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Reliance Communications (Q1 FY13)

Rcom net revenue growth came ahead of our estimate though wireless and GEBU segments at +0.5% qoq each were below expectation

January 01, 1970 5:30 IST | India Infoline News Service
CMP Rs56, Target Rs51, Downside 8.6% 
  • 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).  
Results table
(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
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
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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