Wednesday, December 31, 2008

Stock Idea: Reliance Communications (RCom)

Reliance Communications (RCom) stock surged more than 8% yesterday on news that it will buyback FCCBs at a discount of 52.5% for $25 million, becoming the first Indian company to do so after RBI relaxed the norms. R-Com had issued zero-coupon FCCBs in February 2007, to raise USD 1 billion. The premature buy back does not just reduce the liability, but this would mean that the Rcom after buying back these FCCBs, would now go for new FCCBs at today’s rates, thus keeping its capex plans intact and at the same time, adjusting liabilities to current rates.
RCom is the number two operator in the market of more than 320 million mobile users. And hence its growth is watched with a lot of interest and the pressure of growth and the slowdown seems to have crept in during Q2FY09. This quarter has reported the slowest profit growth rate ever.
For the second quarter ended 30th September 2008, revenue growth was to the tune of 23.3% at Rs. 5,645 crore from Rs. 4,579 crore in Q2FY08. While the company’s broadband business grew by 37.8 per cent, its wireless grew by 16.5% and global practices by 28.6%.
EBITDA was at Rs. 2,302 crore, up 17.3% on a YoY. EBITDA margin was at 40.8%, with strong contributions across all businesses - Wireless, Global and Enterprise. It ended the quarter with a net profit of Rs. 1,531 crore, up higher by 17.3%.
On the face of it, looks good but when you delve deeper you realise that the company has been quite smart and has presented a 17% growth in PAT due to non provision of MTM forex loss. Had the company followed AS-11, its net profit would have been lower by Rs 284 crore for realised and Rs 1,451 crore for unrealised currency fluctuations during the quarter, said the company’s notes to the accounts.
In November 08’, the company added 1.77 million new mobile phone subscribers, taking its total user base to 59.57 million.
The slowing down of profit growth rate was attributed to falling average revenue per user (ARPU), which fell by 3.9% to Rs.271 crore from Rs.282 crore in Q2FY08. The average minutes of use a customer (on a per month basis) was almost flat at 423 against 424 in Q2FY08.
FY09 is the peak of the company’s capex plans, it has spent Rs.4,773 crore during the quarter and these are being funded through long term borrowings and forex bonds. Interest costs would be an area of concern in the coming months.
Source: sptulsian.com

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