Reliance Communications – Another Disappointing Quarter

The telecom space has been quite vibrant in the recent past with something new arising on the horizon every day. In such a scenario Reliance Communications announced its Dec 2012 quarter results on Jan 23, 2013. The results are above the street estimates where the consolidated topline stood at Rs 5301 crore showing a marginal growth of 1.90% and bottomline stood at Rs 114 crore resulting into a decline of 13.65% on a sequential basis. However, if we adjust the minority interest, the bottomline for the Dec 2012 quarter stands at Rs 105 crore as against Rs 102 crore in Sep 2012 quarter. According to the consensus, the topline growth was estimated at 1.40%.

On the operational front the performance has been in line with the street estimates. Revenue per minute was expected to be at 44 paisa and it has actually arrived at 44 paisa. Performance has, however, been below expectation on the EBITDA margins front where the margins for the Dec 2012 quarter stood at 31.20% as against 31.50% in Sep 2012 quarter. Street estimates were at 32.50%. On the volume front also there was disappointment with the wireless traffic showing a growth of 3.10% on a YoY basis and a marginal 1% growth on a sequential basis. Street expectations were around 4% growth on sequential basis. Apart from this, Reliance Communications' monthly average revenue per user rose by 17% sequentially to Rs 119 in its fiscal third quarter ended Dec 2012, while minutes of usage per user grew 15% sequentially to Rs 271.

While most of the operational performance has been disappointing, a major worrying factor is the rising debt levels. As of Dec 31, 2012, the net debt stood at Rs 37361 crore as against Rs 36723 crore at the end of Sep 2012 quarter. Rather, a jump in the interest cost to Rs 605 crore as against Rs 378 crore in Dec 2012 quarter and Rs 593 crore in Sep 2012 quarter clearly indicates the same. Overall, the results have been quite disappointing and hence avoiding the counter at current levels is the prudent strategy.