Reliance Communication Ltd.
(A ADAG GROUP Company) Buy(Medium Risk) Target Price: Rs.700
(A ADAG GROUP Company) Buy(Medium Risk) Target Price: Rs.700
Key Data :
Face Value : 5 52 week High / Low: 844.2 / 372
NSE Code : RCOM Average Vol : 2479276
Shareholding as on 31.12.07
Promoters : 66.16% Foreign : 13.39% Institutions : 22.42%
Public & Others : 9.58 Non Promter Corp. Holding. : 2.29%
Face Value : 5 52 week High / Low: 844.2 / 372
NSE Code : RCOM Average Vol : 2479276
Shareholding as on 31.12.07
Promoters : 66.16% Foreign : 13.39% Institutions : 22.42%
Public & Others : 9.58 Non Promter Corp. Holding. : 2.29%
Reliance Communications is into three strategic customer-facing business units: Wireless, Global, and Broadband.
In the wireless domain the company is offering CDMA services in 20 circles and GSM services in 8 circles. Recently the company has been granted startup spectrum in additional 14 circles for offering services in GSM segment.
The company also offers national and international long distance calling services. Company own and operate through FLAG the largest private submarine cable system in the World, directly connecting 40 countries from the East coast of the United States, to Europe, the Middle East, India, South and East Asia, through to Japan.
On the broadband front also Rcom offers the most comprehensive portfolio of enterprise voice, data, video, Internet and IT infrastructure services. These services include: national and international private leased circuits, broadband internet access, audio and video conferencing, MPLS-VPN, Centrex, and managed internet data center (“IDC”) services.
Investment rationale
• Recently the company has been given a Licence to operate in 14 new circles and allotted startup spectrum in these circles. The company is well poised to capture new subscribers in these circles.
• Operates one of the largest private submarine cable systems in the world connecting 40 countries.
• The company has further consolidated its position among corporate customers. The company currently caters to 800 of the 1000 MNC companies; indicative of a strong presence in the corporate customers segment and its quality of services. The company has also announced plans to target SME clients in the near future.
• The company is currently engaged in rolling out the largest network across the country spanning across 23000 towns through CDMA and 8000 towns through GSM network. The network will also cover 600,000 villages and address 90% of the country’s population.
• Company plans to list its passive infrastructure subsidiary Reliance Infratel Ltd. Value unlocking can be expected from this listing. The company has submitted the red herring prospectus to SEBI for approval.
Q3FY08 Financial Highlights
• ARPU for the company has gone down to 339 from 361 in Q3FY08 versus Q2FY08.
• Minutes of Usage (MOU) per Subscriber has also gone down from 490 in Q2FY08 to 449 Q3FY08.
• The company has reported in increase in revenue from operations (Consolidated) by 4.9% QoQ.
• QoQ PAT has gone up by 5.23%.
• For Reliance communication EBIDTA margin has shown an improvement of 30 basis point QoQ.
• PAT margin has gone down by 30 basis point QoQ, primarily as other income during Q2FY08 was unusually high.
Recommendation and Valuation
The company results fell in line with our expectations. We had recommended a full profit booking on 825 earlier (Recommended at 585). Although due to adverse market conditions a fall of 10-15% in the prices from current levels cannot be ruled out, we re-recommend the stock for a buy. Investors can accumulate this scrip at 555-585 levels for a target of Rs 700 in Six months time. We consider that the scrip will outperform the sector.
In the wireless domain the company is offering CDMA services in 20 circles and GSM services in 8 circles. Recently the company has been granted startup spectrum in additional 14 circles for offering services in GSM segment.
The company also offers national and international long distance calling services. Company own and operate through FLAG the largest private submarine cable system in the World, directly connecting 40 countries from the East coast of the United States, to Europe, the Middle East, India, South and East Asia, through to Japan.
On the broadband front also Rcom offers the most comprehensive portfolio of enterprise voice, data, video, Internet and IT infrastructure services. These services include: national and international private leased circuits, broadband internet access, audio and video conferencing, MPLS-VPN, Centrex, and managed internet data center (“IDC”) services.
Investment rationale
• Recently the company has been given a Licence to operate in 14 new circles and allotted startup spectrum in these circles. The company is well poised to capture new subscribers in these circles.
• Operates one of the largest private submarine cable systems in the world connecting 40 countries.
• The company has further consolidated its position among corporate customers. The company currently caters to 800 of the 1000 MNC companies; indicative of a strong presence in the corporate customers segment and its quality of services. The company has also announced plans to target SME clients in the near future.
• The company is currently engaged in rolling out the largest network across the country spanning across 23000 towns through CDMA and 8000 towns through GSM network. The network will also cover 600,000 villages and address 90% of the country’s population.
• Company plans to list its passive infrastructure subsidiary Reliance Infratel Ltd. Value unlocking can be expected from this listing. The company has submitted the red herring prospectus to SEBI for approval.
