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Reliance Communications (RLCM.BO)
Neutral Equity Research
Below expectations despite 133% qoq increase in Global revenues
What surprised us
RCOM reported 4QFY11 rev/EBITDA that were 55%/146% above our (and
54%/148% above Bloomberg consensus estimates) mainly due to 133%
qoq increase in Global rev. Adjusted for the one-off rev, total rev and
EBITDA were +4.8%/-6.0% vs. our estimates. Net profit was 20% below our
(and 30% below consensus) est. mainly due to higher than estimated net
int. expense and income tax. Positives: 1) Cellular rev was up 3.3% qoq
(up 3.8% qoq for Bharti) and was 1.9% ahead of our est. RPM was stable at
Rs0.44; 2) Broadband rev was up 11.7%qoq (+10.5% vs. our est.) largely
due to 11% qoq increase in ARPL (Avg rev per line). 3) Mgmt guided a 65%
yoy decline in FY12 capex at Rs15 bn, implying 5% capex/FY12E sales.
Negatives: 1) Adjusted for Global, EBITDA margin was down 370 bps qoq
and missed our est. by 330 bps largely due to higher network opex.
Cellular and broadband margins fell 160 bps/400 bps qoq; 2) Tax expense
in 4Q was Rs1.7 bn vs. our estimate of Rs835 mn. 3) Net interest expense
in 4Q at Rs2.2bn (up 72% qoq) was higher than our estimate of Rs1.1 bn
due to higher than est. 3G related int. expenses and high cost of debt in
our view. Mgmt classified the IRU (Indefeasible Right of Use) income for
network capacity as license income and as a result, revenue was higher by
Rs25.5 bn (and net profit was down by Rs 470 mn) in 4Q.
What to do with the stock
We model-in weaker than expected 4Q results, and higher opex/interest
expenses/tax rate. As a result, we lower our FY12E/13E/14E EPS by
12.7%/16.9%/17.6%. Accordingly, our 12m SOTP-based TP decreases by 17%
to Rs95. We reiterate our Neutral rating on RCOM. Higher-than-expected
data uptake/ regulatory overhang are upside/downside risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Communications (RLCM.BO)
Neutral Equity Research
Below expectations despite 133% qoq increase in Global revenues
What surprised us
RCOM reported 4QFY11 rev/EBITDA that were 55%/146% above our (and
54%/148% above Bloomberg consensus estimates) mainly due to 133%
qoq increase in Global rev. Adjusted for the one-off rev, total rev and
EBITDA were +4.8%/-6.0% vs. our estimates. Net profit was 20% below our
(and 30% below consensus) est. mainly due to higher than estimated net
int. expense and income tax. Positives: 1) Cellular rev was up 3.3% qoq
(up 3.8% qoq for Bharti) and was 1.9% ahead of our est. RPM was stable at
Rs0.44; 2) Broadband rev was up 11.7%qoq (+10.5% vs. our est.) largely
due to 11% qoq increase in ARPL (Avg rev per line). 3) Mgmt guided a 65%
yoy decline in FY12 capex at Rs15 bn, implying 5% capex/FY12E sales.
Negatives: 1) Adjusted for Global, EBITDA margin was down 370 bps qoq
and missed our est. by 330 bps largely due to higher network opex.
Cellular and broadband margins fell 160 bps/400 bps qoq; 2) Tax expense
in 4Q was Rs1.7 bn vs. our estimate of Rs835 mn. 3) Net interest expense
in 4Q at Rs2.2bn (up 72% qoq) was higher than our estimate of Rs1.1 bn
due to higher than est. 3G related int. expenses and high cost of debt in
our view. Mgmt classified the IRU (Indefeasible Right of Use) income for
network capacity as license income and as a result, revenue was higher by
Rs25.5 bn (and net profit was down by Rs 470 mn) in 4Q.
What to do with the stock
We model-in weaker than expected 4Q results, and higher opex/interest
expenses/tax rate. As a result, we lower our FY12E/13E/14E EPS by
12.7%/16.9%/17.6%. Accordingly, our 12m SOTP-based TP decreases by 17%
to Rs95. We reiterate our Neutral rating on RCOM. Higher-than-expected
data uptake/ regulatory overhang are upside/downside risks.
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