Consolidation has been imminent in the Indian telecom sector for the last few years, and the first steps have been taken by Reliance Communications Ltd (RCom), the Rs 22,000 crore-telecom services company of the Anil Ambani-led Reliance Group.
This March, RCom shareholders approved plans to merge the wireless telecom services operations of Sistema Shyam Teleservices Ltd with the company in an all-stock deal valued at Rs 4,500 crore. Then, on September 14, RCom and Aircel Ltd, another Indian telco owned by Malaysia’s Maxis Communications Berhad, said they were hiving off their respective wireless businesses into a separate, new entity, as an equal joint venture between the two companies.
The merger will create India’s fourth largest telco in terms of subscriber base and revenue market share (RMS), with the second-largest spectrum portfolio, assets worth Rs 65,000 crore and a net worth of Rs 35,000 crore.
A September 14 IDFC Securities report says the new entity will have an RMS of 11.3 percent and subscriber market share of 15.4 percent; it is expected to have an Ebitda (earnings before interest, tax, depreciation and amortisation) between Rs 4,600 crore and Rs 6,000 crore. “The combined entity will enjoy substantial benefits of scale driving significant revenue growth, and capex and opex synergies with a net present value of around Rs 20,000 crore,” an RCom statement said.
The other ostensible motive behind the move was to reduce debt, a chronic challenge for RCom. As on June 30, RCom had a net debt of Rs 42,071 crore; in FY16, its net debt-to-Ebitda ratio stood at 5.5 times.
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(This story appears in the 14 October, 2016 issue of Forbes India. To visit our Archives, click here.)