Reliance Communications (Q1 FY13)
India Infoline News Service | Mumbai |
Rcom net revenue growth came ahead of our estimate though wireless and GEBU segments at +0.5% qoq each were below expectation
CMP Rs56, Target Rs51, Downside 8.6%
Source: Company, India Infoline Research
Note: OPM excludes other income and hence differs from that reported by company
Net sales include net sales from ops + other operating income
Financial summary
- Rcom net revenue growth came ahead of our estimate though wireless and GEBU segments at +0.5% qoq each were below expectation; RPM declined 2.3% qoq to 43p vs our expectation of flat rate though total minutes traffic came in line at +2% qoq to ~105bn minutes
- Across the board decline in costs led by 279bps qoq fall in network opex drove a much better than estimated 371bps qoq rise in margin (ex-other income); wireless EBIT jumped 284bps qoq due to lower segment depreciation & amortization (by Rs1.2bn); reported PAT ahead of our estimate of ~Rs1.4bn but lower by ~59% qoq due to Rs1.2bn in tax income in Q4; Q1 capex/sales declined ~160bps to 7% from 8.6% in Q4
- In its post earnings call, Rcom mgmt put the non-voice share of wireless revenues at 20.2% in Q1 up from 19.9% in Q4 and pegs the size of data market at Rs70bn which is likely to increase to Rs370bn in next 5 years; reiterated FY13 capex guidance of Rs15bn and its view that peak capex is firmly behind; it intends to remain FCF +ve in the current fiscal. No of active 3G subs stood at 4mn
- Rcom, judging from mgmt comments in earnings call, is likely to sit out of the upcoming 2G auctions as the earliest renewal is not before Dec’ 2015. We remain cautious given the amount of leverage on balance sheet and unless company manages to pare debt, valuations are unlikely to rerate; lower our FY13/14 EPS estimates and do not foresee any near term triggers; retain Market Performer with revised 9-mth tgt of Rs51 (earlier Rs70).
| (Rs m) | Q1 FY13 | Q4 FY12 | % qoq | Q1 FY12 | % yoy |
| Net sales | 52,640 | 50,100 | 5.1 | 48,490 | 8.6 |
| Access & license fees | (8,562) | (8,396) | 2.0 | (9,350) | (8.4) |
| Network opex | (17,852) | (18,390) | (2.9) | (13,335) | 33.9 |
| Staff | (3,136) | (3,082) | 1.8 | (3,510) | (10.7) |
| SG&A | (7,140) | (6,910) | 3.3 | (7,192) | (0.7) |
| Operating profit | 15,950 | 13,322 | 19.7 | 15,103 | 5.6 |
| OPM (%) | 30.3 | 26.6 | 371 bps | 31.1 | (85) bps |
| Depreciation | (9,093) | (9,703) | (6.3) | (9,760) | (6.8) |
| Interest | (5,534) | (5,795) | (4.5) | (4,110) | 34.6 |
| Other income | 550 | 3,000 | (81.7) | 970 | (43.3) |
| PBT | 1,873 | 824 | 127.3 | 2,203 | (15.0) |
| Tax | 39 | 1,193 | - | 20 | 95.0 |
| Minority/Associates | (290) | 1,287 | - | (650) | - |
| Adjusted PAT | 1,622 | 3,304 | (50.9) | 1,573 | 3.1 |
| Adj. PAT margin (%) | 3.1 | 6.6 | (351) bps | 3.2 | (16) bps |
| Extra ordinary items | - | 12 | - | (10) | - |
| Reported PAT | 1,622 | 3,316 | (51.1) | 1,563 | 3.8 |
Note: OPM excludes other income and hence differs from that reported by company
Net sales include net sales from ops + other operating income
Financial summary
| Y/e 31 March (Rs m) | FY11 | FY12 | FY13E | FY14E |
| Revenues | 224,304 | 196,770 | 207,623 | 217,277 |
| yoy growth (%) | 4.3 | (12.3) | 5.5 | 4.6 |
| Operating profit | 84,110 | 57,850 | 63,740 | 67,791 |
| OPM (%) | 37.5 | 29.4 | 30.7 | 31.2 |
| Pre-exceptional PAT | 9,522 | 8,980 | 5,623 | 8,134 |
| Reported PAT | 13,452 | 9,280 | 5,623 | 8,134 |
| yoy growth (%) | (71.1) | (31.0) | (39.4) | 44.7 |
| EPS (Rs) | 6.5 | 4.5 | 2.7 | 3.9 |
| P/E (x) | 8.6 | 12.5 | 20.6 | 14.2 |
| P/BV (x) | 0.3 | 0.3 | 0.3 | 0.3 |