Company Update | Telecom

June 7, 2013

Reliance Communications
Tower sharing deal with RIL
Event: Reliance Jio Infocomm (RJI), the telecom arm of Reliance Industries Ltd, has entered into a definitive agreement with Reliance Communications (RCom), for sharing tower infrastructure. The deal entails RJI utilizing up to 45,000 sites of RCom's existing nationwide network for its 4G services and the same would enable it in launching its LTE services. The aggregate value of the deal is `12,000cr (~US$2.1bn) over the lifetime of the agreement. As per the agreement, there is potential for a joint working arrangement to build additional towers. No other details of the deal were available. RJI is the only company to have nationwide permits for 4G broadband services. The company had bought the airwaves in 2010, but is yet to roll out commercial service. This agreement comes on the back of a `1,200cr fibre optic network sharing deal the two companies signed, in April this year. Impact: RCom has not specified the tenure of the agreement and monthly rental details. Assuming RJI has signed the agreement for balance life of the BWA spectrum, which is 17 years, the rent comes to ~`13,070 per tower per month, which is much less than what Bharti Infratel is operating at, ie ~`36,000. Due to lack of clarity on the agreements tenure and payment timelines, it is difficult to ascertain the impact on financials. Outlook: Though this deal will allow RCom to improve its asset utilization, the company appears to be offering a significant discount. However, the incremental cash flows for RCom would aid in repayment of debt. RCom's debt has shot up in the past five years. By the end of March 2013, its net debt was ~`39,000cr. We believe the arrangement is a key positive for RCom as it is a right step in monetizing assets. This deal would increase the tenancy on RComs towers, thereby increasing the chances of a stake sale in its tower business, which could further deleverage its balance sheet. Since April 2 this year, when the fibre optic network sharing deal was announced, RCom shares have gained ~85% from `63 on April 2, 2013 to `116 on June 6 this year on wide speculation of such a deal coming in. We continue to remain Neutral on the stock as of now and wait for clarity on the nature of payments and rentals.

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Telecom 24,025 38,864 2.2 120/47 3,135,669 5 19,429 5,881 RLCM.BO RCOM@IN

`116 -

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 67.9 9.4 8.0 14.8

Abs. (%) Sensex RCom

3m 0.1 83.2

1yr 16.7 76.1

3yr 15.8 (33.8)

Key Financials (Consolidated)

Y/E March (` cr) Net Sales % chg Net Profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) FY2011 22,430 3.8 1,429 (69.6) 37.5 6.9 17.0 0.6 3.5 2.4 2.5 6.7 FY2012 19,775 (11.8) 817 (42.8) 29.7 4.0 29.3 0.7 2.2 2.6 3.0 10.2 FY2013E 21,778 10.1 669 (18.1) 30.4 3.2 35.9 0.7 2.0 3.7 2.9 9.5 FY2014E 22,801 4.7 735 9.9 31.0 3.6 32.7 0.7 2.1 4.4 2.6 8.5 FY2015E 24,628 8.0 1,086 47.7 31.3 5.3 22.1 0.7 3.1 4.9 2.3 7.4

Ankita Somani
+91 22 39357800 Extn: 6819 ankita.somani@naglebroking.com

Source: Company, Angel Research

Please refer to important disclosures at the end of this report

Reliance Communications | Company Update

Exhibit 1: Recommendation summary

Company Bharti Airtel Idea Cellular RCom Reco. Buy Neutral Neutral CMP (`) 288 129 116 Tgt. price (`) 338 Upside (%) 17.2 FY2015E P/BV (x) 1.9 2.5 0.7 FY2015E P/E (x) 19.8 27.0 22.1 FY2012-15E EPS CAGR 9.0 29.5 9.8 FY2015E RoCE (%) 9.3 10.4 4.9 FY2015E RoE (%) 9.3 9.1 3.1 FY2015E EV/Sales Buy Neutral Neutral

Source: Company, Angel Research

June 7, 2013

Reliance Communications | Company Update

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June 7, 2013