RCom down 3.5% on weak Q3; JP Morgan stays underweight

Moneycontrol Bureau

Reliance Communications shares were down 3.5 percent to Rs 85 on Thursday after the company’s third quarter earnings failed to enthuse the market.
Brokerage house JP Morgan retained its ‘underweight’ rating on the stock, citing structural issues, and said the company needs to regain or at least retain its subscriber/revenue market share to win investors’ confidence.
An extract from JP Morgan’s review of the company’s third quarter earnings:
“The increase in Average Realization Per Minute (about 2% quarter-on-quarter) was on expected lines, but q-o-q margin decline despite pricing increase is concerning in our view. Notably, due to operating and financing leverage in the business model, pricing impacts margins (both EBITDA and net) meaningfully. The subscriber base decreased significantly during the quarter as RCom continued to deactivate inactive subscribers. As a result, MoUs(minutes of usage) and ARPUs (average realization per user) increased meaningfully RCom reported 3G subscribers of 6.1 mn at the end of 3QFY13 compared to 4.8 mn at the end of Sep-12, which is encouraging. Overall, 3QFY13 operating metrics remained weak in our view.”