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.
Nomura