Stock falls sharply; company says report lacks
credibilityGirja Shankar Kaura
Tribune News Service
New Delhi, June 20
Canada-based equity research firm Veritas has downgraded the country’s second-biggest mobile phone operator Reliance Communications (RCom) to "sell" and has put a target price of Rs 15, citing high debt, "whimsical" accounting policies and poor corporate governance standards as the key reasons.
After the news, RCom's share plunged by about 9 per cent in the morning. After hitting a record low of Rs 60 a piece on the BSE, the RCom shares recovered some ground and were trading 4.7 per cent down at Rs 62.10 at 1430 hours. As the stocks traded at around Rs 61-62, company officials said the report "lacked credibility", was "full of factual inaccuracies, baseless allegations masquerading as research" and that Veritas was destroying investor confidence through sensationalism.
The report released on June 8 also says that research firm does not foresee any significant improvement in the tower market over the next 12-18 months, given the stampede by all players in the telecommunication tower market in India to monetise assets.
Moreover, the firm estimates that at best the telecom major can monetise its Reliance Infratel tower asset at a diminished value of Rs 12,500 crore.
Veritas also said the company’s accounting policies were whimsical and do not provide a clear picture of the underlying operating and business trends.
It added that the risk management and governance practices of the company were sub-optimal.
The report says that the telecom company has exceedingly high financial leverage, accompanied with debt repayment obligations of approximately $2.2 billion over the next 24 months, at a time when EBITDA in core business operations is stagnating, which is a significant challenge for the management team.
It said RCom had been scaling back its capital expenditures (capex) and has put assets on the block.
“We are also skeptical of the company's ability to reduce its financial leverage meaningfully by undertaking an IPO of Flag Telecommunication, given that equity of Reliance Globalcom Bermuda - whose only assets is Flag as per Federal Communications Commission Filings - has been pledged by its holding company, Reliance Globalcom BV Netherlands, to secure debt of $500 million,” the report said.
For FY12, the company reported a profit before tax of Rs 882 crore, whereas in our normalised estimate we believe the company incurred loss before tax of Rs 1,529 crore, it said.
Losing ground
* Veritas has put a target price of RCom’s share at Rs 15
* Says high debt, ‘whimsical’ accounting policies and poor corporate governance standards to blame
* RCom has debt repayment obligation of $2.2 bn (approx) over the next 24 months
* While RCom reported a profit before tax of Rs 882 cr in FY’12, Veritas says it incurred loss before tax of Rs 1,529 cr
Tribune News Service
New Delhi, June 20
Canada-based equity research firm Veritas has downgraded the country’s second-biggest mobile phone operator Reliance Communications (RCom) to "sell" and has put a target price of Rs 15, citing high debt, "whimsical" accounting policies and poor corporate governance standards as the key reasons.
After the news, RCom's share plunged by about 9 per cent in the morning. After hitting a record low of Rs 60 a piece on the BSE, the RCom shares recovered some ground and were trading 4.7 per cent down at Rs 62.10 at 1430 hours. As the stocks traded at around Rs 61-62, company officials said the report "lacked credibility", was "full of factual inaccuracies, baseless allegations masquerading as research" and that Veritas was destroying investor confidence through sensationalism.
The report released on June 8 also says that research firm does not foresee any significant improvement in the tower market over the next 12-18 months, given the stampede by all players in the telecommunication tower market in India to monetise assets.
Moreover, the firm estimates that at best the telecom major can monetise its Reliance Infratel tower asset at a diminished value of Rs 12,500 crore.
Veritas also said the company’s accounting policies were whimsical and do not provide a clear picture of the underlying operating and business trends.
It added that the risk management and governance practices of the company were sub-optimal.
The report says that the telecom company has exceedingly high financial leverage, accompanied with debt repayment obligations of approximately $2.2 billion over the next 24 months, at a time when EBITDA in core business operations is stagnating, which is a significant challenge for the management team.
It said RCom had been scaling back its capital expenditures (capex) and has put assets on the block.
“We are also skeptical of the company's ability to reduce its financial leverage meaningfully by undertaking an IPO of Flag Telecommunication, given that equity of Reliance Globalcom Bermuda - whose only assets is Flag as per Federal Communications Commission Filings - has been pledged by its holding company, Reliance Globalcom BV Netherlands, to secure debt of $500 million,” the report said.
For FY12, the company reported a profit before tax of Rs 882 crore, whereas in our normalised estimate we believe the company incurred loss before tax of Rs 1,529 crore, it said.
Losing ground
* Veritas has put a target price of RCom’s share at Rs 15
* Says high debt, ‘whimsical’ accounting policies and poor corporate governance standards to blame
* RCom has debt repayment obligation of $2.2 bn (approx) over the next 24 months
* While RCom reported a profit before tax of Rs 882 cr in FY’12, Veritas says it incurred loss before tax of Rs 1,529 cr
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