Neutral on Reliance Communications - Motilal Oswal

RELIANCE COMMUNIATIONS 3QFY11: Revenue/EBITDA marginally below estimates; 11% QoQ increase in net debt; Neutral

Reliance Communications' 3QFY11 revenue and EBITDA were 4% below estimates led by lower-than-expected volumes although RPM remained stable.

Proforma PAT of Rs5.3b (down 56% YoY but up 7% QoQ) was above estimate due to lower finance costs (Rs1b forex gain) and tax write-back.

Leverage levels remain alarming with net debt increasing 11.2% QoQ to Rs325b implying net debt/annualized EBITDA of 4.9x.

We are maintaining EBITDA estimates but downgrade earnings by 10-19% to factor-in higher finance costs (increased net debt).

We are putting a Neutral rating (under review earlier) with a target price of Rs95/sh; RCOM trades at EV/EBITDA of 6.4x FY12 and 5.4x FY13.

Source : Equity Bulls

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