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Reliance Communication 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, Reliance Communication (RCom) reported a muted set of results. The company’s net sales grew by just 0.7% qoq even when 3Q is a seasonally strong quarter for telecom companies. RCom hiked voice tariffs on both on-net and off-net calls for GSM subscribers; and on CDMA, the company raised tariffs on only off-net calls. Since the hike has been undertaken largely on the GSM subscriber base, the impact of the same was less as compared to its peers, as the company is primarily CDMA based and, thus, tariff hike has not showed any signs of improvement in the APRU of RCom. Due to lack of triggers except the monetization of its Infratel business, which can cut down its debt by more than half, we remain Neutral on the stock.

Quarterly performance: RCom reported revenue of Rs.4,824cr, up merely 0.7% qoq, led by poor performance across all its business segments. Wireless revenue came in at Rs.4,447cr, up just 0.7% qoq on the back of qoq flat average revenue per minute (ARPM) at Rs.0.45/min and a 1.3% qoq decline in minutes of usage (MOU) to 224min, whose fall was slightly arrested by subscriber growth of 2.0% qoq. Thus, ARPU slipped by 1.0% qoq to Rs.100 in 3QFY2012 from Rs.101 in 2QFY2012. Overall EBITDA margin improved by 35bp qoq to 28.7% as employee costs and access charges declined by 10.9% and 7.2% qoq, respectively. However, network operating expenses grew by 8.8% qoq (includes one-time cost of Rs.90cr).

Outlook and valuation: Going forward, we expect RCom’s mobile segment to record a 10.3% CAGR in its subscribers over FY2010–13E and ARPM to stabilize at Rs.0.45/min in FY2013. Currently, the company is striving to reduce the debt level in its books and has again kept its stance of selling stake in its tower assets, which might help the company to deleverage its balance sheet and reduce debt and can be a positive trigger to the stock price. However, various other announcements of selling tower assets were made earlier as well, but none of them materialized. Also, RCom is trying to restructure debt in its books to reduce interest costs. We maintain our Neutral view on the stock.