RCom To Demerge Its Real Estate Business

Anil Dhirubhai Ambani Group company Reliance Communications has reported that it will demerge its real estate business from the main telecom business to unlock substantial value for its shareholders. In our daily column named ‘Index Trends And Stocks In Action For 8th July 2013’, we had said that this stock would show positive trades during the day. The stock, following this news, has gone up by 8% to Rs 147 per share.

As per the deal, Reliance Communications would make its real estate business, which as per independent valuers is worth Rs 12,000 crore or Rs 60 per share, a separate entity. It would be called Reliance Properties and would also be listed in the next few months. From the latest presentation of the company, we understand that the real estate business at the moment is not adding any revenues to the company’s overall revenues. The Rs 12,000 valuation is thus only the book value of the assets and hence there would be a deduction of this amount from the gross block if the entity is demerged.

In FY13, the company reported consolidated revenues of Rs 20,561 crore and all of them were from its telecom business. The company has said that it has a land bank of 135 acres in Navi Mumbai and 4 acres in Connaught Place, New Delhi. While there is no revenue generation from these land banks at the moment, Reliance Properties will work with the global partners to develop these real estate assets. The demerger would not cause any erosion of revenues for the parent company neither would it be EPS dilutive. The deal is likely to unlock the value of the business going ahead.

While we tried to contact the company for the details of the demerger, we got an unpleasant reply from the headquarter employees and the company spokesperson could not be reached.