roy in MUMBAI)

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