Reliance Communications - IIFL - Result Update (Q3 FY14)

Reliance Communications (Q3 FY14) - SELL - CMP Rs120, Target Rs105, Downside 12.5%

- Rcom Q3 PAT missed our estimate on lower sales, larger than expected margin decline and higher finance costs

- Net revenues (ex-other income) declined 3.8% qoq led by 4.3% qoq drop in global operations revenue (largely due to ~16% qoq decrease in global voice revs) while India ops segment sales was virtually flat; Q2 included Rs4.4bn in one offs not present in Q3 leading to lower other income

- EBIDTA margin fall of 359bps qoq was much worse than estimated on the back of higher staff and access charges though previous quarter margin benefited from one offs; India ops EBIDTA margin declined 90bps qoq

- Voice total MOUs rose 0.4% qoq and rev/min inched up 0.2% qoq while churn too declined 250bps qoq to 3.4%; total data traffic jumped 10.2% qoq but VAS % of telecom revs remained flat at ~23%

- Reported PAT was much below our estimate on revenue/EBIDTA miss and higher interest costs

- We revisit our FY14/15 earnings estimates and introduce FY16 forecasts but lack of near term catalysts leads us to retain our Sell reco with revised 9-12mth target of Rs105 (earlier Rs115).

Source : Equity Bulls

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