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Sharp Move by HSBC towards Reliance Communications; Cuts Target Price

HSBC has cut target price on Reliance Communications to Rs 17 from Rs 28 after cutting earnings before interest, taxes, depreciation and amortisation estimates for FY18-22 period by 16%.

The brokerage said Reliance Communications’ India business is likely to remain weak.

RCOM core business revenues declined 10% in FY17 largely impacted by the Jio 4G launch. We expect this trend to accelerate and estimate a 22% decline in revenues in FY18,” said HSBC, retaining ‘reduce’ rating.

The brokerage sees Reliance Communications suffering from Jio’s likely to attempt to broaden the 4G addressable market. The firm also sees a 13% decline in subscribers during the current financial year.

“We don’t see many catalysts for RCOM’s India business in the near term, except for a sharp decline in interconnect charges which may drive some cost savings and allow the company to be more aggressive with bundled plans,” said HSBC.

HSBC also sees limited upside around the company’s ability to benefit from Jio’s 4G infrastructure given its poor subscriber quality, execution challenges and limited ability to spend on marketing campaigns to drive 4G market share.

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