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Reliance Communications – Modest
Revenue Growth Expected
We expect 2.5% Q/Q growth in the wireless business for RCOM, a more modest
development relative to peers Bharti (+4.8% Q/Q) and Idea (+4.6% Q/Q). Our
caution stems from a lower minutes growth (RCOM: +3.5%, Bharti: +6.8%, Idea:
+8.7%) and a 0.6paisa ARPM decline after three consecutive quarters of stable
ARPMs. For RCOM’s Global and Broadband business segments, we forecast a
flattish development.
We expect slight margin pressure and forecast a 20bp decline to 32.2% driven by
higher network operating costs. We also expect RCOM to record amortization of 3G
license fee for part of the quarter, given that it launched 3G services on December
12.
Reliance Communications
We have reduced our FY11/FY12 revenue estimates by 1.5%/2.8% driven primarily
by more modest expectations for the wireless business on the volume front but also
on pricing. The impact on our FY12 EPS estimates is -4.9%.
Reliance Communications
Our Dec-11 sum-of-the-parts based price target is now INR160, down from INR190
earlier. We have reduced our estimates for the Wireless and Globalcom business.
Risks to our ratings and price target include
Upside risks: [1] Better minute volume performance in wireless, [2] Better
performance in Globalcom from data revenue, [3] Wireless margin strength, [4]
consolidation in the market, [5] Stake sale confirmation.
Downside risks: [1] Continued delay in Mobile Number Portability and less success
for RCOM than we expect resulting in continued declines in ARPMs vs. the
stabilization we forecast, [2] Delays in or unsuccessful stake sale (cash inflow from
which would be used for debt reduction).
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