Rcom to demerge real estate in to a separate company - IIFL

Rcom to demerge and list real estate assets

Rcom Board of Directors have approved demerger of its real estate assets in to a separate company called Reliance Properties which would, in partnership, develop two properties namely 1) Land at Dhirubhai Ambani Knowledge City, Navi Mumbai measuring ~135 acres with saleable area of over 15mn sq ft and 2) Property near Connaught Place, New Delhi measuring ~4 acres. Company has pegged the indicative monetisable value upon development at Rs120bn, or Rs58 per Rcom share. Reliance Properties would be separately listed and all Rcom shareholders to receive pro rata shares in Reliance Properties.

Demerger +ve but await improvement in core telecom metrics; retain SELL on expensive valuation

Rcom has over the past few months announced a slew of deleveraging measures which include fibre optic and tower sharing deal with Reliance Jio. Real Estate demerger too is a step in the right direction as company continues its focus on asset monetization to reduce balance sheet debt. However, considering the uncertainties surrounding the actual realizable value upon development and potential listing, we would conservatively add Rs25/share to our previous target and arrive at a revised 9-12 mth target of Rs110; retain SELL as valuation at 8.8x FY15E EV/EBIDTA appear expensive and recommend switch to Bharti Airtel where the risk reward remains favourable.

Source : Equity Bulls

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