[T.S.R:17463] RCom-Weak Ring Tone

RCom's 4QFY11 results were weak, with consolidated EBITDA declining 4.6% (6% below street estimates) after adjusting for change in accounting policy. The change resulted in sharp jump qoq in revenue and EBITDA by 57% and 147% respectively, but had an adverse impact on the PAT. We maintain negative stance on the stock; our estimates and target price are under review. 

 

Weak like-to-like qoq consolidated results. While consolidated revenue growth was robust at 6.5% qoq, it was partly driven by non-wireless segments - Broadband/Others (+12%/17% qoq) - which have seen a volatile revenue trend in past quarters. However, consolidated EBITDA declined (reversing the trend of past three quarters), driven by wireless segment (margin down 160bps qoq). Adjusted PAT was down 47% on account of weaker EBITDA and higher taxes. RCom has not begun charging 3G-related costs (amortization, interest expenses) to its P&L.

 

Operating trend satisfactory, at best. Wireless ARPM was stable qoq. Wireless traffic/revenue growth of 3% each is the highest since 4QFY10/1QFY10 (though lagging behind peers). However, EBITDA margin declined on higher SG&A costs (20% higher net-adds qoq) and network opex (3G, content costs). Broadband EBITDA was flat despite strong revenue.

 

Focus on milking assets. Management guidance of `15bn capex in FY12 is sharply lower than the past (~`40bn/year over FY10-11) and FY12 guidance of leading peers (`30-90bn). Given the subdued revenue trend in recent quarters, the lower capex guidance (and resulting FCF implications) is positive, in our view. 

 

Valuation. RCom trades at 9-17% discount to Bharti and Idea on FY12e EV/EBITDA. However, this reflects ongoing divergence in the fundamentals of RCom and peers, in our view.

 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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