Reliance Communications reported a lower-than-expected 60 percent decline in quarterly profit as the mobile phone carrier struggled with a heavy debt load. The company's consolidated net profit fell to Rs 102 crore for the second quarter of FY13, from Rs 252 crore reported a year earlier.
Gurdeep Singh, President & CEO of Wireless Business and Punit Garg, President & CEO of Global & Enterprise Business, Reliance Communications told CNBC-TV18, their debt in balance sheet is in line with the earlier quarter. At the moment, the interest rates on debt are also stable, Garg added. He further noted that tower assets will become attractive post spectrum auctions.
Going forward, Singh feels financials will look better as seasonal factors would gradually wane. Moreover, the festive season has also increased the traffic and Reliance Communication is hopeful of better credentials in the next two quarters.
In the next 12 to 18 months when the new telecom regulations regarding spectrum refarming and fees take shape, there could be an opportunity to hike tariffs, opined Singh.
Here is the edited transcript of the interview on CNBC-TV18.
Q: Basically there was a substantial increase in interest costs on a sequential basis, by around 7 percent to Rs 590 crore versus Rs 550 crore. That is what resulted in the decline in profitability. Could you give us a sense in terms of what is the outlook on the debt position and can the debt be reduced in FY13 at all?
Garg: When you look at our debt in balance sheet, it remains as it has been in the earlier quarters. These are all long-term debts, so the interest rate etc. is pretty stable. Apart from that some seasonality may come because there maybe some short-term smaller loan which will be used to manage the working capital.
Those are seasonal and I would not worry about that. When you are looking at deleveraging our debt, there are various methods which we have talked about in the past. If the spectrum auctions are taking place it would be very clear whether telecom operators require more towers or not and the tower assets become much more attractive for the buyers. We are continuously engaged with the potentially interested parties to do it.
I think the other important point you should not overlook is that RComm is free cash flow positive. We are generating cash which would also help us in terms of reducing our debt from balance sheet. I think there are various ways of looking at it and we are well aware and we are working on it. We are very hopeful that our credentials would definitely look much better in the coming quarters.
Q: This quarter actually has seen the industry report a degrowth in volumes as well as traffic. We do understand there is an impact of seasonality in this. Is the decline only due to seasonality or is there an actual slowing down of subscriber growth? Can you just detail what happened in Q2 on a QoQ basis and what would be the outlook in the second half then?
Singh: In Q2 the traffic on a sequential quarter basis did decline. It was in line with the seasonality of this quarter and I must say that telecom operators experienced acute seasonality in the last quarter. As the festive season is on, we do see some traffic coming back and hope to see a better performance in the next two quarters.
Q: RComm had taken some price hikes in Q2 as well. In Q3 what is the scope for price hikes in your mind? How much will it be and in what form or fashion can RComm go ahead with the price hikes?
Singh: We said that we have moved the base tariffs from 1.2 paise per second to 1.5 paise per second and we said that we will complete the exercise by October 31, implementing it all over the India. We have done that and going forward, when the existing subscribers’ validity on the tariff expires we are migrating them to the new tariff plan.
We hope to complete this exercise over the next 4-5 months to realize the full impact of this price change. Having said that, we see a cost push coming on the back of one-time spectrum fee, refarming, SUC charges and the interest costs are going up resulting in hardening of tariffs in future. We do see two to three occasions in the next 18 months when tariffs will look up and will begin to harden.
Q: Is there a possibility of the Flag Telecom IPO in FY13 at all and are the market conditions conducive enough this fiscal?
Garg: I would not speculate the timing of IPO exactly with which quarter it is, but I would certainly say that as the market condition improves, we would try sometime in calendar year of 2013. Which quarter it would be depends on when we start the process and end it. Certainly, we look forward to it, but that is not the only way. We could look at the various other ways as well.