RCom up on stake sale reports

Wed, 2 Jun 01:30 pm

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The Indian markets sustained gains amidst volatility during the previous two hours of trade. Stocks from the telecom, auto and consumer durable sectors are currently the top gainers, while those from the metal, realty and power segments are amongst the top losers. The advance to decline ratios is skewed in favour of the former as the ratio stands at 1.3 to 1 on the overall BSE.

The BSE-Sensex is trading higher by 80 points while NSE-Nifty is trading higher by about 25 points. Gains are also seen in small and midcaps stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.3% and 0.6% respectively. The rupee is trading at 47.01 to the US dollar.

Telecom stocks are currently trading firm led by Idea Cellular, Reliance Communications (RCOM) and Bharti Airtel. The stock of RCOM is the top gainers amongst stocks forming part of the BSE-Sensex. Gains in the stocks are on the back of report of UAE-based Etisalat being in talks with the company to acquire 25% stake in it. This deal is sized at Rs 180 bn. As such, if it does go through, the UAE based firm will have to make an open offer to acquire an additional 20% stake in RCOM. As of March 2010, RCOM's promoter holds about 67.6% stake in the company. With RCOM issuing new shares (increase the paid up capital by 25%), its promoter's stake is likely to drop to level of 55%.

The funds that the company will get from this stake will definitely help it improve its debt to EBIDTA ratio, which is probably the highest amongst the top telecom players in the country. Plus with the cash outflow for 3G license, the company would be using these funds for its 3G roll-out plan. It must however be noted that this piece of news comes in days after reports of African telecom major, MTN being in talks with RCOM to acquire the latter. There is no official statement that has been given by the company yet.

Auto stocks are currently trading firm led by M&M, Maruti Suzuki, Tata Motors and Hero Honda. Bajaj Auto yesterday reported its sales numbers for the month of May 2010. The company sold a total of 299,442 units, higher by about 62% YoY as compared to the corresponding month last year. This is its highest ever sales in a month. Total sales in May 2009 however included the scooter segment which it has since then moved out of with the phasing out of its scooter model Kristal in FY10. Motorcycles saw a 63% YoY growth in May 2010. Motorcycles sales formed about 90% of total sales volumes. The flagship motorcycle brands Pulsar and Discover represented 68% percent of the motorcycle sales, contributing heavily to the segment's growth.

The company also reported a rise of 52% YoY in three-wheeler sales to 29,954 units. Exports, which formed about one third of total sales, rose by 64% YoY to 95,964 units. The company has a target of increasing motorcycle sales by 50% in FY11 with average sales of 300,000 motorbikes every month starting May 2010. Considering that the company has clocked sales nearing this figure, it seems well on its way to achieving its target.