Veritas downgrades RCom to sell; company terms report `mala fide’
19 Jun 2012
Canadian research firm Veritas has downgraded Reliance Communications (RCom) to 'sell' and has slashed it target price by over 75 per cent to Rs15, which the Anil Ambani-promoted company termed as lacking credibility and is ''mala fide'' in intent and approach.
Stating that ''RCom is a house of cards'', the research agency cited high debt, "whimsical" accounting policies and poor corporate governance standards as the key reasons for the downgrade.
''RCom is entering a phase of maximum uncertainty,'' it said, adding, ''since our last report on the company, the stock is down approximately 32 per cent. We believe there is significant additional downside''.
The report also states that the management will have to work out the debt repayment obligations of nearly $2.2 billion over the next two years, even as the EBIDTA in its core telecom business is languishing.
''In our view, macro-economic conditions in India are deteriorating at a rapid rate. Fractured policy making, high inflation, an uncontrollable fiscal deficit, in addition to a hyper-competitive telecommunication business, are highly detrimental to the prospects of RCom,'' it said.
The Anil Ambani group company is reportedly downsizing its capital expenditure and is looking to hive off some of its assets. However, with the precarious position of the company in the Indian telecom sector, the reduction in capex would work against the interests of the company.
