Reliance Infratel revives IPO plans

Reliance Infratel, a subsidiary of Reliance Communications, has revived its IPO plans. Over a year ago, the telecom tower infrastructure company had filed a draft red herring prospectus with Sebi. The issue was postponed as stock markets fell, after the global financial crisis hit Indian equities. The company was planning to raise about Rs 6,000 crore through the IPO at that point. According to a Business Standard news report, it is now seeking to raise about Rs 5,000 crore through this IPO.

The Reliance Communications stock has not reacted to the news, but it is up by about 24% over a month ago. If Reliance Infratel does indeed sell a 10% stake for Rs 5,000 crore , that values the company at Rs 50,000 crore. During 2008-09, Reliance Infratel’s revenues was Rs 4,934 crore and it earned a net profit of Rs 1,686 crore. Its total assets, as of March 31, 2009, were Rs 19,198 crore and net worth was Rs 4,036 crore. Growth rates will be high in the initial years, as new towers are added and new clients are signed on. Later, unless fresh investments are made, revenue growth will taper.

Reliance Infratel sets up and maintains telecom towers across the country; and also owns an optical fibre network which was transferred from Reliance Communications. Its tower infrastructure not only supports the parent company’s service but also provides space for other telecom companies to set up their operations. Shared infrastructure is more capital efficient and also gets over the problem of limited installation sites, especially in urban areas where finding space is a problem. The company also offers its optical fibre network for those who want connectivity options too.

As the next wave of telecom operators start services, companies like Reliance Infratel hope to cash in on the demand for infrastructure. It has tied up with Etisalat DB Telecom for passive infrastructure and transmission connectivity for over 30,000 sites in 18 months. This contract is expected to contribute over Rs 10,000 crore revenues in 10 years to Reliance Infratel. It has a tenancy ratio of 2.2 tenants per tower and had a utilization rate of 40-50%, offering enough scope for expansion.

It had an equity capital of Rs 399 crore as of March 31, and Reliance Communications owns an 89.71% stake in this company. Reliance Communications belongs to the Reliance Anil Dhirubhai Ambani group, which includes companies like Reliance Infrastructure, Reliance Capital and Reliance Natural Resources.

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