Following a better-than-expected increase in the profitability of Bharti Airtel and Idea Cellular, the industry was expecting a similar performance from Reliance Communications (RCOM). However, the operator recorded only a marginal improvement in its top line and bottom line for the quarter ended December 2013, unlike the July-September 2013 quarter when it had surpassed industry estimates.
RCOM reported a 2.85 per cent increase in net profits from Rs 1.05 billion for the quarter ended December 2012 to Rs 1.08 billion for the corresponding quarter in 2013. The net profit margin, however, remained stagnant at 2 per cent during this period. Meanwhile, the operator?s earnings before interest, taxes, depreciation and amortisation (EBITDA) margin improved from 31.2 per cent during October-December 2012 to 34.2 per cent during the same period in 2013. This higher EBITDA margin can be attributed to the 1.92 per cent increase in revenues from Rs 53.01 billion for the quarter ended December 2012 to Rs 54.03 billion for the same quarter in 2013. A reduction in opex from Rs 36.48 billion to Rs 35.58 billion also led to the improvement in the EBITDA margin.
The share of Indian operations in the company?s total revenues stood at 81 per cent for the quarter ended December 2013. The telecom services business accounted for over 95 per cent of revenues from Indian operations, with the voice and non-voice segments contributing 77.03 per cent and 22.97 per cent respectively. In the global operations segment, data services accounted for 69.27 per cent of the revenues.
Meanwhile, RCOM?s gross debt increased from Rs 385.57 billion as of end December 2012 to Rs 420.65 billion as of end-December 2013. Of the latter, foreign liabilities accounted for 67.7 per cent as compared to 73.45 per cent during the corresponding period in 2012. This is significant as the value of the rupee vis-?-vis the dollar continues to remain above Rs 60, which has led to increased expenses on interest.
On the operational front, RCOM?s performance was mixed. Its wireless ARPU grew by 5 per cent from Rs 119 for the quarter ended December 2012 to Rs 125 for the same quarter in 2013, driven by greater adoption of data services. However, successive hikes in voice tariffs during 2013 resulted in a reduction in minutes of usage from 103 billion to 101.9 billion. As a result, despite tariff hikes, the realisation per minute declined from Re 0.44 to Re 0.43 during the review period.
The share of the non-voice segment in total revenues grew from 20.9 per cent in the quarter ended December 2012 to 23 per cent for the same quarter in 2013. The data subscriber base grew from 27.6 million to 36.2 million during this period. 3G customers accounted for 30.66 per cent of the data subscriber base during October-December 2013, as against 22.1 per cent during the same period in 2012. The higher 3G service uptake can be attributed to a tariff reduction of about 50 per cent in mid-2013. This also led to a surge in data traffic from 22.51 billion MB during October-December 2012 to 41.7 billion MB during the same quarter in 2013.
Meanwhile, the long distance service segment witnessed a decline in usage, primarily on account of greater uptake of over-the-top services such as Skype and Nimbuzz. While minutes of national long distance (NLD) usage decreased from 15.08 billion during October-December 2012 to 14.79 billion during the same period in 2013, that for the international long distance segment reduced from 5.42 billion to 4.94 billion.
Overall, while RCOM performed well in the data service segment, the debt burden continues to impact its financial performance. RCOM?s decision to acquire only limited spectrum in the February 2014 auctions is a positive, as acquiring a larger amount of spectrum would have increased its liabilities further. Also, the operator?s licences in several circles will be up for renewal in 2015. With the government planning to undertake a fresh auction for these licences, RCOM will have to necessarily participate in it in order to continue operations in these circles. This will require the operator to raise additional funds.
On the positive side, clarity on several regulatory issues as well as a partial return of pricing power has improved sector dynamics and will enable the company to attract investments. RCOM is reportedly planning to raise $1 billion through a bond issue in the European and/or Singapore markets. This will give the operator access to significant capital to buy spectrum in future auctions, which would enable it to expand data service operations and remain competitive in the telecom market.
