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UBS Investment Research
Reliance Communication Limited
3QFY11 – Outplayed by rivals yet again
„ Consolidated revenue/ EBITDA below UBS-e; net profit ahead
RCom reported negative revenue growth (qoq) of 2% while Bharti’s and Idea’s
revenue grew by 3.5% and 8.1% respectively during the quarter. RCom’s
consolidated revenues came in at Rs50.0bn vs. UBS-e of Rs53.5bn while EBITDA
came in at Rs16.7bn vs. UBS-e of Rs17.1bn. Net profit at Rs4.8bn was above
UBS-e of Rs3.3bn due to lower than estimated finance charges (because of
Rs1.0bn FX gain) and tax benefit of Rs214m vs. UBS-e of tax charge.
„ Wireless revenues and EBITDA below UBS-e
Wireless revenues came in at Rs40.6bn vs. UBS-e Rs43.8bn and mobile EBITDA
margin was 29.0% above UBS-e of 28.7%. Total minutes on the network declined
3.1% QoQ to 91.5bn mins (vs. UBS-e 99.8bn) while voice rev/min came in line
with UBS-e at Rs0.39. The company attributed decline in minute usage to
rationalising of the free minutes in the system.
„ Key takeaways from conference call
1) RCom is still rationalising its product portfolio and expects the transition to
complete in the next 2-3 quarters. 2) RCom maintained its FY11 capex guidance
(ex 3G) of Rs30bn. 3) RCom remained free cash-flow positive in 3QFY11 and
expects to meet all future capex requirements through internal accruals.
„ Valuation: Maintain Buy; Reduce PT to Rs195
We recently reduced our PT from Rs215 to Rs195 (down by 9.3%) as we also
reduced our FY12E/FY13E earnings estimates by 9.7%/9.9% given disappointing
data points in 3QFY11 on the operating performance of the company.
Key takeaways from the conference call
Q RCom attributed the decline in wireless revenues to the rationalization of its
product portfolio. RCOM is moving out of low margin businesses such
wholesale PCO business and its plans to use the freed-up spectrum for higher
margin data services. The company has already launched high speed data
services on its CDMA network in 500 cities and plans to launch the services
in the remaining 100-150 cities in the next few quarters.
Q Management believes that restructuring of the product portfolio may take 2-3
quarters during which the revenue may remain under pressure.
Q Finance charges came in lower during the quarter due to foreign exchange
gain of Rs1bn. Also, in 3QFY11, the company capitalized Rs1.2bn of
interest on 3G license fee loan.
Q RCom maintained its FY11 capex guidance (ex 3G) at Rs30bn. The
company remained free cash-flow positive in 3QFY11 and expects to meet
all future capex requirements through internal accruals.
Q Reliance Communication Limited
Reliance Communications (RCOM) was formed in the wake of the
reorganisation of the Reliance group. RCOM's businesses have been structured
into three strategic business units (SBUs)-wireless, global and broadband. The
mobile services group provides CDMA mobile services across India in 23
telecom circles, and GSM mobile services in eight circles. RCOM has a
subscriber market share of 17%. The global business group provides national
and international long-distance calling services. The broadband group has a
portfolio of enterprise voice, data, video, internet and IT infrastructure services.
Q Statement of Risk
We believe risks for RCOM include potential inefficiency related to operating
two different networks (GSM and CDMA), the challenge of scaling up and
executing well in light of the rapid growth in India's mobile penetration, and the
risk that the company might not be allocated additional 2G and 3G spectrum.
There is low visibility for capex associated with the GSM strategy, as it will
depend on the amount of spectrum allocated as well as which circles can be
allocated additional spectrum. Intense competitive environment prevailing in
India is also a risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Reliance Communication Limited
3QFY11 – Outplayed by rivals yet again
„ Consolidated revenue/ EBITDA below UBS-e; net profit ahead
RCom reported negative revenue growth (qoq) of 2% while Bharti’s and Idea’s
revenue grew by 3.5% and 8.1% respectively during the quarter. RCom’s
consolidated revenues came in at Rs50.0bn vs. UBS-e of Rs53.5bn while EBITDA
came in at Rs16.7bn vs. UBS-e of Rs17.1bn. Net profit at Rs4.8bn was above
UBS-e of Rs3.3bn due to lower than estimated finance charges (because of
Rs1.0bn FX gain) and tax benefit of Rs214m vs. UBS-e of tax charge.
„ Wireless revenues and EBITDA below UBS-e
Wireless revenues came in at Rs40.6bn vs. UBS-e Rs43.8bn and mobile EBITDA
margin was 29.0% above UBS-e of 28.7%. Total minutes on the network declined
3.1% QoQ to 91.5bn mins (vs. UBS-e 99.8bn) while voice rev/min came in line
with UBS-e at Rs0.39. The company attributed decline in minute usage to
rationalising of the free minutes in the system.
„ Key takeaways from conference call
1) RCom is still rationalising its product portfolio and expects the transition to
complete in the next 2-3 quarters. 2) RCom maintained its FY11 capex guidance
(ex 3G) of Rs30bn. 3) RCom remained free cash-flow positive in 3QFY11 and
expects to meet all future capex requirements through internal accruals.
„ Valuation: Maintain Buy; Reduce PT to Rs195
We recently reduced our PT from Rs215 to Rs195 (down by 9.3%) as we also
reduced our FY12E/FY13E earnings estimates by 9.7%/9.9% given disappointing
data points in 3QFY11 on the operating performance of the company.
Key takeaways from the conference call
Q RCom attributed the decline in wireless revenues to the rationalization of its
product portfolio. RCOM is moving out of low margin businesses such
wholesale PCO business and its plans to use the freed-up spectrum for higher
margin data services. The company has already launched high speed data
services on its CDMA network in 500 cities and plans to launch the services
in the remaining 100-150 cities in the next few quarters.
Q Management believes that restructuring of the product portfolio may take 2-3
quarters during which the revenue may remain under pressure.
Q Finance charges came in lower during the quarter due to foreign exchange
gain of Rs1bn. Also, in 3QFY11, the company capitalized Rs1.2bn of
interest on 3G license fee loan.
Q RCom maintained its FY11 capex guidance (ex 3G) at Rs30bn. The
company remained free cash-flow positive in 3QFY11 and expects to meet
all future capex requirements through internal accruals.
Q Reliance Communication Limited
Reliance Communications (RCOM) was formed in the wake of the
reorganisation of the Reliance group. RCOM's businesses have been structured
into three strategic business units (SBUs)-wireless, global and broadband. The
mobile services group provides CDMA mobile services across India in 23
telecom circles, and GSM mobile services in eight circles. RCOM has a
subscriber market share of 17%. The global business group provides national
and international long-distance calling services. The broadband group has a
portfolio of enterprise voice, data, video, internet and IT infrastructure services.
Q Statement of Risk
We believe risks for RCOM include potential inefficiency related to operating
two different networks (GSM and CDMA), the challenge of scaling up and
executing well in light of the rapid growth in India's mobile penetration, and the
risk that the company might not be allocated additional 2G and 3G spectrum.
There is low visibility for capex associated with the GSM strategy, as it will
depend on the amount of spectrum allocated as well as which circles can be
allocated additional spectrum. Intense competitive environment prevailing in
India is also a risk.
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