Reliance Communications (RCom) (updated - 17 Aug 2011)The announcement of a 20% raise in wireless tariff may provide some relief for investors of Reliance Communications (RCOM) who have been fretting over the company’s poor financial show, quarter after quarter, for the past two years.
The country’s second largest telecom operator by subscriber base reported a sharp 37% drop in net profit at Rs 157 crore following a 4% fall in revenue at Rs 4,314 crore during the June 2011 quarter from a year ago.
RCOM’s management highlighted that the sharp profit fall was largely due to a higher gain in tax account in the year-ago quarter. Though this is true, its operations have indeed suffered due to stiff competition. The revenue trend of the domestic telecom sector over the past two years reveals that RCOM is among the operators which have been hit hard because of the fierce tariff war.To its credit RCOM has been able to retain the per minute rate on its network at a constant 44 paise over the past few quarters, while its peers have reported a marginal drop. But merely maintaining realisatios won’t serve the purpose unless it translates into topline growth.
This could be possible through a higher base of active subscribers and that raises some concern for RCOM. This is because according to data from the Telecom Regulatory Authority (Trai), the proportion of the company’s active user base is over twothirds of the reported base. Both Bharti and Reliance Communications have more than 90% active users. A lower proportion of active users limit the extent to which a stable per minute realisation would add to the topline.
RCOM’s decision to raise tariffs would play a crucial role in preventing revenues from falling down further. But its stock is expected to trade at relatively lower valuations compared to its peers until a trend of revival in operations and clarity over legal matters pertaining to the 2G scam emerge. Source - Economic Times
The country’s second largest telecom operator by subscriber base reported a sharp 37% drop in net profit at Rs 157 crore following a 4% fall in revenue at Rs 4,314 crore during the June 2011 quarter from a year ago.
RCOM’s management highlighted that the sharp profit fall was largely due to a higher gain in tax account in the year-ago quarter. Though this is true, its operations have indeed suffered due to stiff competition. The revenue trend of the domestic telecom sector over the past two years reveals that RCOM is among the operators which have been hit hard because of the fierce tariff war.To its credit RCOM has been able to retain the per minute rate on its network at a constant 44 paise over the past few quarters, while its peers have reported a marginal drop. But merely maintaining realisatios won’t serve the purpose unless it translates into topline growth.
This could be possible through a higher base of active subscribers and that raises some concern for RCOM. This is because according to data from the Telecom Regulatory Authority (Trai), the proportion of the company’s active user base is over twothirds of the reported base. Both Bharti and Reliance Communications have more than 90% active users. A lower proportion of active users limit the extent to which a stable per minute realisation would add to the topline.
RCOM’s decision to raise tariffs would play a crucial role in preventing revenues from falling down further. But its stock is expected to trade at relatively lower valuations compared to its peers until a trend of revival in operations and clarity over legal matters pertaining to the 2G scam emerge. Source - Economic Times
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