The Hindu Business Line : RCom slumps as Q1 nos fail to meet expectations

Mumbai, Aug. 1 Unaccounted forex losses, lower average revenue per unit (ARPU) reported for the first quarter of the current financial year, net profit that was below expectations and lack of clarity on the benefit from 3G licence allotments badly hurt the share price of Anil Ambani-promoted Reliance Communications on Friday.

The first quarter result of the telecom major was not on expected lines. The company that has all-India CDMA and GSM licences reported a 24 per cent rise in the net profit for the quarter ended on June 30.

Forex fluctuation

This quarter’s growth is the slowest recorded by the company, compared with the previous nine quarters, said telecom analysts.

The results were announced on Thursday after market hours, and on Friday the stock fell, reacting to the news.

Reliance Communications shares fell as much as 18 per cent on Friday, touching an intra-day low of Rs 410 on the BSE, but managed to recover partly. It still closed 13 per cent below the previous close.

The stock started falling sharply upon opening and lost 18 per cent within a few minutes, but recovered partly before it was 10 a.m.

For rest of the day, the stock traded in the range of Rs 430-442 and finally closed 12.65 per cent lower at Rs 436.80.

Analysts and traders felt the forex fluctuation impact was substantial for the company.

The company’s net profit would have been lower by Rs 109 crore for realised and Rs 954 crore for unrealised currency fluctuations during the quarter had the company followed Accounting Standard 11 instead of following Schedule VI of the Companies Act, said the company’s notes to the accounts.

The ARPU decline of 11 per cent for the quarter was also a point of concern. Bharti’s ARPU for the same quarter fell by just 2 per cent.

Spectrum Allotment

Also, it seems there is no clarity on the benefits for Reliance Communications from 3G spectrum allotment, though it was favourably placed to tap the new technology.

As of now, 3G spectrum availability is limited. How much telecom companies will earn will all depend on the pricing model that they adopt, an analyst said.

The Government on Friday announced the guidelines for 3G spectrum allotment.

Meanwhile, the State-owned MTNL saw its shares move up by more than 10 per cent over the past seven sessions, and by 3.76 per cent on Friday. The Government has already provisioned for 3G spectrum slots for PSU telecom companies MTNL and BSNL.

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