Reliance Communications Ltd (RCom) reported a net profit of Rs1,454 crore for the March quarter, which beat street expectations by a handsome margin.
According to Bloomberg’s poll of seven telecom analysts, net profit was estimated at Rs1,330 crore.
Still, the markets are likely to be disappointed with the company’s results, with the key worry being that the wireless business continues to lag peers in the industry. Average revenue per user fell by as much 10.8% last quarter, on the back of lower usage by customers.
The company rolled out a nation-wide GSM (global system for mobile communications) network recently, with an aggressive strategy of offering new customers a certain amount of free minutes for three months.
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As a result, the company’s net additions in the wireless segment jumped from 5.3 million in the December quarter to 11.3 million in the three months to March.
The company’s wireless subscriber base rose by as much as 18.5% quarter-on-quarter. But despite this high growth in subscriber base and all the free minutes given to the new GSM customers, the total number of minutes carried by the company grew by just 3.7% last quarter.
Average usage on a per-customer basis fell by 9.3%.
A big fear, which has been expressed by analysts at three institutional brokerages, is that the company’s GSM launch may have resulted in the cannibalization of its CDMA (code division multiple access) customers.
One big surprise in last quarter’s results was the announcement that the company closed the year with capital expenditure of Rs19,000 crore. Just three months ago, the company had said that it expects to spend Rs25,000 crore in FY09.
Some analysts are relieved that the lower-than-expected expenditure will provide much-needed relief to the company’s stretched balance sheet.
Another view, however, is that the company was forced to cut capital expenditure owing to financing constraints and this will reflect poorly in the company’s network reach and quality in coming months.
Surprisingly, the company decided not to disclose its net debts until its accounts are audited. The company’s net debt had ballooned to Rs18,600 crore at the end of the December quarter from Rs9,970 crore in March 2008. It has raised more debt from Life Insurance Corp. of India in the March quarter.
The company’s long-distance and international data businesses grew handsomely last quarter, but analysts see this as a business where growth has been lumpy in the past. The key focus for them is the wireless business, which hasn’t shown signs of a turnaround yet. It’s no surprise RCom shares are lagging peers in the sector.
Graphics by Ahmed Raza Khan / Mint
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