Reliance Communications and Sistema shyam may merge its Indian operations

In what could be the first major consolidation in the highly competitive Indian Telecom Sector, ADAG group’s Reliance Communication is in exclusive talks to merge their Indian Telecom business through a stock swap. If the deal goes through it shall be the first major consolidation in the sector since 2009.

SSTL ( Sistema Shyam Teleservices Ltd) is venture involving equity participation by Sistema Joint Stock Financial Corporation of Russia (“SISTEMA JSFC”), the Russian Federation and the Shyam Group of India. Sistema JSFC is the majority shareholder in the Company.

With a strong focus on its “Data Centric; Voice Enabled” strategy, SSTL is one of the fastest growing telecom companies in the Indian telecom market and is one of the top three data service providers in the country. The Company provides telecom services under the brand MTS to over 10 million wireless subscribers including more than 1 million High Speed Mobile Broadband customers in over 450 towns across the country. MTS is well recognized in India and worldwide for its commitment to high quality and innovative telecom solutions. MTS has recently been ranked by Millward Brown as 82nd most valuable brand in the World.

Headquartered in Gurgaon, the Company has already invested over USD 3.6 billion in expanding its telecom network across the country.Sistema Established in 1993, is a large private investor operating in the real sector of the Russian economy. Sistema's investment portfolio comprises stakes in predominantly Russian companies from various sectors of economy, including telecommunications, utilities, retail, high tech, pulp and paper, pharmaceuticals, healthcare, railway transportation, agriculture, finance, mass media, tourism, etc. 

57 percent is held by Sistema in Sistema Shyam. Russian government holds 17 per cent and Shyam Group, the Indian promoters of SSTL, holds 24 per cent. Rest is held by minority shareholders. If the deal goes through it shall be the first major consolidation in the sector since Telenor bought into Unitech Wireless in 2009.

Reliance Communications has more than 110 million users and is the India’s fourth-largest carrier. RCOM is a pan-India operator offering both CDMA and GSM services. Reports suggest the talks are on for the takeover of assets and not liabilities and is expected to be valued at around Rs 3200 crores.

According to analyst such consolidation trend may soften competition and help companies regain pricing powers in Indian markets where the tariffs are lower than almost every country in the world. This deal could be EPS accretive for RCOM and may benefit RCOM. Reliance Communication’s revenue growth has been negative and the stock is trading at a Price to Earnings of 20.5 and its Price to Book value is 0.39. YTD the stock has delivered negative 26.86 percent.