B G Shirsat: Reliance Comm listing - Blues or Greens?

All eyes are on Reliance Communication Ventures (RCoVL), which will be listed on Monday, March 6. Investors are waiting for the price discovery of India's second largest private sector telecom company, which was demerged from Reliance Industries last year.

When Reliance Industries was demerged on January 17, 2006, the market had valued the four demerged entities at Rs 22,600 crore - the difference between pre- and post-demerged value of Reliance Industries.

Three demerged entities are now listed on the bourses with a combined market capitalisation of Rs 10,500 crore. This leaves Rs 12,100 crore worth market cap to make up the pre-demerged value of Reliance Industries.

So, does this mean that the market had valued the infocomm business at Rs 12,100 crore at the time of the de-merger of Reliance Industries? Secondly, will the market price of RCoVL be Rs 100? The market value of Rs 100 is based on the company's equity capital of Rs 1,223.1 crore.

Analysts, however, put the market value of RCoVL at anything between Rs 200-260 per share. This pegs the market cap of the infocomm business between Rs 25,000-32,000 crore.

Based on the limited data available, analysts have valued the company on three parameters - enterprise value (EV)/subscriber, EV/EBIDTA and price/book value per share. On its listing during the week starting March 6, 2006, analysts believe the stock should trade between Rs 207 and Rs 260 per share with a twelve-month perspective.

The available financial numbers show that RCoVL has a net worth of Rs 10,980 crore for the nine months ended December 2005. It has achieved an operating profit of Rs 1,431 crore on revenue of Rs 8,654 crore, which gives an EBITDA of 16.54%.

The key operative parameter to watch for - RCoVL holds 66% stake in Reliance Infocomm (RIC). The enterprise value of Reliance Infocomm (RIC) is seen around Rs 57,300 crore - a 20% discount to the enterprise value of Bharti. RIC has a debt component of Rs 6,315 crore, which means the market cap for RIC works out to Rs 51,000 crore. With its 66% stake in RIC, the enterprise value of RVoCL works out to Rs 33,700 crore, and a market price of Rs 275 per share.

RIC has a subscriber base of 1.80 crore, and based on EV/subscriber basis, RCoVL's fair value works out to Rs 250-300 per share. On EV/EBIDTA basis, the fair value works out to Rs 150-180 per share.

So, how would the market value RCoVL? Rs 100, Rs 180, Rs 250?

Wait for the markets to open on Monday, and check again at the end of the day. The full story of the second largest private sector telecom operator would be out in the open...