Reliance Communications sees decline in key metrics

In contrast to the trends displayed by peers, Reliance Communications' December quarter results belied market expectations on the revenue front and on key metrics.

But what should be a matter of greater concern is that the net debt of the company has shot up significantly and with it the debt-equity ratio.

During the quarter, RCom generated revenues of Rs 5004.1 crore, a decline of 2.2 per cent sequentially, when Bharti Airtel and Idea Cellular had revenue expansion of 3-5 per cent.

Also, the quarter is generally one of the best for operators, dotted as it is with festivities. However, aided by lower interest outflow attributed to foreign currency gains, net profits rose 7.7 per cent to Rs 480.3 crore.

Reliance Communications also witnessed a 9 per cent decline in wireless average revenue per subscriber to Rs 111, when peers had a marginal increase or a very slight fall. Minutes of usage too declined during the quarter, which helped keep the realization per minute unchanged at 44 paise.

The company has attributed the fall in minutes to a conscious strategy of reducing focus on their PCOs and fixed wireless businesses, which are deemed less lucrative.

Even its usually strong broadband segment witnessed a 6.5 per cent decline in revenues during the quarter.

RCom did a soft launch of 3G services in three metros in December and subsequently launched services in 25 cities. With its strength in Internet data cards business, 3G may be expected to give the necessary fillip to realizations.

Strained balance sheet

Reliance Communications has witnessed an increase in net debt by Rs 3,257 crore over the previous quarter to Rs 32,447 crore currently. This has increased the net debt to equity ratio to 0.86 from 0.77 previously.

The company has also given a guidance for capital expenditure of Rs 3,000 crore, excluding 3G related expenses for FY11. This would strain its balance sheet further.

For RCom, potential listing of its tower arm Reliance Infratel appears to be a better way for bringing in robust cash inflows.