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Reliance Communications (Q2 FY13)

India Infoline News Service | Mumbai |

We raise our FY13 PAT estimates on lower tax rate assumption but retain Market Performer with 9-mth target of Rs54 (earlier Rs51)

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 Bhartis 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 FY13Q1 FY13% qoqQ2 FY12% yoy
Net sales50,31052,640(4.4)47,9205.0
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 profit14,67215,950(8.0)13,5708.1
OPM (%)29.230.3(114) bps28.384 bps
Depreciation(9,130)(9,093)0.4(10,540)(13.4)
Interest(5,929)(5,534)7.1(2,590)129.0
Other income1,710550210.92,790(38.7)
PBT1,3201,873(29.5)3,230(59.1)
Tax-39-(10)-
Minority & Associates(302)(290)4.1(700)-
PAT1,0211,622(37.1)2,520(59.5)
PAT margin (%)2.03.1(105) bps5.3(323) bps
Source: Company, India Infoline Research

Financial summary
Y/e 31 March (Rs m)FY11FY12FY13EFY14E
Revenues224,304196,770205,095213,571
yoy growth (%)4.3(12.3)4.24.1
Operating profit84,11057,85062,96466,634
OPM (%)37.529.430.731.2
Reported PAT13,4529,2805,2877,094
yoy growth (%)(71.1)(31.0)(43.0)34.2





EPS (Rs)6.54.52.63.4
P/E (x)9.013.022.817.0
P/BV (x)0.30.30.30.3
EV/EBITDA (x)5.58.67.46.3
Debt/Equity (x)1.01.01.00.8
ROE (%)2.32.31.41.9
ROCE (%)2.93.13.83.9
Source: Company, India Infoline Research

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