Reliance Communications (Rcom) reported Q1 FY10 revenue growth of 0.8% q-o-q, marginally lower than estimate, mainly on account of below-than-expected broadband revenues.

Wireless revenues surged 6.5% q-o-q as subscriber base expanded on the back of GSM launch in Q4 FY09. Global sales remain flat sequentially, and understandably so, as corporate IT spending remains muted.

Average Revenue Per User (ARPU) maintained its decline (down 6.3% q-o-q) due to pressure on net revenue/min.

Operating margin at 36.8% came in below our expectations while reported PAT was above estimate due to higher net interest income of Rs6.2 billion (compared to Rs1.7bn in Q4 FY09).

Outlook

Wireless growth for Rcom is likely to remain buoyant on the back of GSM subscriber additions.

However, Global business revenues would continue to remain under pressure as recovery in developed markets remain a long drawn out affair, even as pricing pressure persists in the NLD+ILD business.

We forecast Rcom subscriber base at 132 million by March 2011 and maintain our BUY rating on the stock.