RCom plans to end Q4 with a bang; double revenues in 3-yrs

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See latest News about Reliance Comm See previous management interviews See what other Experts & Brokerages are saying about Reliance Comm Reliance Comm BSE | NSE 31/05/12 Are Mutual Funds betting on Reliance Comm?

Punit Garg, president of Reliance Communications says the company's MoU (minutes of use) declined due to the cleaning up of unprofitable segments.

The flagship company of the Anil Dhirubhai Ambani group reported sharper-than-expected fall in quarterly profit as interest costs on its Rs 36,000-crore debt rose. For the fiscal third quarter ended December, net profit was 186 crore, down 61% from a year earlier.

Garg says the telecom major will take another quarter and a half to finish the cleaning up process.

RComm's net debt at December-end was Rs 36,762 crore, up from Rs 31,903 crore. The company is trying to cut its debt but has not been successful so far. "Our endeavour is to replace high cost debt with low cost debt," Garg says.

Going forward, Garg says, the focus will be to double non-voice revenue over the next three-years.

The company has been in talks with private equity players to sell a stake in its telecom tower arm for quite some time now. Though he declined to comment on specific timeline, Garg informs, "the tower deal is progressing well". 

Below is an edited transcript of Garg's exclusive interview on CNBC-TV18. Also watch the accompanying video.

Q: The volumes that have disappointed the street; at 0.7% versus 3-7% achieved by most of your peers. What made the volume so bad and how do you see it panning out?

A: We are moving from old era to new era and new era is of data work where the data is making a big impact. Our vision has been 'wire-free India' and focus has been totally expanding the data coverage to more and more towns and cities. Today, we have more than 1,300 (towns and cities). As part of that, we probably relied much more on our data growth and we believe strongly on that.

As far as voice is concerned, and which usually is the bulk part of it and which brings in the much increase in the topline, we have only shown the stability in last eight-nine quarters. I believe that going forward, as we stabilise some of those segments on CDMA and others in the voice, we do expect that some of the growth would be coming in. When you look at the MoU etc it is result which announced 3-4 quarters ago that we started cleaning up some of the unprofitable segments of PCO and mass communication methodology.

Our focus was more on the consumption-led growth. We are successful on that. I would say that we are inline with what we had thought but we could have done better.

Q: Do the volumes get better in the Q4 or will you still have this impact of cleaning up. What should one factor in terms of volume growth?

A: I do see growth in minutes per user going forward. We have witnessed that a little bit recently. I would say the cleaning up exercise is almost coming to end. It has not ended yet. It will probably take another quarter-and-half to clean up completely. But I think we are very much on track.

Q: You had also undertaken some tariff hikes earlier but despite that your revenue passenger miles (RPMs) was flat. We do understand that it will take a couple of quarters to cleanup, but is there a further tariff hike also that's a possibility?

A: I would say that Reliance's focus has always been in working on affordability of consumers and broad-basing the consumer base. We would see a real impact of the last quarter tariff hike in next couple of quarters. The tariff depends on the market intensity and how the market is behaving. Reliance, at this moment, we are looking at the elasticity of market and how market absorbs the last hike.

Q: What was also disappointing was the huge surge in your net interest expense and net debt, which is gone up. How you are planning to deal with that?

A: Our net debt has remained at Rs 32,000 crore, without foreign exchange impact. Our net finance charges have gone up quarter-on-quarter by roughly around Rs 150 crore. I expect that going forward it will remain in same range and our constant endeavour is to refinance the high cost debt with low cost debt.

Q: Some analysts have calculated your debt at Rs 36,634 crore. Is there something that you are leaving out in that Rs 32,000 crore? Isn't it slightly higher than what it was a quarter ago?

A: When I am talking about net debt remains same which is Rs 32,000 crore. The number you are saying comes with the impact of foreign exchange on that.

Q: So can you detail to us what is the impact of the rolling over of the FCCB? Is it completely rolled over? Is it a done deal and what does it do to your interest costs in the coming quarters?

A: The FCCBs are due in March first week. We are on track in terms of-as you know we have already announced the refinancing of that. When I am talking about the finance charges, I think what you have seen in this quarter, I would say it would pretty much stabilise or improve on that.

Q: The two challenges a lot of analysts are outlining for Reliance Communication is: 1) the need to increase the wireless revenue market share and 2) higher share of non-voice revenue that you need to work on. Going forward, on both these fronts, what is the kind of outlining that you have done on both these fronts?

A: When I look at our non-voice segments, it is contributing currently 20%. With our approach on wire-free India, and we expanding on the coverage of data every quarter, our focus is to double the non-voice revenue in next three years. When I look at the other growth aspect as well, we look at this way that the data would grow also because we are the only ones who can provide HSD 1,000 plus town coverage today.

Especially, with the tablet and smartphone, a user really can roam anywhere in India seamlessly, which they would not find with any other operator. That is the plus point we provide. I think that is what would help in terms of growing Reliance Communication further.

Q: What can you update us in terms of the tower sale?

A: I would say that deal is progressing well and we can keep you posted as we come closer.

Q: Some idea in terms of a timeline?

A: I would not like to get into the finer details at this moment.

Q: Any guidance that you want to leave us with for the coming quarter and where you hope to wrap up the year?

A: We have a demonstrated stability in our revenues and operations over consecutive eight-nine quarters. We should finish fourth quarter with a bang. It will be better than previous three quarters. So we are working hard to change the market perception.