About the Company

RCOM is the flagship company of the RelianceADA Group.

Incorporated in July 2004, RCOM is Indias leading
integrated teleco, providing the entire gamut of telecom
services including wireless, wireline, broadband, carrier
and data services. The company commenced cellular
operations in December 2002, and is Indias second
largest wireless operator. RCOM offers panIndia
CDMA and GSMbased wireless services. It also enjoys a
strong position in the long distance and broadband
segments. It operates undersea cable systems through
FLAG and FALCON, connecting over 40 countries.
RCOM is integrated telecommunications service provider.
The Company, with a customer base of about 126 million
including over 2.5 million individual overseas retail
customers, ranks among the Top 7 Telecom companies in
the world by number of customers in a single country.
Reliance Communications corporate clientele includes
over 39,000 Indian and multinational corporations
including small and medium enterprises and over 830
global, regional and domestic carriers.
Reliance Communications has established a pan-India,
next generation, integrated (wireless and wireline),
convergent (voice, data and video) digital network that is
capable of supporting best-of-class services spanning the
entire communications value chain, covering over 24,000
towns and 600,000 villages. Reliance Communications
owns and operates the world's largest next generation IP
enabled connectivity infrastructure, comprising over
277,000 kilometers of fibre optic cable systems in India,
USA, Europe, Middle East and the Asia Pacific region

Market Position
RCom was set up by Reliance Industries, India's largest
private sector corporation, in 2002. In 2005, the Reliance
Group was divided between the two estranged brothers
who controlled it; younger brother Anil Ambani gained
RCom, now the flagship of his Reliance ADAG Group that
has a net worth of about US$14.5bn and interests in
financial markets, infrastructure and energy.
With annual revenue of Rs223.21bn in fiscal year 2014
(ended in March) and around 10,200 employees, RCom is
an integrated telecommunications service provider,
offering fixed, both CDMA and GSM-based mobile,
broadband and enterprise services. It also offers digital
television services. Now India's fourth-largest telecoms
company, as of December 2014 it had 115m customers,
including 107.5m voice subscribers in India and 2.6m
overseas retail voice customers in 14 countries. Its
corporate clientele includes 39,000 Indian and
multinational corporations and 290 global, regional and
domestic carriers. It claims to have India's largest nextgeneration inter-city long distance network with 190,000
km of fibre optic cable, and India's widest network
coverage, covering over 21,000 cities and towns and over
400,000 villages. It owns and operates the world's largest
submarine cable system with a total installed capacity of

over 21Tbps, connecting 40 countries. Its Indian

operations contribute 80% of its revenue.

Rating History
2015
Fitch Ratings has assigned Reliance Communications
Limited (Rcom), Long-Term Foreign- and Local-Currency
Issuer Default Ratings (IDR) of 'BB-'. The Outlook is
Stable. KEY RATING DRIVERS Higher Leverage than Peers:
Rcom's 'BB-' IDR is constrained due to its higher leverage
and weaker market position than average for Fitch's-rated
Asian telcos.
2014
No major credit rating agency rated RCom in 2014.
2013
ICRA Limited (ICRA) has revised the long term rating of
the Company as BBB+ (with negative outlook) and
reaffirmed the Short Term rating as A2+.
2012
Credit Analysis & Research Limited (CARE) has reaffirmed
the long term rating of the Company as A- (removed
credit watch) and revised the rating for Short Term Debt
to A2+.

2011
ICRA Limited has revised the Long Term rating of Reliance
Communications Limited at LAA level continuing it to be
under watch with negative implications and reaffirmed its
rating of A1+ for Short-Term Fund Based / Non Fund
Based Limits.

Shareholding Pattern
Total
Indian Promoters
FII's
General Public

59.7%
20.72%
8.54%

Banks Fin. Inst. and Insurance 7.29%

Private Corporate Bodies
Mutual Funds and UTI
Others
GDR/ADR
Government

1.75%
1.15%
0.44%
0.35%
0.05%

Shareholding Pattern

Indian Promoters

FII's

General Public

Banks Fin. Inst. and Insurance

Private Corporate Bodies

Mutual Funds and UTI

Others

GDR/ADR

Government

Business Risks
a. Some of the operating licenses are subject to
regulatory compliance under the terms and conditions of
licenses granted over different parts of the world. The
rules and regulations, issued by the respective
governments and regulatory authorities, having
jurisdiction over the Companys operations and licenses,
schedules and obligations require it to meet specified
conditions, network build-out requirements and tariff
fixation. There may be a perceived default in it.
b. Rapid technological changes may increase competition
and render the Companys technologies, products or
services obsolete. The facilities are tuned to the next
generation latest technology and no obsolescence is
foreseen at present.

