Reliance Communications Net Misses Estimates on Debt Costs By Ketaki Gokhale - Feb 10, 2012

Reliance Communications Ltd. (RCOM), India’s second-largest mobile phone operator by subscribers, reported quarterly profit that missed analyst estimates on higher debt costs.

Third-quarter net income declined 61 percent to 1.86 billion rupees ($37.6 million) in the three months ended Dec. 31, from 4.8 billion rupees a year earlier, the Mumbai-based company said in a statement today. That compares with the 2.21 billion-rupee median of 20 analysts’ estimates compiled by Bloomberg.

Billionaire Anil Ambani’s flagship company follows bigger rival Bharti Airtel Ltd. (BHARTI) in reporting earnings that fell short of expectations after phone usage slowed and costs increased. Reliance, which spent 85.9 billion rupees in 2010 at auctions to buy airwaves for third-generation services, is refinancing foreign-currency loans to extend their maturity.

“Net income is down year-on-year because of costs related to 3G spectrum and the rollout of services,” Unmesh Sharma, an analyst at Macquarie Capital Securities in Mumbai, said before the announcement. “In the near term, this is going to continue to be a pressure across the sector.”

Reliance, India’s largest mobile-phone operator after Bharti, had 150 million connections at the end of December, according to the nation’s telecommunications regulator.

Net sales fell to 48.24 billion rupees from 48.65 billion rupees a year earlier, according to the statement. That’s lower than the 52.1 billion-rupee median of 21 analysts’ estimates.
Refinancing Debt

Financial charges at the company almost tripled to 3.78 billion rupees in the third quarter, according to the statement.

Reliance said it will refinance about $1.18 billion of foreign-currency debt due March 1, according to a company press release today. China Development Bank Corp., Export-Import Bank of China and Industrial & Commercial Bank of China will help the Indian operator extend the maturity of the loans by seven years at an interest rate of about 5 percent.

Earnings before interest, taxes, depreciation and amortization, or Ebitda, fell to 16.1 billion rupees from 16.7 billion rupees a year earlier, while the Ebitda margin declined to 31.9 percent from 33.3 percent a year earlier.
Stock Performance

Reliance fell 1.2 percent to 94 rupees at close in Mumbai, before the earnings were announced. The stock has gained 34 percent this year, compared with the 15 percent jump in the benchmark Sensitive Index (SENSEX), or Sensex. Bharti has risen 1.9 percent.

Bharti this week reported third-quarter profit fell 22 percent to 10.1 billion rupees. The company’s Indian customers cut phone usage 7 percent in the quarter, after it raised call rates.

India’s highest court on Feb. 2 canceled 122 second- generation mobile-phone licenses, including all the permits used by the local units of Emirates Telecommunications Corp., or Etisalat, and Norway’s Telenor ASA. (TEL)

Etisalat and Telenor had purchased stakes in Indian companies that won the permits. The court scrapped the licenses, sold in 2008, saying they were acquired through an arbitrary and “unconstitutional exercise.”

Reliance won 3G wireless permits in 13 of India’s 22 telecommunication zones in May 2010.

Reliance plans to raise as much as $1.5 billion through a Singapore listing of its submarine cable assets, a person familiar with the matter said last month. It may sell 75 percent of the FLAG Telecom unit of Reliance Globalcom, a subsidiary of Reliance Communications, in an initial public offering, according to the person.

To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.