Mumbai: Reliance Communications Ltd (RCom), India’s second largest wireless phone service provider by subscribers, posted a 3.26% decline in net profit for the January-March quarter, despite a fivefold increase in other income. The earnings have beaten expectations of analysts, who had estimated a sharper dip in profit as price competition eroded profit margins.
Other income, an accounting term for revenue that has not come from a company’s core operations, jumped to Rs325.90 crore this quarter from a paltry Rs61.37 crore in the year-ago quarter, according to information filed with the Bombay Stock Exchange.
An RCom spokesman said the so-called other income came from Reliance WebWorld stores, the company’s direct-to-home operations through Reliance Big TV Ltd and Reliance Entertainment Pvt. Ltd.
Reliance WebWorld is a nationwide chain of retail stores.
RCom had a net profit of Rs1,454.31 crore this quarter, down from Rs1,503.26 crore in the corresponding quarter last year.
Earnings previews put out by six brokerages had thrown up an average net profit figure of Rs1,407.5 crore and revenue of Rs6,094.28 crore.
The firm’s revenue rose 10.4% to Rs5,797.77 crore this quarter on the back of a huge increase in subscriber base, as it aggressively marketed its newly launched GSM (global system for mobile communications) technology through a series of offers, based on cheaper tariffs and free talktime.
While RCom mopped up customers at express speed in 14 new circles it launched GSM services in end-December—many of which had entrenched multiple incumbent players—its subscribers spent far fewer minutes over the phone on average compared with the year-ago quarter.
RCom is the only nationwide operator providing services on both GSM and CDMA (code division multiple access) technologies for mobile telephony.
RCom’s subscriber base expanded by 11.3 million customers this quarter. It ended the year to March with 73 million customers, second in the pecking order after Bharti Airtel Ltd’s 93.92 million.
India, with 391.76 million wireless users, is the second largest mobile phone market in the world after China, but has a phone penetration of less than 40%, leaving room for a further increase.
Analysts weren’t impressed with RCom’s numbers.
“RCom’s operating parameters are not improving. The decline in MiUs (the minutes in use) continues and is sharper than others,” said a Mumbai-based analyst with a local brokerage, who did not want to be identified. He expects the Indian and global data business segment to be an important revenue driver for the firm.
RCom’s chairman Anil Ambani said the company has “completed the world’s largest (GSM) network roll-out in FY2009 ahead of schedule and at a very competitive cost, which is approx 35% lower than original guidance”.
A company statement said that it has spent Rs19,417 crore as capital expenditure during 2008-09 for network expansion, against the original guidance of Rs30,000 crore.
In an analysts’ conference call, RCom on Thursday pegged its investment guidance for 2009-10 at Rs10,000 crore, without factoring in possible investments for obtaining additional spectrum for offering 3G and 4G mobile services.
For the year ended 31 March, RCom had revenue of Rs22,234.62 crore, an increase of almost 18% and a net profit of Rs5,907.55 crore, a rise of 9.4% compared with 2007-08 .
The average revenue per user (Arpu) in the January-March quarter fell to Rs224 a month from Rs251 last year, while the average MiU was 372 minutes for a subscriber in a month, down from 410 minutes a year ago, according to an RCom spokesman.
The fall in these subscriber metrics are in line with what competitor Bharti Airtel had reported on Wednesday—a trend widely anticipated by analysts tracking these firms.
A 27 April Macquarie Research report had noted the increased price competition on account of RCom’s GSM foray, but said this was likely to be transient. “Competitive intensity has peaked in 4Q in our view,” said Shubham Mazumdar of Macquarie and his co-authors in the report, adding “sharp improvement in pricing trends likely in June quarter” as they did “not believe RCom would indulge in a tariff war on a sustained basis”.
In a 4 April report, Angel Broking Ltd’s sector analyst Harit Shah had said that “RCom, in an attempt to garner initial subscriber interest for its services and possibly report a higher number of subscribers to be eligible for further GSM spectrum, launched GSM services with as many as 900 free minutes of usage on local calls to any network....(along with) a one-time subscription charge (including GSM SIM card) of just Rs25”, in an attempt to target lower-Arpu customers. “However, of greater importance will be the revenue generating potential of these customers. Anecdotal evidence suggests that Arpus generated by such subscribers are very low (possibly in the range of Rs150-200).”