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Quarter drag tempers our bullish view
Revenue, EBITDA miss estimates, PAT up on forex gains
RCom reported a consolidated topline of INR51.2bn which was below
our estimates by 2.1%. Revenue across business segments was muted
with broadband showing a QoQ decline of 2.2%. Consolidated
EBITDA margin improved by 48bps QoQ due to a fall in SG&A
expenses by 10.3%. Interest expenses dropped 36.4% QoQ thanks to
lower MTM losses, down from INR2.5bn in Q1FY11 to INR0.5bn in
Q2FY11. Forex loss of last quarter of INR7.8bn (not debited from P&L
last quarter) was set off against a forex gain of INR7.4bn.
Dull metrics across segments, but well placed in 3G scenario
Minutes of usage decreased by 6.4% due to the seasonality and
reduction of free minutes offered on network. ARPU declined by 6.2%,
offset by a marginal increase in the ARPM. On the minutes on
network, though total minutes remained flat, ILD and NLD minutes
increased by 20.2% and 7.3% respectively. But this spurt has not
translated into revenues in the Globalcom segment where revenues
grew by a mere 1.4% QoQ, indicating price pressures in the ILD
segment. However, the company has indicated that the non-voice
revenue is showing an uptrend and expects to capitalise on its existing
CDMA network for data offerings on 3G by using dual technology
dongles.
We reduce our revenue and EBITDA estimates for FY11 and FY12,
taking into account the continued weak operational performance of
RCom. We have revised our interest expenses downwards due to
restructuring of high cost short term debt with foreign currency loans.
Our EPS estimates for FY11 and FY12 stand at INR7.6 and INR10.1
respectively. We change our target price to INR185 (on a weighted
average of EV/EBITDA, P/BV and P/E) and move our rating to
‘Accumulate’. We retain RCom as our preferred pick in the sector.
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