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Reliance Communication – 2QFY2011 Result Update
Angel Broking recommends a Neutral on Reliance Communication.
Reliance Communication (RCOM) reported its 2QFY2011 numbers, which were
below street as well as our expectations. The company’s net sales as well EBITDA
declined by 0.9% qoq and 1.7% qoq to `5,023cr and `1,564cr, respectively.
However, PAT surged by impressive 78.2% qoq to `446cr due to forex gains.
Revenue down due to mixed KPIs in wireless: RCOM posted a 0.9% qoq fall in
consolidated revenue to `5,023cr due to mixed bag KPIs in the wireless segment.
The segment posted flat revenue growth of 0.2% qoq. The poor performance was
due to MOU tumbling to 276mins (v/s 295mins in 1QFY2011), whose fall was
mainly arrested by robust subscriber growth of 5.9% qoq and held-up ARPM at
`0.44/min. Thus, ARPU slipped by 6.3% qoq to `122 from `130 in 1QFY2011.
EBITDA margin slips: Overall EBITDA margin (excluding other income) fell by
26bp qoq to 31.1% due to poor operational performances by other segments
such as global and broadband, which overshadowed the positive impact of
held-up EPM in the wireless segment. The spurt in NOE due to the ongoing GSM
rollouts was arrested by savings in promotion expenses vis-à-vis 1QFY2011,
which were high due to IPL promotions.
Outlook and valuation: Going forward, we expect the ARPM and MOU to stabilise
with the major completion of the GSM rollout, though we expect it to aid margins
as network operating expenditure would decline. Stabilising ARPM would also aid
margins. We expect RCOM’s mobile segment to witness a 21% CAGR in
subscribers over FY2010–12E and ARPM as well as MOU to stabilise going
forward. At the CMP, the stock is trading at 7.4x FY2012 EBITDA, at par with its
intrinsic value of `152. Due to the recent correction in the stock price,
we recommend a Neutral rating on the stock.
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