Please refer to important disclosures at the end of this report 1 ( ` cr) 3QFY12 2QFY12 % chg (qoq) 3QFY11 % chg (yoy) Net sales^ 4,824 4,792 .7 4,865 (0.8) EBITDA^ 1,383 1,357 1.9 1,529 (9.5) EBITDA margin (%) 28.7 28.3 35bp 31.4 (276)bp PAT 186 252 (26.1) 480 (61.2) Source: Company, Angel Research; Note: ^Excluding other income For 3QFY2012, Reliance Communicati on (RCom) reported a muted set of results. The company’s net sales grew by just 0.7% qoq even when 3Q is a seasonallystrong 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 `4,824cr, up merely 0.7% qoq, led by poor performance across all its business segments. Wireless revenue came in at `4,447cr, up just 0.7% qoq on the back of qoq flat average revenue per minute (ARPM) at `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 `100 in 3QFY2012 from `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 `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 `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. Key financials (Consolidated, Indian GAAP) Y/E March ( ` cr) FY2009 FY2010 FY2011 FY2012E FY2013E Net sales 22,242 21,614 22,430 19,382 22,018 % chg 18.1 (2.8) 3.8 (13.6) 13.6 Net profit 5,926 4,704 1,346 714 896 % chg 44.6 (20.6) (71.4) (47.0) 25.6 EBITDA margin (%)* 38.6 33.5 37.5 29.4 33.2 EPS ( ` ) 24.4 23.0 6.5 3.5 4.3 P/E (x) 3.9 4.1 14.5 27.2 21.6 P/BV (x) 0.5 0.4 0.5 0.5 0.5 RoE (%) 14.0 10.8 3.3 1.7 2.1 RoCE (%) 5.7 4.7 2.4 2.0 2.9 EV/Sales (x) 2.1 2.0 2.3 2.8 2.3 EV/EBITDA (x) 5.5 6.1 6.1 9.7 6.9 Source: Company, Angel Research; Note: *Excluding other incomeNEUTRAL CMP `94 Target Price -Investment Period - Stock Info Sector Bloomberg Code RCOM@IN Shareholding Pattern (%) Promoters 67.9 MF / Banks / Indian Fls 9.2 FII / NRIs / OCBs 8.1 Indian Public / Others 14.9 Abs. ( %) 3m 1yr 3yr Sensex 2.2 1.6 84.0 RCom ( 2.2) ( 15.2) ( 52.3) 5 17,749 5,382 RLCM.BO 19,391 1.5 114/61 2,462,598 Telecom Avg. Daily Volume Market Cap ( `cr) Beta 52 Week High / Low Face Value ( `) BSE Sensex NiftyReuter s C ode Ankita Somani +91 22 3935 7800 Ext: 6819 [email protected]Reliance Communication Performance highlights 3QFY2012 Result Update | Telecom February 10, 2012
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Source: Company, Angel Research; Note: ^Excluding other income
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 GSMsubscriber 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 signsof 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 ` 4,824cr, up merely 0.7%
qoq, led by poor performance across all its business segments. Wireless revenuecame in at ` 4,447cr, up just 0.7% qoq on the back of qoq flat average revenue
per minute (ARPM) at ` 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 ` 100 in 3QFY2012 from ` 101 in
2QFY2012. Overall EBITDA margin improved by 35bp qoq to 28.7% asemployee 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 ` 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 stabilizeat ` 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 debtand 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.
Key financials (Consolidated, Indian GAAP)
Y/E March (` cr) FY2009 FY2010 FY2011 FY2012E FY2013E
Net sales 22,242 21,614 22,430 19,382 22,018
% chg 18.1 (2.8) 3.8 (13.6) 13.6
Net profit 5,926 4,704 1,346 714 896
% chg 44.6 (20.6) (71.4) (47.0) 25.6
EBITDA margin (%)* 38.6 33.5 37.5 29.4 33.2
EPS (`) 24.4 23.0 6.5 3.5 4.3
P/E (x) 3.9 4.1 14.5 27.2 21.6
P/BV (x) 0.5 0.4 0.5 0.5 0.5
RoE (%) 14.0 10.8 3.3 1.7 2.1
RoCE (%) 5.7 4.7 2.4 2.0 2.9
EV/Sales (x) 2.1 2.0 2.3 2.8 2.3
EV/EBITDA (x) 5.5 6.1 6.1 9.7 6.9
Source: Company, Angel Research; Note: *Excluding other income
Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www.angelbroking.com
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