RCom too stretched to get cheaper debt: Kotak

Anil Ambani group firm Reliance Communication's huge debt and liabilities may come in the way of it getting cheaper debt that may be needed to fund its Rs 24,000 crore investment plans, Kotak Securities has cautioned in a report but the company has contested the findings.
 
The company has an aggressive capital expenditure plan worth Rs 24,000 crore and it excludes the requirement for 3G auctions and roll outs, the report said and cautioned that with the deteriorating return ratios each quarter, it will have to show significant execution capabilities to turn around the low capital productivity levels.
 
The company, however, said that it has comfortable debt- equity ratio and its high cash flows give it sufficient leverage to fund its Rs 15,000 crore investment planned in 2009-10.
 
"Our balance sheet size has increased following the implementation of a significant capex plan. Current net debt to equity ratio is 0.64:1, which is highly leveraged. We have Rs 8,000 crore on our balance sheet and estimated annual operating cash flows of Rs 9,000-10,000 crore," an RCom spokesperson told PTI when asked to comment on the report.
 
Kotak Securities is of the view that the net realisations are expected to be lower despite robust subscriber additions to continue in near term as the new subscribers are unlikely to contribute substantially to the revenues and margins.

The report expressed concern over the revenue/margin contributions from these incremental subscribers. The user additions are backed by aggressive tariff reductions and start-up packs, low usage rural and lifetime customers.
 
RCom launched its GSM mobile service across 14 circles, making the company a pan-India dual (both GSM and CDMA) service provider, with a customer experience package offering aggressive tariff plans, the report said, adding that these operations would take at least 18-24 months to break-even, even after considering synergies with existing CDMA business.
 
The company said that the total capex is likely to reduce to Rs 15,000 crore in 2009-10 and further lower subsequently while operating cash flows are expected to expand in the future as new expansions and initiatives start contributing towards revenues.
 
On the possibility of new GSM subscribers leaving RCom's services on expiry of free talk time over a 90-day period, the company said: "We expect to retain our subscribers by offering better value for money and a quality network that is not congested unlike other GSM networks."
 
Aggressive accounting policies to Foreign Currency Convertible board (FCCB)/Forex transaction losses, lower depreciation to reduce tax, dwindles confidence in company's balance sheet, said the Kotak report.
 
RCom, however, said that all accounting policies followed by the company are fully compliant with the legal requirements of financial reporting in India.