Reliance Communications Ltd’s (R-Com’s) shares have moved wildly in recent months on the back of news related to acquisitions and divestitures. Of course, this has been the case for some time now, and investors have almost always shrugged off the company’s quarterly results announcements as irrelevant.
The company’s December quarter results are unlikely to move the needle much either, as far as valuations go. Consolidated revenue fell 1.1% to Rs.5,298 crore, worse off than analysts’ expectations of a 1-2% increase in revenue. Profit margins, on the other hand, improved, making up for the shortfall in revenue.
R-Com said revenue fell last quarter because of the expiry of its 2G licence in five circles last year.
The company has migrated profitable customers to its 3G network in these circles, and has entered into intra-circle roaming arrangements with Vodafone and Aircel to achieve better network quality and reach.
Regardless, in the interim, business has been hit more than what analysts had anticipated. Note that revenue from data services grew 6% sequentially, although this wasn’t enough to offset the overall decline because of the loss in the five circles.
The silver lining was a 75-basis points improvement in margins, which some analysts attributed to the seasonal strength of the December quarter. One basis point is one-hundredth of a percentage point.
R-Com shares have yo-yoed in the past few months. First they rallied from around Rs.66 in end-November to Rs.90 on 1 January, thanks to a string of deal announcements by the company. But most of the deals are either going through due diligence or are still exploratory in nature. Investors have since backtracked and the stock is back at around Rs.66. Of course, the company’s recent announcement that it paid the government Rs.5384 crore for liberalizing its 800 MHz spectrum in 16 circles also hit sentiment.
Going forward, the contours of the company’s deals with Reliance Jio Infocomm Ltd, the likely merger with Aircel and the possible sale of its tower business will drive valuations.
As far as core operations go, the December quarter results provide little reason for any shift in valuations of the company.