Q3FY08 Financial Highlights
• ARPU for the company has gone down to 339 from 361 in Q3FY08 versus Q2FY08.
• Minutes of Usage (MOU) per Subscriber has also gone down from 490 in Q2FY08 to 449 Q3FY08.
• The company has reported in increase in revenue from operations (Consolidated) by 4.9% QoQ.
• QoQ PAT has gone up by 5.23%.
• For Reliance communication EBIDTA margin has shown an improvement of 30 basis point QoQ.
• PAT margin has gone down by 30 basis point QoQ, primarily as other income during Q2FY08 was unusually high.
Recommendation and Valuation
The company results fell in line with our expectations. We had recommended a full profit booking on 825 earlier (Recommended at 585). Although due to adverse market conditions a fall of 10-15% in the prices from current levels cannot be ruled out, we re-recommend the stock for a buy. Investors can accumulate this scrip at 555-585 levels for a target of Rs 700 in Six months time. We consider that the scrip will outperform the sector.
KLG Systel Ltd.
Buy (Medium Risk) Target Price: Rs.1000
Key Data
Face Value : 10 52 week High / Low : 1022 / 260
NSE Code : KLG Average Vol. : 1956703
Shareholding as on 31.12.07
Foreign : 7.79% Institutions : 2.16 Non Promter Corp. Holding : 22.83%
Promoters : 25.74% Public & Others : 41.48%
Result Highlights
Buy (Medium Risk) Target Price: Rs.1000
Key Data
Face Value : 10 52 week High / Low : 1022 / 260
NSE Code : KLG Average Vol. : 1956703
Shareholding as on 31.12.07
Foreign : 7.79% Institutions : 2.16 Non Promter Corp. Holding : 22.83%
Promoters : 25.74% Public & Others : 41.48%
Result Highlights
• The company has posted its result for Q3FY07. KLG Systel reported an increase in net income by 124.49% in Q3FY07.
• As per our expectations the major contributor to the revenues of the company was the power system and solutions (PSS) with 70%. Going forward, the PSS group would not only add to the top-line but also to bottom line.
• The company has a strong order book of about Rs 450 crore and most of it is in PSS domain.
• The company also posted net profit of 17.14 crore. Up by 36.35 % versus Q2FY08 and a growth of 141.07% over Q3FY07 of Rs 7.11 crore.
• The operating profits were under pressure in this quarter due to manufacturing costs associated with the new product developed i.e. connectgia.com. The operating profit margins came down to 23.28% due to increased manufacturing expenditure.
• The institution holding have increased in this quarter from 0.26% in Q1FY08 to 2.16% in Q3FY08.
Recommendation
The company results came in line with our expectations. We believe that the company would continue to perform well in the future. On the back of strong order book we estimate the company top line to Rs 288 crores for FY08. At an annualized EPS (diluted) of 55.6 for Q3FY08, the scrip is currently trading an earning multiple of 11.51x. The counter is undervalued at current price. We had recommended a buy on this counter at Rs 650 with a target of Rs 1000, which the counter had achieved. Looking at the company growth, in both top-line and bottom line, we recommend a ‘buy’ on the counter and advise investors to accumulate the scrip in Rs 650-610 range with our target of Rs1000 in Six months time. Although due to adverse market conditions a fall of 10-15% in the prices from current levels cannot be ruled out.
• As per our expectations the major contributor to the revenues of the company was the power system and solutions (PSS) with 70%. Going forward, the PSS group would not only add to the top-line but also to bottom line.
• The company has a strong order book of about Rs 450 crore and most of it is in PSS domain.
• The company also posted net profit of 17.14 crore. Up by 36.35 % versus Q2FY08 and a growth of 141.07% over Q3FY07 of Rs 7.11 crore.
• The operating profits were under pressure in this quarter due to manufacturing costs associated with the new product developed i.e. connectgia.com. The operating profit margins came down to 23.28% due to increased manufacturing expenditure.
• The institution holding have increased in this quarter from 0.26% in Q1FY08 to 2.16% in Q3FY08.
Recommendation
The company results came in line with our expectations. We believe that the company would continue to perform well in the future. On the back of strong order book we estimate the company top line to Rs 288 crores for FY08. At an annualized EPS (diluted) of 55.6 for Q3FY08, the scrip is currently trading an earning multiple of 11.51x. The counter is undervalued at current price. We had recommended a buy on this counter at Rs 650 with a target of Rs 1000, which the counter had achieved. Looking at the company growth, in both top-line and bottom line, we recommend a ‘buy’ on the counter and advise investors to accumulate the scrip in Rs 650-610 range with our target of Rs1000 in Six months time. Although due to adverse market conditions a fall of 10-15% in the prices from current levels cannot be ruled out.
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