shares overview of telecommunication industry companies Reliance Communications (RCom)

Reliance Communications (RCom) (updated - 08 June 2010)
The Reliance Communications scrip is seeing a flurry of interest after struggling for the better part of the year. The news of equity dilution and scrapping of Reliance Industries’ right of first refusal for such astake sale has seen the share price rise 14 per cent last week. For the past one year, the stock has taken a beating and underperformed the Sensex by 65 per cent.

The super-charged competitive scenario pulled down tariffs, average revenues per user, margins and market share. Revenue grew only 1.7 per cent sequentially during the March quarter, lower than peers. Moreover, average monthly minutes of usage per subscriber dipped 3.6 per cent.

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Also, RCom’s stretched balance sheet, with net debt at Rs 19,878 crore at the end of FY10 and high leverage levels (net debt to earnings before interest, tax, depreciation and amortisation ratio at 2.5x) dragged down the stock further. Given that it has a Rs 8,585-crore payout due for 3G spectrum slots in 13 circles, the net debt to Ebitda ratio will stretch further to 3.9 times, say analysts at Religare.

The company is also bidding for broadband wireless spectrum. It has two large FCCB (foreign currency convertible bond) repayment tranches due in the next two years - $296 million and $925 million in FY11 and FY12, respectively.

The equity dilution, with afresh issue of 711 million shares at Rs170-210 per share, will raise Rs 12,100-14,900 crore, according to analysts. This will improve 2010-11 net debt to Ebitda ratio to 1.7-2.2 times. The resultant balancesheet strength will allow it to buffer its competitiveness in the current environment.

Reliance Communications (RCom) (updated - 18 May 2010)
Reliance Communications (RCom), which has been on the forefront of the tariff war in the telecom sector, is still getting the short end of the stick operationally. It saw the subscriber base rising 9 per cent in the March 2010 quarter, as compared to the previous quarter. This was slightly below the 11 per cent rate at which the industry grew.

The concerns are that even the growth in subscriber adds does not amount to minutes of usage, a critical parameter for telecom companies. The growth was around 5per cent in the same timeframe, much lower than that for the industry peers, where traffic was up by about 1318 per cent.

On the financial front, pressures remain unabated. Consolidated revenues for FY10 were down 3.4 per cent to Rs 21,496 crore over the previous year. Earnings before interest, tax, depreciation and amortisation (Ebitda) dipped 16 per cent year-on-year to Rs 7,821 crore. Operating margins were down 5.2 percentage points to 35.3 per cent. Higher tax outgo dragged the net earnings down by 23 per cent to Rs 4,777 crore.

On a quarterly basis, net revenues were down 6 per cent sequentially to Rs 4,196 crore, while operating profits dipped nearly 12 per cent. Margins compressed 2.6 percentage points to 31.5 per cent. Segmentally, wireless and global segmental revenues rose about 2 per cent, while broadband revenues dipped 3.5 per cent, but operating margins narrowed 2.3-2.6 per cent across the board.

The company’s net debt was up 5 per cent to Rs 19,889 crore; the company has a net debt to equity ratio of 0.5 times with net debt to Ebitda ratio of about 2.5 times. The stock was down 2 per cent to Rs 141.60, underperforming the Sensex by a percentage point.
source - business standard

The tariff pressure is expected to drag down revenues and margins for the sector at large. But, analysts reckon the competitive pressures will peak and sanity will return. However, with a fresh lease of life from the potential equity raising, RCom may pose arenewed fight for subscribers, which could prolong the battle.
source - business standard

Reliance Communications (RCom) (updated - 17 Aug 2010)
The days of freebies in the telecom business have ended. But, the consequences of the earlier rate wars are bound to be felt. The June results of Reliance Communication bear scars of these wars.

The main reason for discontent has been the lower traffic volume of 94.4 billion minutes. Analysts estimated volume of 96-98 billion minutes, one per cent growth over the March quarter. The discontinuation of free minutes was behind this, said analysts. Peers like Bharti and Idea recorded over 10 per cent growth in traffic volumes over the period.

Wireless average revenues per user (Arpu) and minutes of usage were down around seven per cent. RCom’s wireless Arpu is almost 30 per cent below the sector average, point analysts. However, steady realisations (at around `0.44 per minute) and lower operating expenses saw earnings before interest, tax, depreciation and amortisation (Ebitba) margins grew marginally by 40 basis points (sequentially) to 31.9 per cent. The company reported savings of around `200 crore in network operations because of lower fuel costs, as most of its sites are now receiving power from state electricity boards. Net earnings fell 79 per cent sequentially to around `250 crore on account of foreign exchange losses of `550 crore and higher interest costs of around `240 crore.

Analysts say the process of complying with subscriber verification norms could see apossible re-stating of the subscriber base for the entire industry. RCom may also see areduced subscriber base, but so would other players. A more focused approach on quality of customers and their usage could start yielding results from the second half of FY11.

Profitability of the telecom sector may be restored with more sane and pragmatic structures. Till then, the calls remain clogged.
source - business standard