Reliance Communications (RCom), India’s second largest private telecom company, announced weak financial results for the quarter ended December.
Intense competition and price war resulted in a 150-240 basis points (bps) contraction sequentially in margins across segments. Hundred basis points make one percentage point.
Consolidated net revenues declined 6.9% compared with the
September quarter to Rs 5,309.7 crore.
Wireless revenues grew marginally, by 0.3%, and accounted for 57.2% of total gross revenue. Average revenue per user (arpu) of the wireless business declined 7.45% to Rs 149 on account of stiff competition. However, the decline in arpu was offset by strong subscriber addition.
Revenues from global and broadband segments declined 12.4% and 8.5%, respectively, and collectively formed two-fifth of the total revenue.
Consolidated operating margins dropped 130 bps sequentially to 34.1%. Operating profit declined 10.3% to Rs 1,812.5 crore.
Operating performance was impacted by a 355 basis points increase in network operating cost and an 8.5% increase in access charges on account of increase in off-net calls.
RCom’s other businesses, including DTH and towers, posted operating losses.
On the other hand, selling, general & administrative (SG&A) expenses have come down sharply by 33.6%. However, analysts anticipate SG&A expenses to increase going forward, on account of intense competition.
At the net level, the company posted a 49.6% increase to Rs 1,107.8 crore. Core profitability was helped by interest finance income of Rs 407.6 crore against interest charge of Rs 655.1 crore in the September quarter. Appreciation of the Indian rupee helped interest income. Net profit was much ahead of analysts’ estimates, as they expected interest charge this time.
At Rs 171.05, the stock trades at 12.2 times its estimated earnings for 2011.
The telecom industry is still surrounded by many concerns and this is likely to weigh on telecom stocks in the days to come. Increasing competition and lower arpu —- considering incremental subscribers come from rural areas where the purchasing power is lower compared with urban customers —- could impact RCom’s numbers, too. Operating margins are expected to be under pressure, as dual networks would lead to higher network operating costs.
Investors should wait for the outlook to improve to consider the stock.
Pallavi Pengonda (p_pallavi@dnaindia.net)
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