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For 2QFY2012, Reliance Communication (RCom) reported a mixed performance.
The company’s net sales declined by 1.2% qoq, but wireless revenue grew
modestly by 2.1% qoq. RCom hiked voice tariffs on both on-net and off-net calls
in all the circles for GSM subscribers; and on CDMA, the company raised tariffs
on only off-net calls, which aided the company’s average revenue per minute
(ARPM). Due to lack of triggers except the monetization of its Infratel business,
which can cut down its debt by more than half, we remain Neutral on the stock.
Revenue performance: RCom reported revenue of `4,792cr, down 1.2% qoq,
primarily because of poor performance of the non-wireless business segments.
Wireless revenue came in at `4,417cr, up 2.1% qoq, on the back of 2.3% qoq
growth in ARPM to `0.45/min. The company’s minutes of usage (MOU) declined
by 2.6% qoq to 227min. However, improvement in VAS share arrested the decline
in overall ARPU, which slipped by 1.9% qoq to `101/month.
EBITDA margin slips: Overall EBITDA margin declined by 283bp qoq to 28.3%
due to weak MOUs and higher SG&A expenses. EBITDA margin of the wireless
and global enterprise segments declined by 49bp and 24bp qoq to 26.6% and
10.5%, respectively. EPM for the quarter stood flat at `0.12/min.
Outlook and valuation: Going forward, we expect RCom’s mobile segment to
record a 10.7% CAGR in its subscriber base over FY2010–13E and ARPM to
stabilize at `0.46/min in FY2013. Management maintained its capex guidance of
only `1,500cr for FY2012. There is a US$1.1bn FCCB due to be repaid in April
2012, which is expected to be paid partially through internal accruals and
partially through debt. Management maintained that it is actively looking to
monetize its 50,000 towers, which would help it to deleverage by more than 50%
– this can provide an upside to our fair value. At the CMP of `82, the stock is
trading at 5.5x FY2013E EBITDA, almost at par with its intrinsic value of `85. We
maintain our Neutral rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
For 2QFY2012, Reliance Communication (RCom) reported a mixed performance.
The company’s net sales declined by 1.2% qoq, but wireless revenue grew
modestly by 2.1% qoq. RCom hiked voice tariffs on both on-net and off-net calls
in all the circles for GSM subscribers; and on CDMA, the company raised tariffs
on only off-net calls, which aided the company’s average revenue per minute
(ARPM). Due to lack of triggers except the monetization of its Infratel business,
which can cut down its debt by more than half, we remain Neutral on the stock.
Revenue performance: RCom reported revenue of `4,792cr, down 1.2% qoq,
primarily because of poor performance of the non-wireless business segments.
Wireless revenue came in at `4,417cr, up 2.1% qoq, on the back of 2.3% qoq
growth in ARPM to `0.45/min. The company’s minutes of usage (MOU) declined
by 2.6% qoq to 227min. However, improvement in VAS share arrested the decline
in overall ARPU, which slipped by 1.9% qoq to `101/month.
EBITDA margin slips: Overall EBITDA margin declined by 283bp qoq to 28.3%
due to weak MOUs and higher SG&A expenses. EBITDA margin of the wireless
and global enterprise segments declined by 49bp and 24bp qoq to 26.6% and
10.5%, respectively. EPM for the quarter stood flat at `0.12/min.
Outlook and valuation: Going forward, we expect RCom’s mobile segment to
record a 10.7% CAGR in its subscriber base over FY2010–13E and ARPM to
stabilize at `0.46/min in FY2013. Management maintained its capex guidance of
only `1,500cr for FY2012. There is a US$1.1bn FCCB due to be repaid in April
2012, which is expected to be paid partially through internal accruals and
partially through debt. Management maintained that it is actively looking to
monetize its 50,000 towers, which would help it to deleverage by more than 50%
– this can provide an upside to our fair value. At the CMP of `82, the stock is
trading at 5.5x FY2013E EBITDA, almost at par with its intrinsic value of `85. We
maintain our Neutral rating on the stock.
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