Hold Reliance Comm; target of Rs 82: Emkay

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Hold Reliance Comm; target of Rs 82: Emkay

Emkay Global Financial Services has recommended hold rating on Reliance Communications with a target of Rs 82, in its February 10, 2012 research report.

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Emkay Global Financial Services has recommended hold rating on Reliance Communications with a target of Rs 82, in its February 10, 2012 research report.

"RCOM reported cons. revenue of Rs50.5bn which remained flat sequentially. Wireless revenue remained flat qoq, despite seasonally strong quarter. Global and enterprise segment reported revenue growth of 0.7% qoq to Rs23.5bn. EBITDA was flat at Rs16.1bn, led by higher network operating cost (which included one-time expense of Rs900mn). However, employee cost and access charge declined sequentially by 10.9% and 7.2% qoq. EBITDA margin stood at 31.9%, flat sequentially. PAT of Rs1.9bn was below our estimate of Rs2.2bn, primarily due significantly higher interest cost at Rs3.8bn v/s Rs2.3bn in Q2FY12. However, bottom-line was aided by lower depreciation due to change in depreciation policy (to SLM) in its subsidiary, Reliance Telecom."

"ARPU for the quarter stood at Rs100 (our estimate of Rs101.4), declining 1.0% qoq. MoU decline of 1.3% which was in line, ARPM remained flat at Rs0.45. Traffic on network improved 1.0% to 99.8bn minutes. Management indicated VAS share of >20%, improved qoq. Net active 3G subscribers for the company stood at 2.8mn v/s 2.5mn total subscribers in Q2FY12. Management has indicated that its 'Mera Pack Mera Plan' has been going strong and it would see improvement in traffic going forward. Led by lower than expected results for Q3FY12, we have revised our estimates downwards. Tariff hike has not shown any signs of improvement in ARPU for RCOM, unlike its peers. After showing some signs of revival in wireless revenue in Q2FY12, Q3FY12 again witnessed submissive performance. We have cut our EBITDA estimate for FY12E/13E by 4.4%/4.0%. Significant increase in finance charges has led to revision in EPS estimates. Cut in revenue, EBITDA estimate and adjusting for higher interest cost led to our EPS downgrade of 29.9%/29.4 for FY12E/13E." 

"We maintain our cautious view on the stock due to highly leveraged balance sheet and operationally weak performance. At CMP of Rs94, the stock trades at 7.7x & 5.8x EV/EBIDTA and 27.8x & 17.4x per on our revised EPS for FY12E and FY13E, respectively," says Emkay Global Financial Services research report.        

Institutional holding more than 40% in Indian cos

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To read the full report click on the attachment