c. The telecommunication services industry is capital

intensive. Capital Expenditure (CAPEX) on adaptation to
the latest technology may put pressures on deliverables.
However, the Company is constantly assessing such
technological challenges and taking immediate remedial
steps through timely CAPEX plans.
d. The Company is subject to market risks from changes
in interest and foreign currency exchange rates. In
managing exposure to these fluctuations, they may
engage in various hedging transactions that have been
authorized according to the laid out internal policies and
procedures.
e. Cable MSO aggressiveness could be a challenge.
f. Rising Power and fuel cost, High Landing access
charges, Restricted regulations on ISP-Content provider
inter connect are a few resistances to higher growth of
enterprise communication segment.

g. Lot of customers are adopting SIP trunking for Voice

connectivity. RCom intends to provide various VAS
services to customers in order to increase their wallet
share. Cloud telephony is another area where it intends to

launch several innovative solutions to increase the share

of Voice revenue from VAS services.

Financial Profile/Risk
1. Operating margin has increased in last two years and
currently is 15.59 % wrt 10.32 % in 2014 and 10.70 % in
2013.
2. Net income margin stands at 3.28 % and is slightly
than the industry margin of 4.5 % (approx.)
3. Low level of net profit gives an indication that their
non-operating expenses are mounting and company is
not able to generate much sale due to large competition
from the peers.
4. Debt to Equity ratio has decreased since last two years
and is at 0.79.Despite of operating in a high capex
industry, it is relatively low D/E ratio and hints at a lesser
risk to prospective creditor.
5. The financial leverage ratio or multiplier is 2.57 which
means more than half the assets are financed by loan or
debt.
6. Current ratio is 0.90 which hints that some of the
current obligations may not be met by the current
resources or assets.
7. Quick ratio is too less at 0.36 which shows that a lot of
part of the current assets involve prepayments or
inventories

8. Cash Ratio is very less at 0.13 and hints that the liquid
assets are too less to fulfill the current obligations. It is a
distress situation for the company.
9. Altmans Z score is 1.07 which is less than 1.8 and
signifies that company may bankrupt soon.

Future Plans
1. RCom is expected to completely exit from the the
telecom tower business, with the process to sell its
stake in unit Reliance Infratel in the final stages with
four bidders US-based Farallon Capital, Carlyle,
Tillman Capital and American Tower Corp.

2. RCOM and Russian conglomerate Sistema are in

exclusive talks to merge their Indian telecom
businesses through a stock swap that may lead to the
first major consolidation in the intensely competitive
sector since 2009.It may be an all cash deal takeover
for USD 500 million.
3. Reliance Communications (RCOM) and Reliance Jio
Infocomm will enter into an agreement of a pan-India
spectrum sharing-cumtrading agreement which will
allow RCOM to cut its debt.
4. Reliance Communications plans to selectively launch 4G
services across the country starting with Gujarat in
November. But according to reports, it would need to
spend Rs 7,000 crore on liberalization of spectrum that
it holds since 2001, the first step towards launching 4G.
It will be priced in tandem with prevailing market rates.
5. Telecom operator Reliance Communications will invest
about Rs 1,500-2,000 crore in the current fiscal year to
increase its data business.

Corporate Governance
1. Board composition Board strength and representation
as on March 31, 2015, the Board consisted of five
members. The composition of and the category of
directors on the Board of the Company were as under:
C Shri Anil D. Ambani, Chairman 00004878

Independent Directors ; Prof. J. Ramachandran

00004593; Shri Deepak Shourie 00101610 ; Shri A. K.
Purwar 00026383; Shri R. N. Bhardwaj 01571764.
2. a. None of the directors is related to any other director
b. None of the directors has any business relationship
with the Company.
c. None of the directors has received any loans and
advances from the Company during the year.
3. None of the directors hold directorships in more than 20
companies of which directorship in public companies
does not exceed 10 in line with the provisions of Section
165 of the Companies act.
4. RCOM complies with the clause 49 and no director is
involved in
related party transaction.
5. The Company has obtained Directors and Officers
liability insurance coverage in respect of any legal
action that might be initiated against directors.

Recommendations
1. RCOM should opt for a deferred payment schedule in
spectrum payment schedule, which will limit its
upfront cash outflow at around INR11 billion.

2. The potential merger between RCOM and Sistema

may breach the criteria of 50% spectrum holding
limit in a particular circle in eight of the nine circles
where bandwidth holdings overlap. RCom would need
to surrender "excess airwaves, ranging between 0.6
MHz and 2.5 MHz," the brokerage said. The excess
spectrum would have to be surrendered out of
RCom's airwaves which are expiring in 2021.It is
recommended to trade or share the excess airwave
which is allowed under recent guidelines.

3. It should improve its liquid assets as an urgent

priority in order to avoid itself getting into a distress.
4. Many of its airwaves would be expiring in 2021, it
should choose more inorganic route to adjust and
compensate for the same.

5. The Altmans Z score is very low and hints at a future

bankruptcy. Company should seriously consider it
and improve the fundamentals to avoid future
trouble.