 "Markets rejoice but questions remain on RCom's 'stellar' results")
Reliance Communications needs to be complemented, not for its results but for making it more opaque for investors to understand. To make matters worse, the numbers do not seem to add up. But first the good news.
Despite an environment of gloom, Reliance Communication has managed to surprise the markets with a good set of numbers. The company posted a 129.4% growth (YOY) in net profit to Rs 234 crore, which works out to a growth of 562% at Rs 675 crore if one includes provisions written back. But more on that later.
On a quarter on quarter basis, the company has shown a marginal decline in its Indian operations to Rs 4,624 crore as compared to Rs 4,659 crore in the previous quarter. Global operations were a tad higher at Rs 1,139 crore compared to Rs 1,131 crore. New customers in data has increased but those in voice have come down, on a net level there was a reduction in customers.
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Operating profit cannot really be compared because it includes a onetime write back of provisions to the tune of Rs 441 crore. The only detail we have been given for this write back is that it is a write back of provision for business restructuring. That’s a lot of benefit from a restructuring and accounts for 65% of the previous year’s profit.
Under the garb of this restructuring,the company’s revenue per minute cannot be compared as all operating matrixes like average revenue per user (ARPU), revenue per minute (RPM), total minutes of usage (MOU) and traffic now have a combined number for wireless and wireline business. Earlier the company gave a break up of wireless, wireline, national inter-circle charges, data and DTH business for its India operations. Now the company has combined it as voice and non-voice, which does not makes too much sense as there are too many overlaps.
The opaqueness means that we have to take the numbers at face value and proceed, something that not too many analysts will be comfortable with.
Another highlight of this quarter numbers is that despite all the repayments of debt, the company’s debt stands at a record high of Rs 41,169.8 crore. Depreciation of rupee from 59.39 against the dollar to 62.61 resulted in addition of Rs 3,842 crore to debt. Otherwise, the company says, debt would have been lower by Rs 1,155 crore. As a result of this, its net debt to funded equity ratio too has touched a high of 1.46 as compared to 1.37 in the previous quarter. Surprisingly interest payment has come down during the quarter as compared to the previous one.
Markets have responded positively to Reliance Communications’ number with the stock trading over 6% high at Rs 138 per share at a valuation of 46 times. Investors seem to be comfortable with the opaqueness and a deteriorated balance sheet and a falling customer base.Good luck to them.