Mumbai: Reliance Communications Ltd (R-Com), India’s second largest telecom services provider by subscribers, saw its cash balance fall sharply at the end of fiscal 2012, according to its latest annual report.

The Anil Ambani-led group company’s consolidated cash and cash equivalent at 550 crore on 31 March was 88.5% lower than the 4,866 crore it had a year ago, primarily due to the servicing of debt.

R-Com had net debt of 35,839 crore on 31 March.

The net cash generated by the firm from its operating activities doubled to 5,751 crore in fiscal 2012, and it used 29% less cash for investment activities. However, the net cash used for financing activities was 5,497 crore, against an inflow of 8,071 crore on the same account in 2010-11.

R-Com repaid long- and short-term borrowings to the tune of 14,072 crore in fiscal 2012, while the cash from long-term borrowings coming into the company was 10,756 crore.

In comparison, it received 11,774 crore in cash from long- and short-term borrowings in fiscal 2011, but could repay only 2,139 crore.

Most of the cash outflow happened in the April-June quarter of fiscal 2012, with R-Com’s cash balance coming down to 1,183 crore.

The cash flow position of other telecom firms listed on the bourses during fiscal 2012 shows a mixed trend.

R-Com’s closest listed competitor, Bharti Airtel Ltd’s cash and cash equivalent doubled year-on-year to 2,030 crore. However, Idea Cellular Ltd, the telecom arm of the Aditya Birla Group, saw its cash and cash equivalent fall to 134 crore from 451 crore a year ago.

R-Com’s share lost 0.36% to close at 54.60 on Friday on BSE, while the bourse’s benchmark Sensex index declined 0.02% to end at 17,557.74 points.

In the last one year, R-Com has lost 36.29% of its market value, while the Sensex has gained 2.49%.

The number of people employed by R-Com, too, fell in fiscal 2012. At the end of the fiscal year, the company had 24,460 employees across its businesses, according to the annual report. This is 3,600 people fewer, or 16% less, than in fiscal 2011.

The reduction in employee strength also reflected in lower payroll expenses for the company in the last fiscal. The employee benefits expenses incurred by R-Com in 2012 were 12.6% lower year-on-year at 1,283 crore.

In comparison, Bharti Airtel saw its manpower cost dip by around 4% to 1,391.5 crore.

An R-Com spokesman declined to comment on the company’s reducing cash position and manpower.

R-Com’s manpower has been declining progressively over the last few years. The company had 28,065 people on its payroll on 31 March 2011, 2,909 less than the year before.

“R-Com has been going through tough times for the past two years, and most of the challenges have been factored into its stock price," said a Mumbai-based analyst with a domestic brokerage firm who declined to be identified.

Ramakrishna Maruvada, a Singapore-based analyst with brokerage firm Daiwa Capital Markets, said it was important to factor in the structure of debt repayment such as the tenure and corresponding free cash flow when analysing the company’s cash position.

“R-Com’s free cash flow generation in 2013 is expected to be 4,100 crore, which should be enough to meet their working capital requirements and debt servicing obligations," Maruvada said. “They have managed to retire existing debt by taking on more debt, and repaid their foreign currency convertible bond (FCCB) holders. And a lot of their payments are getting stretched backwards."

In January, R-Com secured loans from Chinese banks to refinance $1.18 billion ( 6,525 crore today) of its FCCBs.

According to its annual report, R-Com will have to shell out 2,618 crore in 2013-14 towards repayment of foreign currency loans.

The Mumbai-based analyst cited above said that even if R-Com’s cash wasn’t enough to meet working capital requirements in the current fiscal, the company could always resort to further borrowing to meet its needs.

“This debt may come at a high cost, but since R-Com is part of a big group, it won’t be difficult to raise the money," he said.

More than R-Com’s cash position, it is the net debt on its books that is a cause of concern for analysts, Maruvada observed. R-Com’s net debt to Ebitda (earnings before interest, tax, depreciation and amortization) ratio is around five times, he said, while the figure for most telecom companies globally was around two times.

“It is important for the company to either sell some assets or raise equity from investors to repay debt," Maruvada said. “Despite the debt level on R-Com’s books, an equity offering from them at the right price may still find an appetite among investors, given the long-term potential of the underlying assets."

Meanwhile, R-Com is planning to move a few special resolutions at its annual general meeting (AGM) scheduled for 4 September.

According to the AGM notice, R-Com will seek shareholder approval to raise the authorized share capital of the company by 1,000 crore to 2,500 crore. It will also move another resolution proposing to issue securities to qualified institutional buyers.

On the issue of the special resolutions, an R-Com spokesman said, “As clarified in the explanatory statement attached to the notice, these are merely enabling resolutions taken as per usual practice at our AGMs every year, in the interests of maintaining financial flexibility. There are currently no plans by R-Com to make any fresh issue of capital."

“They (R-Com) desperately need an equity infusion, and passing the enabling resolutions is a prudent approach to be proactive rather than reactive," the Mumbai-based analyst said.

R-Com’s attempts to raise funds in recent times through a stake sale in its telecom tower assets company Reliance Infratel Ltd and by listing its undersea cable business in Singapore haven’t been successful thus far.

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