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UBS Investment Research
Reliance Communication Limited
W ireless shows signs of improvement
Event: 1QFY12 Net income miss on higher finance charges
Consol revenues came in at Rs49.4bn vs. UBS-e/consensus of Rs54.4bn/Rs54.9bn.
EBITDA for 1Q was Rs16.0bn vs UBS-e/consensus of Rs16.9bn/Rs16.6bn.
EBITDA margins came in 150bps ahead of UBS-e at 32.4%. Net income came in
at Rs1.57bn vs. Rs3.58bn mainly on account of one time forex and derivative costs
(financial charges of Rs4.1bn vs. UBS-e Rs2.1bn in 1Q).
Impact: Wireless showing signs of improvement/reviewing estimates
Wireless revenues/EBITDA at Rs43.3bn/Rs11.7bn came in 1.9%/0.5% ahead of
UBS-e driven by strong qoq growth in mins on the network at 3.0% (vs. UBS-e
1.1%). We estimate voice RPM is stabilizing at ~35.5p/min for RCOM. We are
currently reviewing our estimates. Our present consol. revenue/EBITDA/net
income estimates for FY12 are Rs228bn/Rs73bn/Rs16.7bn, respectively.
Action: Reiterate Buy with a PT of Rs200
The key risk to our thesis on RCOM is poor execution. News-flow related to the
Infratel stake sale is likely to be a near-term catalyst for the stock performance, in
our view.
Valuation: Maintain Buy
Our PT of Rs200 is SoTP based with Reliance Infratel valued at Rs66 per share. At
current levels, we believe RCom offers excellent risk reward for investors with a
higher risk appetite.
Key takeaways from conference call
The company saw second consecutive quarter of 3%+ growth in minutes on
the network translating to 3%+ growth in wireless revenues driven by focus
on removal of free minutes from the system. Management said 75-80% of
free minutes have been removed and the process will get completed by the
end of 2QFY12.
Net income for the quarter was down primarily due to 81% increase in
financial charges on account of higher forex and derivative costs.
Management said baseline interest costs saw only a marginal increase.
GEBU revenues/EBITDA were down sequentially due to one-time impact of
change in accounting policy related to IRUs in 4QFY11.
Management reiterated its capex guidance of Rs15bn in FY12. Management
said that majority of capex has already taken place with the remaining being
part of on-going maintenance capex which it expects to fund through internal
accruals
The company has launched 3G services in 333+ cities and does not expect to
further increase coverage in its licensed 13 service areas. Coverage
expansion is expected through network sharing agreements with other
operators.
The company hiked GSM on/off-net and CDMA off-net tariffs in 18-19
service areas and expects full revenue impact as subscribers move to new
plans over next 6 months. The company has not changed on-net CDMA
tariffs.
Management expects controlling stake sale in Reliance Infratel to get
completed in next 2-3 months if everything proceeds as planned. At present
detailed due diligence is in process with interested parties. With this
transaction management expects to bring down its debt by half.
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.
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
W ireless shows signs of improvement
Event: 1QFY12 Net income miss on higher finance charges
Consol revenues came in at Rs49.4bn vs. UBS-e/consensus of Rs54.4bn/Rs54.9bn.
EBITDA for 1Q was Rs16.0bn vs UBS-e/consensus of Rs16.9bn/Rs16.6bn.
EBITDA margins came in 150bps ahead of UBS-e at 32.4%. Net income came in
at Rs1.57bn vs. Rs3.58bn mainly on account of one time forex and derivative costs
(financial charges of Rs4.1bn vs. UBS-e Rs2.1bn in 1Q).
Impact: Wireless showing signs of improvement/reviewing estimates
Wireless revenues/EBITDA at Rs43.3bn/Rs11.7bn came in 1.9%/0.5% ahead of
UBS-e driven by strong qoq growth in mins on the network at 3.0% (vs. UBS-e
1.1%). We estimate voice RPM is stabilizing at ~35.5p/min for RCOM. We are
currently reviewing our estimates. Our present consol. revenue/EBITDA/net
income estimates for FY12 are Rs228bn/Rs73bn/Rs16.7bn, respectively.
Action: Reiterate Buy with a PT of Rs200
The key risk to our thesis on RCOM is poor execution. News-flow related to the
Infratel stake sale is likely to be a near-term catalyst for the stock performance, in
our view.
Valuation: Maintain Buy
Our PT of Rs200 is SoTP based with Reliance Infratel valued at Rs66 per share. At
current levels, we believe RCom offers excellent risk reward for investors with a
higher risk appetite.
Key takeaways from conference call
The company saw second consecutive quarter of 3%+ growth in minutes on
the network translating to 3%+ growth in wireless revenues driven by focus
on removal of free minutes from the system. Management said 75-80% of
free minutes have been removed and the process will get completed by the
end of 2QFY12.
Net income for the quarter was down primarily due to 81% increase in
financial charges on account of higher forex and derivative costs.
Management said baseline interest costs saw only a marginal increase.
GEBU revenues/EBITDA were down sequentially due to one-time impact of
change in accounting policy related to IRUs in 4QFY11.
Management reiterated its capex guidance of Rs15bn in FY12. Management
said that majority of capex has already taken place with the remaining being
part of on-going maintenance capex which it expects to fund through internal
accruals
The company has launched 3G services in 333+ cities and does not expect to
further increase coverage in its licensed 13 service areas. Coverage
expansion is expected through network sharing agreements with other
operators.
The company hiked GSM on/off-net and CDMA off-net tariffs in 18-19
service areas and expects full revenue impact as subscribers move to new
plans over next 6 months. The company has not changed on-net CDMA
tariffs.
Management expects controlling stake sale in Reliance Infratel to get
completed in next 2-3 months if everything proceeds as planned. At present
detailed due diligence is in process with interested parties. With this
transaction management expects to bring down its debt by half.
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.
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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