Reliance Communication Says Profit Falls 37% on Interest Costs
Reliance Communications Ltd. (RCOM), India’s second-largest mobile-phone carrier, said first-quarter profit fell 37 percent, more than analysts expected, because of foreign-exchanges losses and higher interest costs.
Net income declined to 1.57 billion rupees ($34 million) in the three months ended June from 2.5 billion rupees a year earlier, the Mumbai-based company said in a statement to the Bombay Stock Exchange yesterday. Profit compared with the 1.92 billion-rupee median of 18 analysts’ estimates compiled by Bloomberg.
Billionaire Chairman Anil Ambani’s flagship company posted its eighth consecutive drop in quarterly profit, after spending 85.9 billion rupees on airwaves to start third-generation wireless services. Reliance in December tied up with China Development Bank Corp. to borrow $1.93 billion to help pay for starting the faster networks this year in India, the world’s second-largest mobile-phone services market.
“There are higher interest costs because of the 3G licenses coming into the fold, and there’s also the depreciation line item,” Rohit Dokania, an analyst at Batlivala & Karani Securities Pvt. in Mumbai who rates the stock “underperform,” said. “Growth is also a problem for Reliance Communications as the best customers have already been taken.”
Reliance had more than 143 million wireless connections at the end of June compared with 169 million subscribers at Bharti and Vodafone Group Plc’s almost 142 million accounts, according to data from the nation’s telecommunications regulator.
Revenue Fall
Syed Safawi, president of Reliance Communication’s wireless business, cited foreign exchange losses and interest costs as the reasons for the fall in profit, adding the company expected its wireless sales to see “healthy growth” in the coming quarters.
Revenue fell 4.3 percent to 48.5 billion rupees.
Reliance competed with companies including Bharti and Vodafone Group Plc (VOD), the world’s biggest mobile-phone operator, in an auction for 3G airwaves to ease congested networks and tap new sources of revenue in a wireless market that is forecast by researcher Gartner Inc. to exceed 993 million users by the end of 2014. India had 852 million mobile-phone accounts in June, according to the nation’s telecommunications regulator, second only to China’s market in size.
Reliance won permits to start 3G services in 13 of India’s 22 telecommunication zones.
Share Plunge
Reliance fell 2.4 percent to 84.35 rupees at the 3:30 p.m. close of trading in Mumbai on Aug. 12, compared with a 1.3 percent fall in the benchmark Sensitive Index, or Sensex. The stock has declined 42 percent this year, compared with an 18 percent drop in the Sensex. Bharti has gained 8.4 percent over the period.
Three officials of the Reliance Anil Dhirubhai Ambani Group are among the nine people charged in April and subsequently arrested by India’s Central Bureau of Investigation in connection with its investigation of a government sale of wireless permits to ineligible companies.
The market value of Ambani’s publicly traded companies fell by a combined $2.6 billion on Feb. 9 after the group said “vicious and illegal” rumors sparked a selloff.
Ambani blamed rumors spread by rivals and stockbrokers for a plunge in shares of his group’s telecoms, power and infrastructure companies.
To contact the reporters on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net;
To contact the reporter on this story: Pratik Parija in New Delhi at pparija@bloomberg.net
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