Technically R-COM (CMP: 61) has immediate support zone of around 54 & below that 50-46 zone will be positional one. Break below 46 is unlikely under the current market scenario.
Infact, R-COM already took support from 57 area (new 52 weeks low) after the recent spate of corrections on the back of costly spectrum auctions uncertainty & its effect on balance sheet.
Now R-COM has to sustain over 63 for immediate target of 72 & 78-80 (short term). Only consecutive closing above 78 zone, it may reach 100-125 area in the mid term. In the long term, only, consecutive closing above 113 zone, it may target 160-200 zone.
R-COM, is a massive under performer in our market for the last few years as it continuously fumbled over its balance sheet & debt profile. Perhaps, it has leveraged too much. But the management is exploring all the possible options to reduce its massive debt of around 35000 Cr to below 20000 Cr within FY-17. The management is also very active to streamline balance sheets (debt profile) of other ADAG group companies. Recently, R-COM also pledged a significant portion of its share to raise fund (possible for upfront payment of spectrum auction).
But, R-COM is able to win important spectrum necessary for LTE-4G technology pan India level (which is the most cost effective yet high speed optimal technology commercially available at this moment) along with other big telecom players like Bharti Airtel & R-JIO. This is a big positive for R-COM, as it is able to procure the requisite spectrum at most optimal cost ( @ 4300 Cr with up front payment of 1106 Cr) for next 20 years. This spectrum auction/allocation process will give the telecom industry a stable regulatory platform to operate for the next two decades & more, including R-COM. It is also in the process of its top management to re-align operational efficiency & "right man in the right place" policy.
Looking ahead, considering the abnormal high cost of spectrum & its limited availability in India along with other operational factors, consolidation will bound to happen in telecom industry . No doubt, call & data rates will be increased incrementally around 20% or more, but that will be not sufficient to address the balance sheet problem of telecos.As par recent statement of Vodafone, since beginning operations in India, they give around 75000 Cr to Govt in the form of various taxes & revenues with NIL return to its shareholder. The newly entrant R-JIO is also expected to break even after 4-5 years (its yet to start operations & currently facing immense hurdles to set up its network on the ground at various locations). But expected "digital shinning India" may absorb such gradual rate hikes and over all volume may be incrementally greater, considering the android related data boom in India, having favorable demographics with more disposable income in the hand of masses.
Thus, in future, Vodafone, Bharti Airtel, R-COM, R-JIO, IDEA & TATACOMM will be the major private telecos in India apart from BSNL & MTNL (PSU). Among the above private players, R-COM, IDEA & TATA DOCOMO are perhaps most responsible to start the call rate slash war few years ago.
Considering all the above factors, R-COM may be most vulnerable for a take over target in the coming years, once clear M&A and spectrum trading policy will be put on the table. Also, the new entrant (R-JIO), may want to grow in a quick in-organic way, by set aside their so called family drama amid in a situation, in which both the groups (brothers) saw dramatic erosion of their respective market caps over the past few years.
As par BG metrics of of quick techno/funda valuation, median value of R-COM is around 53, considering its fragile TTM EPS of 2.58, way down current EPS of its peer Bharti & its own EPS of around 28 (FY-2009).
If we assume, its forward EPS to be at least 15 (Consolidated) by FY-17-18 ( considering the expected improvement in its macros & significant reduction of debt burden), its median value should be around 128 under the current market conditions.
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | LONG TERM | SHORT TERM | MEDIAN VALUE | 200-DEMA | 10-DEMA |
| RCOM | 2.58 | 131.11 | 14.29 | 58.65 | 47.69 | 53.17 | 93.31 | 61.69 |
| RCOM | 15 | 131.11 | 14.29 | 141.42 | 114.99 | 128.21 | 93.31 | 61.69 |
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