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March 6, 2006 10:51 am

India’s Reliance Communications makes strong debut

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Reliance Communications Ventures Ltd., the holding group for India’s second-largest mobile phone carrier, made a solid debut on the Bombay Stock Exchange on Monday as investors placed their bets on the company’s potential as well as the world’s fastest growing wireless market.

Shares for Reliance Communications Ventures debuted at Rs299 ($6.75) and rose as high as Rs309 before falling back to Rs290.35 at 2.18pm, exceeding analysts’ expectations that the market would price the shares between Rs200 and Rs250 each on their initial day of trading.

The shares’ performance puts Reliance Communications’ market value at around $8.5bn, compared with $17.5bn for Bharti Tele-Ventures Ltd, the country’s leading wireless provider and the only other listed mobile carrier with a national footprint.

“The company is expected to do decently well in 06-07, with an earnings per share of Rs12, or 23 times 2006-07 earnings,” said Sumeet Rohra, an analyst at Antique Stockbroking in Mumbai, noting that Bharti had a higher estimated price-earnings multiple of 33 times. He has a six- to 12-month price target of Rs360-Rs380 on shares for Reliance Communications.

Reliance Infocomm, India’s leading CDMA operator, is the flagship company for Reliance Communications, which also folds GSM-based Reliance Telecom, bandwidth company Flag Telecom, and Reliance Communication Infrastructure under its umbrella.

Reliance’s total number of CDMA and GSM mobile subscribers is estimated at 16.3m, slightly less than Bharti’s 17.5m. Reliance’s monthly average revenue per user of Rs412 is weaker than Bharti’s Arpu of Rs470.

However, analysts point out that Reliance Communications isn’t directly comparable with Bharti, since more than 20 per cent of Reliance's operating profit is derived from data, and not voice, services. For example, Bermuda-based Flag Telecom operates a fiber-optic undersea cable system that spans from the UK to Japan.

With a strong network infrastructure and superior CDMA technology, Reliance is poised for strong growth once data services take off in India, analysts said.

“Reliance has already made all of its fixed-cost expenditures,” Mr Rohra said. “There is a quite substantial margins expansion going ahead.”

Reliance is seeking approval shareholder approval to increase the foreign institutional investor limit to 74 per cent from 26 per cent, which could further fuel the stock’s upside. “I can see the stock getting re-rated because you’ll have a tremendous amount of buyers,” Mr Rohra said. 

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