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Reliance Communications (Q2 FY13)

India Infoline Research Team / 14:42 , Nov 09, 2012

CMP Rs58, Target Rs54, Downside 8.2% 

  • Q2 revenue decline of 4.4% qoq came in much below our est of -0.9% qoq led by seasonal weakness in wireless and flat global enterprise business
  • Wireless revenue decline of 2.3% qoq worse than our expectation of 1.1% qoq drop (and deeper than the adjusted 1.4% qoq drop reported by Bharti’s India & S Asia wireless business); global enterprise revenues too remained largely flat on sequential basis vs our estimate of a 2% qoq rise
  • Rev/min remained constant at 43p though seasonality meant that total MOUs declined 2.5% qoq vs our estimate of 0.5% qoq dip; expect the impact of 25% tariff hike (1.2p/sec to 1.5p/sec) taken in Q2 across GSM & CDMA pre paid segments to be visible from Q1 FY14
  • Margin fell 114bps qoq vs our forecast for a 20bps rise due to higher than estimated access charges (due to reconciliation with other operators-a one time provision) and SG&A costs; lower EBIDTA and higher interest expense (largely one time fees) led to 37% decline in PAT (vs est. -22% qoq) despite a 3x jump in other income to Rs1.7bn
  • Q2 capex at Rs4.2bn (+15% qoq, 8% of sales) led by 137% surge in global enterprise spending while wireless capex declined  48% qoq to Rs1.2bn
  • Net debt at Rs367bn (~6x annualized H1 FY13 EBIDTA) and lack of near term catalysts leaves little room for valuation re rating; we raise our FY13 PAT estimates on lower tax rate assumption but retain Market Performer with 9-mth target of Rs54 (earlier Rs51)  
Results table
(Rs m) Q2 FY13 Q1 FY13 % qoq Q2 FY12 % yoy
Net sales 50,310 52,640 (4.4) 47,920 5.0
Access & license fees (9,512) (8,562) 11.1 (9,290) 2.3
Network opex (15,582) (17,852) (12.7) (13,744) 13.4
Staff (3,443) (3,136) 9.8 (3,300) 4.2
SG&A (7,101) (7,140) (0.5) (8,016) (11.4)
Operating profit 14,672 15,950 (8.0) 13,570 8.1
OPM (%) 29.2 30.3 (114) bps 28.3 84 bps
Depreciation (9,130) (9,093) 0.4 (10,540) (13.4)
Interest (5,929) (5,534) 7.1 (2,590) 129.0
Other income 1,710 550 210.9 2,790 (38.7)
PBT 1,320 1,873 (29.5) 3,230 (59.1)
Tax - 39 - (10) -
Minority & Associates (302) (290) 4.1 (700) -
PAT 1,021 1,622 (37.1) 2,520 (59.5)
PAT margin (%) 2.0 3.1 (105) bps 5.3 (323) bps
Source: Company, India Infoline Research

Financial summary
Y/e 31 March (Rs m) FY11 FY12 FY13E FY14E
Revenues 224,304 196,770 205,095 213,571
yoy growth (%) 4.3 (12.3) 4.2 4.1
Operating profit 84,110 57,850 62,964 66,634
OPM (%) 37.5 29.4 30.7 31.2
Reported PAT 13,452 9,280 5,287 7,094
yoy growth (%) (71.1) (31.0) (43.0) 34.2





EPS (Rs) 6.5 4.5 2.6 3.4
P/E (x) 9.0 13.0 22.8 17.0
P/BV (x) 0.3 0.3 0.3 0.3
EV/EBITDA (x) 5.5 8.6 7.4 6.3
Debt/Equity (x) 1.0 1.0 1.0 0.8
ROE (%) 2.3 2.3 1.4 1.9
ROCE (%) 2.9 3.1 3.8 3.9
Source: Company, India Infoline Research