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Reliance Communication
Reliance Communication
Reliance Communication
Reliance Communication
Performance highlights
(` cr) Net sales^ EBITDA^ EBITDA margin (%) PAT 1QFY12 4,940 1,601 32.4 157 4QFY11* 4,929 1,190 24.1 169 % chg (qoq) 0.2 (22.2) 827bp 1QFY11 5,069 1,591 31.4 % chg (yoy) (2.5) 0.6 100bp
NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Telecom 15,975 1.2 188/74 1,875,395 5 16,731 5,036 RLCM.BO RCOM@IN
`77 -
(7.1) 250 (37) Source: Company, Angel Research; Note: *Excluding one-off revenue of `2,545cr, ^Excluding other income
For 1QFY2012, Reliance Communication (RCOM) reported a mixed performance, with lower-than-expected sales and PAT, but better-than-expected OPM. During the quarter, RCOM hiked voice tariffs on both on-net and off-net calls in 19 circles on GSM; and on CDMA, tariffs on only off-net calls were raised. Due to lack of triggers except the monetisation of its Infratel business, which can cut down debt by more than half, we remain Neutral on the stock. Weak revenue growth: RCOM reported revenue of `4,940cr, up mere 0.2% qoq, primarily on the back of tumbling MOU and flat ARPM. MOU fell by 3.3% qoq to 233min. However, partial impact of the hike in ARPM and stable VAS share helped the ARPM to remain steady at `0.44/min. Management mentioned that it will take one more quarter for free minutes to be out of the system and full impact of the increase in ARPM will flow through by 3QFY2012. EBITDA margin slips: Overall EBITDA margin improved by 827bp qoq (after adjusting for one-off revenue and EBITDA in 4QFY2011) to 32.4% due to stable operational parameters such as ARPM as well as lower network expenses and SGA expense rationalisation. EPM for the quarter stood flat at `0.12/min. Outlook and valuation: Going forward, we expect RCOMs mobile segment to record a 15.0% CAGR in its subscriber base over FY201113E and ARPM to inch up to `0.46/min by FY2013. Management maintained its capex guidance of only `1,500cr for FY2012. There is a US$1bn FCCB due to be repaid in April 2012, which is expected to be refinanced. Management maintained that it is actively looking to monetise its 50,000 towers, which would help it to deleverage by more than 50% this can provide an upside risk to our fair value. At the CMP, the stock is trading at 4.8x FY2013E EBITDA, at par with its intrinsic value of `79. Thus, we maintain our Neutral view on the stock.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 67.9 9.1 8.1 14.9
3m (8.8)
1yr (7.3)
(13.9) (52.9)
Srishti Anand
+91 22 3935 7800 Ext: 6820 srishti.anand@angelbroking.com
Ankita Somani
+91 22 3935 7800 Ext: 6819 ankita.somani@angelbroing.com
1QFY12 4,940 3,339 1,601 976 625 405 1 219 (2) 222 65 157 0.8 32.4 12.7 3.2
4QFY11* 4,929 3,739 1,190 1,020 170 223 402 349 171 178 21.2 169 0.8 24.1 3.4 3.2
Source: Company, Angel Research; Note: *Excluding one-off revenue of `2,545cr; ^Excluding
Wireless segment: The wireless segment registered revenue growth of only 3.1% qoq to `4,327cr. This muted performance was on the back of MOU tumbling to 233min (vs. 241min in 4QFY2011), whose fall was arrested by subscriber growth of 5.6% qoq and held-up ARPM at `0.44/min. Thus, ARPU slipped by 3.7% qoq to `103 in 1QFY2012 from `107 in 4QFY2011. The segments EBITDA margin declined to 27.1% in 1QFY2012 from 27.4% in 4QFY2011.
(mins)
(%)
( `/min)
(6.8)
(8)
0.4
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
MoU (mins)
1QFY12
ARPM (`/min)
(`/month)
(6.3)
1QFY12
(%)
(mn)
100 80 60
100
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
ARPU (`/month)
Global enterprise segment: RCOM has combined its global and broadband business under one segment called global enterprise. During the quarter, the global enterprise segment reported revenue of `2,292cr. EBITDA margin of this segment stood at 24.6%.
1QFY12
(%)
(10)
(%)
300
30.1 28.9
31.4 28.9
31.1 29.1
32.4 27.1
4QFY11*
1QFY12
Wireless
Consolidated
Source: Company, Angel Research; Note: *Excluding one-off revenue of `2,545cr, ^Excluding other income
(`/min)
0.10
0.05
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
EPM (`/min)
Source: Company, Angel Research
1QFY12
(%)
40 20 0
Access charges
Network costs
(%)
EV (`cr)
150,000 100,000 50,000 0 Apr-07 EV Nov-07 Jun-08 25 Jan-09 20 Aug-09 15 Mar-10 Oct-10 10 May-11 5
FY2013E
Key ratios
Y/E March Valuation ratio (x) P/E (on FDEPS) P/CEPS P/BVPS Dividend yield (%) EV/Sales EV/EBITDA EV/Total assets Per share data (`) EPS Cash EPS Dividend Book value Dupont analysis Tax retention ratio (PAT/PBT) Cost of debt (PBT/EBIT) EBIT margin (EBIT/Sales) Asset turnover ratio (Sales/Assets) Leverage ratio (Assets/Equity) Operating ROE Return ratios (%) RoCE (pre-tax) Angel RoIC RoE Turnover ratios (x) Asset turnover (fixed assets) Receivables days Payable days 0.3 61 390 0.3 60 356 0.3 65 343 0.3 56 330 4.7 6.7 10.8 2.4 3.8 3.3 3.2 4.9 1.9 4.4 7.2 3.3 0.9 1.5 0.2 0.3 1.7 10.8 0.9 0.8 0.1 0.3 1.9 3.3 0.7 0.5 0.1 0.3 1.8 1.9 0.7 0.6 0.1 0.3 1.7 3.3 23.0 40.9 1.0 210 6.5 38.0 0.6 197 3.9 25.7 1.0 200 6.8 31.5 1.0 206 3.4 1.9 0.4 1.3 1.9 5.6 0.6 12.0 2.0 0.4 0.8 2.1 5.7 0.6 19.9 3.0 0.4 1.3 2.1 6.5 0.6 11.4 2.5 0.4 1.3 1.6 4.8 0.5 FY2010 FY2011 FY2012E FY2013E
10
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
RCOM No No No No
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
11