Reliance Communications’ opacity should irk investors

Reliance Communications Ltd’s (R-Com’s) results announcement for the September quarter just adds to the opacity surrounding the company’s financials, and should irk investors. Last quarter’s results included some exceptional items, of which the company has disclosed only one, making a comparison nearly impossible. What’s more, R-Com has changed reporting norms, and has broken up its India business between voice and non-voice. There are no references to the wireless business any more in the company’s release. According to an analyst, if the company provides key performance indicators, such as revenue per minute and minutes of use by customers, for the total voice business instead of the wireless business, comparison with peers will be difficult.

Reported revenue rose by 7.8% sequentially to ₹ 5,835 crore and earnings before interest, tax, depreciation and amortization (Ebitda) jumped by 36.8% to ₹ 2,328 crore. R-Com said that this includes a write-back of a ₹ 441 crore provisioning related to expected business restructuring expenses, adjusted for which revenues were flat and the growth in profit stood at 10.9%. On an adjusted basis, Ebitda margin stood at 35%, compared with 31.4% in the June quarter. But, as pointed earlier, there are other one-offs. According to an analyst, the company said in a select analysts’ meet that it expects steady-state margins of 33% and that the September quarter results included some one-offs other than the write-back.

For sure, the results included income from the fibre optic network sharing deal R-Com signed with Reliance Jio Infocomm Ltd in April. But the company hasn’t disclosed how much the deal contributed to the results. A Kotak Institutional Equities preview report had put the contribution of the deal at ₹ 400 crore to revenue and ₹ 300 crore to Ebitda. If this is the case, adjusted results will be weak and disappointing. One positive is that there are some benefits of cost-cutting that are visible—such as the 35% cut in employee costs on a year-on-year basis.

Hopefully, R-Com will disclose more details in its conference call to discuss results on Wednesday. R-Com shares have corrected by about 16% this month, largely because of the general weakness in the markets in the past few trading sessions.