RCom: Weak signals

For all the hype about the GSM rollout, Reliance Communications’ (RCom) results for the March 2009 quarter were quite a disappointment —-the wireless business reported a sequential growth of just 2 per cent, an incremental revenue of around Rs 90 crore. The average revenue per user (ARPU) came off by nearly 11 per cent—-a much sharper fall than that seen for either Bharti or Idea and the incremental ARPU is estimated at Rs 26 per subscriber per month.

The fall in minutes of usage (mou) too was a steep 9 per cent. So the 18 per cent subscriber growth didn’t translate into revenues, which were up just 2 per cent sequentially. The operating profit margin fell by 285 basis points to 35.5 per cent partly because the company incurred higher operating expenses. The growth in the net profit, which rose 3 per cent, were according to one brokerage “aided by an aggressive accounting policy on interest income/expenses, negligible tax provisioning and a write back of ESOP expensing in earlier quarters.”

CLSA points out that as per accounting schedule VI, RCom has capitalised Rs 4,500 crore of ‘foreign exchange fluctuation in the carrying cost of fixed assets’ and in addition not provided for Rs 1,470 crore on FCCBs.” R Com intends to spend around Rs 10,000 crore on capital expenditure in the current year — a smaller outlay compared with Bharti’s — and surprising given that the telco is increasing its presence in the GSM space.

Analysts believe that the smaller outlay could have something to do with the firm’s stretched balance sheet — one brokerage estimates the net debt to estimated ebitda (earnings before interest, tax and depreciation) for 2009-10 at just under three times —so there’s a chance the telco might look to raising equity. Industry watchers say RCom needs to tweak its tariff plans to boost arpus and usage.