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Reliance Communications (RLCM.BO)
2Q – Weak Overall
2Q below — EBITDA at Rs16bn (flat qoq; -3.3%yoy) came in 8% below estimates with
sub-par performance across all three segments – 1) wireless rev was slightly ahead on
mins growth but margins declined on higher ad spend, 2) Global EBITDA remained flat
despite benefit of Rupee and 3 ) “others” losses widened. PAT at Rs3.2bn (+45%qoq)
was ahead on lower-than-expected net interest exp. FY12-14E EBITDA is cut by 4-5%.
Core business is benchmarked off Bharti at 15% disc to Sep-12E EV/EBITDA (6.6x vs
6.3 earlier). As a result, TP remains unchanged.
Wireless topline benefits from mins growth; margins hit by ad spend — Overall
traffic grew 1.6%qoq despite seasonality. Rev/min at 45p too increased marginally with
the 0.2p increase coming from tariff hike. Mgmt expects an incremental 1p rise over the
next 2-3 qtrs. Wireless revs as a result grew 2%qoq, net revenue meanwhile grew
6%qoq (4% in 1Q) highlighting focus on on-net traffic. Margins declined 50bps primarily
on higher ad spend even as network opex remained broadly unchanged and employee
cost declined. The company disclosed 2.1m active 3G subs.
Other businesses were lackluster – NLD volume growth at 4% qoq was healthy
while ILD volumes remained flat. Global and enterprise EBITDA (linked to global
macro) was up only 1% despite some benefit of Rupee movement. This segment could
get hit from the deteriorating global macro. Meanwhile losses in “Other” (primarily
relates to DTH) continue to remain high.
B/S details – Net debt (ex-equip payables) at Rs319bn has fallen Rs5.4bn from the
peak. Equipment supplies payable is a further Rs10bn. Capex came in at Rs3.5bn (1H
at Rs7bn) with the full-year guidance maintained at Rs15bn. The company has
US$925m of FCCBs coming up for redemption in Feb 12.
Attractive assets available below replacement cost — RCOM’s asset basket
consisting of CDMA/GSM/3G spectrum, fiber backhaul and tower portfolio is geared
toward mobile data growth. We estimate RCOM’s replacement cost at Rs118/share.
The stock provides decent risk adjusted returns at current levels. Maintain Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Communications (RLCM.BO)
2Q – Weak Overall
2Q below — EBITDA at Rs16bn (flat qoq; -3.3%yoy) came in 8% below estimates with
sub-par performance across all three segments – 1) wireless rev was slightly ahead on
mins growth but margins declined on higher ad spend, 2) Global EBITDA remained flat
despite benefit of Rupee and 3 ) “others” losses widened. PAT at Rs3.2bn (+45%qoq)
was ahead on lower-than-expected net interest exp. FY12-14E EBITDA is cut by 4-5%.
Core business is benchmarked off Bharti at 15% disc to Sep-12E EV/EBITDA (6.6x vs
6.3 earlier). As a result, TP remains unchanged.
Wireless topline benefits from mins growth; margins hit by ad spend — Overall
traffic grew 1.6%qoq despite seasonality. Rev/min at 45p too increased marginally with
the 0.2p increase coming from tariff hike. Mgmt expects an incremental 1p rise over the
next 2-3 qtrs. Wireless revs as a result grew 2%qoq, net revenue meanwhile grew
6%qoq (4% in 1Q) highlighting focus on on-net traffic. Margins declined 50bps primarily
on higher ad spend even as network opex remained broadly unchanged and employee
cost declined. The company disclosed 2.1m active 3G subs.
Other businesses were lackluster – NLD volume growth at 4% qoq was healthy
while ILD volumes remained flat. Global and enterprise EBITDA (linked to global
macro) was up only 1% despite some benefit of Rupee movement. This segment could
get hit from the deteriorating global macro. Meanwhile losses in “Other” (primarily
relates to DTH) continue to remain high.
B/S details – Net debt (ex-equip payables) at Rs319bn has fallen Rs5.4bn from the
peak. Equipment supplies payable is a further Rs10bn. Capex came in at Rs3.5bn (1H
at Rs7bn) with the full-year guidance maintained at Rs15bn. The company has
US$925m of FCCBs coming up for redemption in Feb 12.
Attractive assets available below replacement cost — RCOM’s asset basket
consisting of CDMA/GSM/3G spectrum, fiber backhaul and tower portfolio is geared
toward mobile data growth. We estimate RCOM’s replacement cost at Rs118/share.
The stock provides decent risk adjusted returns at current levels. Maintain Buy.
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