Lags behind peers… • RCom :: ICICI Securities, link

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Lags behind peers…
• RCom reported a flat QoQ revenue growth to | 5287.0 crore. This
was mainly due to lower than expected expansion in realisations to
44.4 paisa versus expectations of 46.4 paisa. Moreover, the poor
performance by the global operations which posted a 6.2% QoQ
decline also marred the revenues.
• Even though revenue fell short of our expectation, EBITDA came
largely in line at | 1711.0 crore, down 7.7% YoY due to lower than
expected operating expenses. The margins hence came in at 32.4%,
better than our expectations of 31.0%.
• PAT came in at | 153.0 crore (vs. expectation of | 187.5 crore), lower
due to higher than expected interest outgo.
Voice volume growth remains below industry
The overall subscribers for the telecom sector have grown from 812
million subscribers in FY11 to about 903.3 million subscribers in the
period ending FY14. However, in the same period RCom has registered
de-growth in the subscriber number from the peak of 153 million in FY12
to 110.1 million subscribers in the current quarter. This is primarily on
account of weeding out of inactive users as well as some churn seen by
the company. Consequently, voice volume has grown marginally at CAGR
of 3.2% from 374 billion in FY11 to 412 billion minutes in FY14 while that
for Airtel and Idea have grown at a CAGR of 6.1% and 17.4% to 1029
billion and 588.2 billion minutes respectively. However, the company has
managed to stem the declining ARPM trend and curb discounts to effect
an expansion in realisations, which have grown from 40.3 paisa in
Q4FY13 to 44.4 paisa in Q2FY15. However, going ahead, the company
would maintain balance between voice and pricing growth. Going ahead,
we have built in an ARPM expansion of 3.8% and 4.7% to 44.7 and 46.8
paisa in FY15 & FY16 respectively on a blended basis.
Future growth to be fuelled by data revolution
Percentage contribution to wireless revenue from data and other value
added services (VAS) is highest for RCom at 26.3% as compared to 16-
17% for its peers. RCom’s data subscribers stand at 28.56 million owing
to its dominance in the data card segment. Data volume has grown from
27.2 billion MB in Q4FY13 to 65.7 billion MB to Q2FY15 led by high uptake
in 3G subscribers. However, RCom’s realisation per MB is relatively on
the lower side as compared to its peers. Going ahead, we expect data
volume to grow at 48.6% FY14-16E CAGR to 354.7 billion MB, while total
VAS would form 27.4% of wireless revenue at | 5375.5 crore. However,
realisations per MB would continue to decline as industry takes steep
price cuts to push data volumes.
Company aggressively tries to trim debt, Upgrade to HOLD
RCom recently raised | 4800 crore through QIP and | 550 through
preferential allotment to promoters and used the proceeds to trim down
its debt thus resulting in interest cost savings as visible in the lower
interest cost in the quarter. RCom had lofty levels of net debt at about |
41323 crore (as on FY14) which has now reduced to | 36334.3 crore as on
date. The company has guided further debt reduction through
securitisation of tower deal receivables from Reliance Jio, monetisation of
real estate assets and sale of its non-core business. Though the operating
performance of the company remains subdued relative to its peers, and
the debt reduction activity in terms of sale of non-core assets it yet to take
shape. We hence maintain HOLD and reduce the target price to | 109 (on
DCF methodology) due to subdued operating performance.

LINK
http://content.icicidirect.com/mailimages/IDirect_RelianceCommunication_Q2FY15.pdf