Maintain ‘neutral’ on Reliance Communications (RCom) with target price of R120.
Maintain ‘neutral’ on Reliance Communications (RCom) with target price of R120. The company’s voice trends appear to be stabilising, plus it is also doing a fair bit of work to grow its share of the industry data revenues – such as the recent initiatives with Facebook or smartphone manufacturers; however, outperforming peers in this segment won’t be easy, we think given their lead on market positioning/branding. RCom’s first key step to deleverage – Q1 equity raising – has helped to some extent, but there is more to go.
An in-line result on revenue/ebitda, but a significant beat on earnings driven by lower-than-expected interest costs and stable D&A. Operating metrics for the India business look okay with 3% q-o-q growth. RCom recorded 1% growth in voice pricing versus flat for Bharti and 2% decline for Idea Cellular with 1% growth in traffic. Its data volumes too rose 16% q-o-q and it added 1.7 million data subs to 31 million.
However, global business looks mixed impacted by one-offs – revenue growth was quite strong at 23% q-o-q but ebitda fell 12% q-o-q on charges worth of R8,500 crore. Margins dropped to 12%, one of the lowest in the past several quarters. Its net debt to ebitda remained stable at 5x, following the $1 billion capital raising in Q1.
Revenue and EBITDA are broadly in line with consensus and our expectations. Both D&A and interest expense are 2-3% below our estimates, due to which reported NPAT appears 20% ahead (12% ahead of consensus). Management has guided for FY15f capex of R1,500 crore.