R-Com shareholders approve Sistema merger deal

Anil Ambani owned India’s fourth largest telecom service provider Reliance Communications (R-Com) informed stock exchanges on Tuesday that its shareholders have approved the proposal for merger of Sistema Shyam Teleservices (SSTL) with the company.

The RCom-SSTL merger deal has been cleared by Competition Commission of India (CCI), Rajasthan High Court, Bombay High Court and Securities and Exchange Board India (SEBI). On March 18, shareholders of SSTL are scheduled to meet for deciding on the deal. After clearance from SSTL shareholders, R-Com will approach the Department of Telecom for final paperwork. 

The deal between R-Com and SSTL is valued at around USD 690 million (Rs 4500 crore) and is expected to close in the second quarter of 2016. R-Com will acquire approximately 9 million customers and Rs. 1500 crores of annual revenues by virtue of the transaction. As a result of the demerger, SSTL will acquire and hold a 10 per cent equity stake in R-Com. In addition, R-Com will assume the liability to pay the Department of Telecommunication (DoT) instalments for SSTL's spectrum, amounting to Rs. 392 crores per annum for the next 10 years. Prior to closing of the transaction, SSTL intends to pay off its existing debt. 

In addition, R-Com will acquire SSTL’s most valuable and superior 800/850 Mega Heartz (MHz) band spectrum, ideally suited for 4G long term evolution (LTE) services, to complement its own unique nationwide footprint of minimum 5 MHz contiguous 800/850 MHz spectrum aggregating to 148.75 MHz. This will extend the validity of R-Com’s spectrum in 800/850 MHz band in 8 important circles by a period of 12 years from 2021 till 2033 (Delhi, Gujarat, Tamil Nadu, Karnataka, Kerala, Kolkata, Uttar Pradesh (West) and West Bengal).

On financial front, R-Com’s third quarter revenue decreased marginally by 1 per cent sequentially to Rs 5277 crore compared to Rs 5324 crore achieved in last quarter of the same fiscal year owing to revenue from customers in the 5 circles, in which the 2G license period expired. On the operational front EBITDA increased by 2 per cent to Rs 1782 crore QoQ (quarter on quarter) compared to Rs 1751 crore in the September quarter. Company saw its other expenses reduce by 3 per cent Q-O-Q to Rs 3206 crore from Rs 3301 crore thereby aiding margins. Company's margins rose up by 100 basis points Q-O-Q to 34 per cent from 33 per cent in Q2FY16. Profits after tax increased by 9.62 per cent to Rs 171 crore compared to Rs 156 crore realized in the preceding quarter of FY16. Further, this quarter the company was able to successfully increase ARPU (Average Revenue Per User) to Rs 142 QoQ, which is far better than its peers. 

On valuation front the stock of company is trading at Trailing Twelve Month P/E of 18.69 compared to industry P/E of 10.89. The stock of company is trading at Rs 54.90, an increase of 0.64 per cent from previous close.