Reliance Communications : Net profit miss on lower revenues, higher finance charges ::Goldman Sachs,

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Reliance Communications (RLCM.BO) Rs84.30
   Equity Research
First Take: Net profit miss on lower revenues, higher finance charges
News
RCOM reported 1QFY12 revenues/EBITDA/normalized net profit that were
9.1%/7.1%/33.8% below our and 10.0%/3.5%/22.1% below Bloomberg
consensus estimates. RCOM combined its Global and Enterprise
Businesses as a single business unit (GEBU) in 1Q. Highlights: 1) Total
revenues declined 7.3% qoq despite a 3.1% qoq growth in wireless
revenues, due to a 14.0% qoq decline in GEBU rev (-15.4% vs. GSe). 2)
Wireless revenues grew 3.1% qoq (vs. 7.5%/3.6% qoq growth for
Idea/Bharti) largely due to 5.6% qoq growth in subs and a stable RPM of
Rs0.44/min despite a 3.5% qoq decline in MOU/sub. 3) Total EBITDA was
up 1.6% qoq but missed our estimates by 7.1% mainly due to revenue
miss. Wireless EBITDA increased 2.1% qoq (+1.4% vs. our estimates) while
implied GEBU EBITDA missed our estimates by 24.3%. 4) D&A expenses
declined 2.9% qoq and came in at 16.4% below our estimates largely due
to low capex, in our view (management had guided a 70% yoy decline in
FY12 capex). 5) Net finance charges increased 81.3% qoq at Rs4.0 bn vs.
4Q/GS estimates of Rs2.2bn/Rs2.6bn despite draw-downs of cheaper  loans
(from China Development Bank) in 4QFY11 and early 1QFY12.
Analysis
Though RCOM has been able to maintain RPMs stable at Rs0.44/min, its
MOU/sub declined 3.5% qoq (vs. a decline of 1.5%/0.9% qoq for
Idea/Bharti). We note that RCOM has also announced tariff increases
(Economic Times; Aug-15), in-line with other operators, but we remain
unsure of the benefits it can accrue given different subscriber mix
(incumbent CDMA operator, while new entrant in GSM).
Implications
We reiterate our Neutral rating