RCOM is seeking shareholders’ approval to raise funds through equity/equity-linked instruments which could result in potential equity dilution of up to 25%. As per the company, the funds would enable it to strengthen its balance sheet and equip it to participate in the upcoming 3G/Wi-Max auctions.
3G/Wi-Max auctions have been announced as one of the key priorities post new government formation. Planned equity infusion would enable RCOM to position itself comfortably for the upcoming auctions. A potential ~20% equity dilution (at CMP of ~Rs300/
sh) would translate into equity infusion of ~Rs124b vs our estimated pan-India 3G spectrum/capex outlay of ~Rs70b. Hence even post 3G capex, RCOM’s FY10E net debt will decline to ~Rs122b vs our current (pre-3G) estimate of ~Rs176b translating into a comfortable net debt/EBITDA of ~1.1x vs our current estimate of 1.5x. Similarly, RCOM’s net debt/equity would decline to ~0.3x vs an estimated ~0.6x currently. However, we estimate that equity infusion will result in ~12% EPS dilution for FY11E assuming nil EBIT accretion from 3G/Wi-Max launch.