Maintain 'Underperform' on Reliance Communications: BoAML

MUMBAI: Bank of America Merrill Lynch has maintained ‘Underperform’ recommendation on Reliance Communications. It has reduced the price target on the stock to Rs 175 per share.

“Post 1Q results, we have cut FY11-12E EBITDA by 5-7% and Price Objective (PO) is trimmed to Rs 175 per share. This reflects weaker-than-expected trajectory for non-wireless businesses; weak wireless performance in 1Q was as expected. Maintain underperform as weak execution by company aggravates industry risks.

Our PO is based on sum-of parts. Reliance Infratel (towerCo) is valued as per the EV implied by its deal with GTL. We value RCom's non-wireless businesses at 5x FY12-EV/EBITDA while RCom's wireless business is rough-stab valued at 5-6x FY12-EV/EBITDA (post towers) implying 0-20% discount versus GEM wireless majors,” the report said.