RCom shares slide on results, outlook

RCom shares slide on results, outlook
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First Published: Tue, Nov 03 2009. 12 43 PM IST
Updated: Tue, Nov 03 2009. 12 43 PM IST
New Delhi: Shares in Reliance Communications fell nearly 8% on Tuesday after the No. 2 mobile operator’s quarterly earnings halved and a crunching call tariff war threatened more pain ahead.
“There is already tremendous pressure on operating margins because of the price war and tariff erosion and today’s fall is a knee-jerk reaction to the results,” said K K Mital, head of portfolio management services at Globe Capital.
Reliance Communications on Saturday reported its quarterly profit for the September quarter fell about 52%, on foreign exchange losses, network expansion costs and growing low-paying users.
In October, the company cut all call charges to a flat 50 paise (1 US cent) a minute, reacting to competition from smaller rival Tata Teleservices that outpaced market leaders with its attractive but low-profit per-second bill plan.
Market leader Bharti Airtel last week launched a per-second bill plan and Reliance Communications said on Monday it had also evaluated the plan internally and was keeping its options open.
Four new operators, including ventures of international firms Telenor and Etisalat, are set to start services this year intensifying competition in a crowded market.
“I think a consolidation phase will continue for next three to six months after which you could see a reversal in the outlook,” Mital said.
At 12.10 pm, shares in Reliance Communications, valued at more than $7 billion, were trading 4.8% down at Rs167.50 after hitting their lowest since 25 March.
Bharti Airtel was up 4.1% at Rs304.10 after falling more than 6% in the previous session on disappointing results and downbeat outlook.
Reliance Communications shares lost 43% in October and Bharti fell 30% in the face of the price war.
Margin Concerns
EBITDA margin, a key gauge of profitability, for Reliance Communication’s wireless business fell to 32.7% for the three months to September from 38.6% in the preceding quarter.
Satish Seth, group managing director at the firm’s parent, told analysts on a conference call on Monday the outlook on wireless margins was positive for the December quarter.
With much of the new subscriber additions coming from rural areas where people talk less than their urban counterparts, key metrics such as average revenue per user (ARPU) is being hit.
Reliance Communications saw its ARPU for September quarter falling to Rs161 from Rs210 in the preceding quarter and sharply off Rs244 for the financial year ended March.
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First Published: Tue, Nov 03 2009. 12 43 PM IST