Focusing on growth

Addressing the revenue growth gap

RCOM management has started to focus on rolling out coverage aggressively in CDMA as well as GSM to address the revenue growth gap with its listed rivals. RCOM is committing around USD 4 billion (including RTIL and tower capex) in FY2008 and we believe that this will lead to higher revenue growth in the coming quarters.

RTIL + Flag Spin-off to support stock price appreciation

RCOM management has indicated that the company is in the process of spinning off its tower business (RTIL) and Flag telecom (submarine cable business) in the next 3-6 months. We expect these spin-offs to lead to value crystallization and act as a catalyst for RCOM share price appreciation.

1Q08 results preview

RCOM is likely to announce 1Q08 results on July 30/31, 2007. We forecast revenues of Rs 42.4billion (8% qoq growth), EBITDA of Rs17.6 billion (8% qoq growth), and net income of Rs 8.8 billion (14% qoq decline). We forecast EBITDA margin to stay flat at 41.5%.

Valuation: Reiterate Buy 2 with Rs 675 price target

We maintain Buy 2 rating on RCOM. We have revised our target price to Rs675 (from Rs600) as we roll forward our DCF valuation to September 2008 assuming WACC of 11.0% and EV/EBITDA multiple of 7x.