Reliance Communication - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, Reliance Communication (RCom) reported modest revenue growth but stood weak on the operational front due to a 23% qoq increase in network-related expenses on the back of some lumpy maintenance expenses during the quarter. Despite hiking voice tariffs for GSM as well as CDMA subscribers, average revenue per user (ARPM) of the company witnessed 2.2% qoq reduction because of increased competitive intensity in the industry. Due to lack of triggers except the monetization of its Infratel business or listing of cable business in Singapore, which can cut down its debt by more than half, we remain Neutral on the stock.

Quarterly performance: RCom reported revenue of Rs.5,310cr, up 5.0% qoq. Wireless revenue came in at Rs.4,506cr, up 1.3% qoq on the back of qoq 1.3% qoq growth in MOU to 227 min. ARPU slipped by 1.0% qoq to Rs.99 in 4QFY2012 from Rs.100 in 3QFY2012. Overall EBITDA margin declined by 119bp qoq to 30.7%. PAT came in at Rs.330cr, up 77.4% qoq, primarily aided by tax write-back of Rs.119cr in 4QFY2012 vs. tax expense of Rs.14cr in 3QFY2012 and gain on minority interest front of Rs.129cr in 4QFY2012 vs. expense of Rs.55cr in 3QFY2012.

Outlook and valuation: The company is trying to slash free minutes in the network to aid the overall ARPU profile of the company. Going forward, we expect RCom's mobile segment to record a 7.5% CAGR in subscribers over FY2011-14E and ARPM to stabilize at Rs.0.44/min in FY2013 and FY2014. Currently, the company is striving to reduce the debt level in its books and has again kept its stance of selling stake in its tower assets, which might help the company to deleverage its balance sheet and reduce debt and can be a positive trigger to the stock price. However, various other announcements of selling tower assets were made earlier as well, but none of them materialized. Also, RCom is eying to list its cable business in Singapore. We maintain our Neutral view on the stock.

Source : Equity Bulls

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