RCom Long Term Buy Call

RCom Long Term Buy Call Techncal analyst Anand Rathi maintained ‘buy’ rating on Reliance Communications (RCom) stock with a long term target of Rs 260.

According to Mr. Rathi, interested investors can buy the stock with a strict stop loss of Rs 150.

Today, the company’s shares opened at Rs 170, as against its last closure at Rs 168.75 on the Bombay Stock Exchange (BSE). Current EPS & P/E ratio stood at 8.36 and 20.47 respectively. The share price has seen a 52-week high of Rs 608.85 and a low of Rs 131.35 on BSE.

According to Rathi’s report, “Though Net-adds dropped in the month of February by 32 per cent from the record 50 lakh reported in January, yet it is on track to meet our 4QFY09 forecasts of 112 crore net-adds. Furthermore, our FY10 forecast of sustainable monthly net-adds for Reliance Communications is 21 lakh.”

The brokerage house placed three main reasons for the sharp decline in February Net-adds.

- 10% fewer days in Feb as against January;
- Reduced attractiveness of the promotional GSM package;
- Conscious attempt on the part of RCOM to fix the supply/sale of promotional GSM SIM cards, particularly in those circles the company is close to qualifying for added spectrum.

“A positive surprise on net-adds (vs. our 11.2m forecast) now appears unlikely, but the key is revenue growth. RCOM has been offering discounted tariffs to boost usage and has indicated that the trends in recharge and ‘paid’ minutes are better than their own expectations. Furthermore, prebooking of bulk of the network operating costs and control in ad expenditure should contribute to healthy EBITDA growth in 4Q,” the report added.

RCom has strengthened its GSM reach by announcing its post paid GSM services in Uttar Pradesh and Uttarakhand.

While making the announcement, Mr. Salim Haq, RCom Regional Head UP and Uttarakhand, stated that the post paid customers in both the states would be offered three plans.

Moreover, RCom, on March 12, has slashed local/STD rates by around 40% for CDMA prepaid mobile customers of Karnataka.

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