RIL may have to acquire RCom for telecom success: Report

Last Updated : 19 June 2011, 10:19 IST
Last Updated : 19 June 2011, 10:19 IST

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RIL's proposed re-entry into telecom sector is currently limited to broadband wireless business and it might have to acquire "one or more extant telecom operators" in the voice segment, brokerage firm Kotak Institutional Equities said in an equity research report on Reliance Industries.

The report further said that the acquisition route might also not be much value-accretive, unless RIL can acquire RCom, which became part of the Anil Ambani group as part of a family settlement between the two brothers in 2005.

Kotak Institutional Equities, however, immediately clarified that it was not aware of RIL's interest in acquiring RCom or whether Anil Ambani group was interested in selling the telecom venture to Mukesh-led RIL group.

When contacted, both RIL and ADAG groups did not reply to emailed PTI queries seeking their comments on the report. The specific queries on whether they were interested in any deal involving acquisition of RCom by RIL also remained unanswered.

Last year, RIL acquired 95 per cent stake in Infotel Broadband Services, which emerged as a successful bidder for pan-India Broadband Wireless Access (BWA) spectrum sold by the government. RIL has invested over Rs 4,200 crore in Infotel.

Talking about RIL's re-entry into telecom with this BWA licence, Kotak report said that RIL "will have to contend with well-entrenched players and a small (but growing data market."

"We are not too sure about the economics of a standalone BWA business. Also, RIL may have to prepare a strategy for voice, which may involve acquiring one or more extand telecom operators," the report noted.

The report said that it also doubted that an entry into telecom through acquisition was going to create much value.

"The telecom landspace is quite competitive, regulations are becoming increasingly hostile and Reliance Communications' existing brand presence may confuse potential subscribers unless RIL can acquire RCom," it said.

Kotak Institutional Equities added: "We do not know if RIL has any interest in acquiring RCom or RCom's major shareholder has any interest in sharing RCom to RIL."

The promoters Anil Ambani group own 67.86 per cent stake in RCom, while the remaining shares are spread among FIIs, domestic institutional investors and others.

The Ambanis-promoted conglomerate ventured into telecom when both brothers were together in unified Reliance group.

The telecom business went to Anil after a division of the group between two brothers, although Mukesh has been credited for setting-up of telecom business year-after-year in RIL's annual reports till as recently as in 2009-10."Mukesh Ambani had set up one of the largest and most complex information and communications technology initiative in the world in the form of Reliance Infocomm (now Reliance Communications," RIL said in its annual report for 2009-10.

However, the annual report for the latest fiscal 2010-11 has no mention of this credit, although it talks about the group's proposed broadband telecom business.

Earlier this month, Mukesh Ambani said at RIL's AGM that the group would develop its broadband business plans over the next three to five years and currently it was in the process of conceptualising the products and services.

He also named broadband business as one of the focus areas for RIL group going forward.

The Kotak report said that RIL's previous telecom foray has not been very successful and blamed it partly on the lesser focus on the business at a critical time of growth in the industry, due to the group's long-drawn split in 2005-06.

It also said that RIL has been very conservative with its acquisition strategy, while its overall business approach has also turned conservative after remaining "ultra aggressive" in the 1980s and 1990s.

The report also noted that RIL needed to improve its corporate governance practices, significantly enhance its disclosures and simplify its corporate and organisational structure to help investors take a more informed view.

The Kotak report also called for change in RIL's business model and approach for creating shareholder value and observed that the power sector no more appeared a priority growth area and the investment in retail business were below targets.

The detailed queries emailed to RIL remained unanswered on these observations made in the Kotak report.

Published 19 June 2011, 10:18 IST

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