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RCOM confirms tariff increases: Management has confirmed increasing
GSM and CDMA tariffs by 20% across several circles. The impact from on
financials is expected to take ~2 quarters. We have increased our
FY12/FY13 ARPM estimates by 1.2/0.9paisa respectively which drives a
3.6%/1.8% increase in our revenue estimates.
Global Enterprise lags: RCOM’s new Global Enterprise Business Unit
[GEBU = Global + Broadband; 33% of gross revenue] saw revenue decline
12.6% Q/Q and EBITDA down 7.2%, despite network opex declining
meaningfully in the quarter. Visibility of order wins implies growth going
forward but the miss vs. our estimates drives a downward revision to our
revenue estimates of 10% each for FY12/13 and 7%/4% on EBITDA.
Capex spends remain low. Q1 capex of INR 3.6bn (7.3% of sales, 24% of
FY12 guidance of INR 15bn) declined another 45% from the low levels
seen in Q4. We remain concerned that capex levels are rather low at ~7% of
sales (wireless: ~5%) vs. the rest of the industry.
Leverage remains high: Debt at end Q1FY12 was INR332bn (~US$7.4bn)
and net debt/EBITDA ratio was 5.0x vs. 4.9x in FY11. We estimate this can
fall to ~3.6x by end-FY12 however this would still be higher than peers.
Forecast changes. We reduce our FY12/FY13 revenue estimates by
4.6%/5.1% driven by lower estimates for GEBU but raise our margin
estimates by 40/50bp given the lower than expected expenses in Q1. These
changes drive a 8%/15% decline in EPS estimates to INR 6.1/10.3. RCOM
has not started amortization of 3G license/spectrum and we expect the full
impact on D&A to be seen in Q3FY12.
Our Mar-12 price target is INR 90 (vs. INR 95 earlier). Our PT is
adjusted downward for INR38/share for the regulatory risk. De-leveraging
of the balance sheet would make us more positive. Downside risks include
sharper decline in minutes and also in ARPM; longer-than-expected
regulatory uncertainty.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
RCOM confirms tariff increases: Management has confirmed increasing
GSM and CDMA tariffs by 20% across several circles. The impact from on
financials is expected to take ~2 quarters. We have increased our
FY12/FY13 ARPM estimates by 1.2/0.9paisa respectively which drives a
3.6%/1.8% increase in our revenue estimates.
Global Enterprise lags: RCOM’s new Global Enterprise Business Unit
[GEBU = Global + Broadband; 33% of gross revenue] saw revenue decline
12.6% Q/Q and EBITDA down 7.2%, despite network opex declining
meaningfully in the quarter. Visibility of order wins implies growth going
forward but the miss vs. our estimates drives a downward revision to our
revenue estimates of 10% each for FY12/13 and 7%/4% on EBITDA.
Capex spends remain low. Q1 capex of INR 3.6bn (7.3% of sales, 24% of
FY12 guidance of INR 15bn) declined another 45% from the low levels
seen in Q4. We remain concerned that capex levels are rather low at ~7% of
sales (wireless: ~5%) vs. the rest of the industry.
Leverage remains high: Debt at end Q1FY12 was INR332bn (~US$7.4bn)
and net debt/EBITDA ratio was 5.0x vs. 4.9x in FY11. We estimate this can
fall to ~3.6x by end-FY12 however this would still be higher than peers.
Forecast changes. We reduce our FY12/FY13 revenue estimates by
4.6%/5.1% driven by lower estimates for GEBU but raise our margin
estimates by 40/50bp given the lower than expected expenses in Q1. These
changes drive a 8%/15% decline in EPS estimates to INR 6.1/10.3. RCOM
has not started amortization of 3G license/spectrum and we expect the full
impact on D&A to be seen in Q3FY12.
Our Mar-12 price target is INR 90 (vs. INR 95 earlier). Our PT is
adjusted downward for INR38/share for the regulatory risk. De-leveraging
of the balance sheet would make us more positive. Downside risks include
sharper decline in minutes and also in ARPM; longer-than-expected
regulatory uncertainty.
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