RComm profit rise capped by higher interest costs

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Telecoms carrier Reliance Communications on Saturday reported a smaller-than-expected 3 per cent rise in quarterly profit, weighed down by higher finance costs, in what was its second straight quarter of profit growth.

India's No.2 mobile phone operator by customers is battling a fiercely competitive market of more than a dozen players where a sharp fall in voice call prices and high payouts for 3G airwaves have pressured margins.

The company, controlled by billionaire Anil Ambani, is also saddled with about $7 billion of net debt as of March, and has so far been unsuccessful in its efforts to raise funds through stake sales in its units.

Gurdeep Singh, who was named chief executive officer of Reliance Communications' mobile business in May 2012, described the current market condition as a 'ough competitive environment', but was hopeful of growth in mobile data that offers relatively higher margin than voice.

"It's a 13-player market, so competitive intensity is severe. And we'll continue to see this in the near term," Singh said in a phone interview after the earnings announcement.

A court order to revoke mobile phone spectrum licenses granted in a scandal-tainted 2008 sale to eight of Reliance Communications' rivals is expected to ease competition.

The permits will be revoked after an airwave auction is held towards the end of the year, which will be the last chance for the affected carriers to win those back.

Reliance Communications said consolidated net profit rose 3.2 per cent to Rs 1.62 billion for its fiscal first quarter ended June, from Rs 1.57 billion a year earlier. Revenue rose an annual 8 per cent to Rs 53.19 billion.

Analysts had expected net profit of Rs 1.71 billion on revenue of Rs 51.49 billion, according to Thomson Reuters I/B/E/S, for the company that had about 155 million mobile customers at end-June.

Reliance Communications, which ranks No.4 in the industry by revenue, had posted 10 straight quarters of declining profit before reporting a surprise profit rise in the March quarter.

While a planned sale of Reliance Communications' telecoms tower unit, expected to raise about $3 billion, has dragged on for almost two years, last month it shelved an up to $1 billion Singapore IPO of its undersea cable unit, dealing a blow to its efforts to ease its heavy debt load.

Finance charges, which include interest expenses, rose more than a third in the quarter to Rs 5.53 billion from a year earlier.

The operating (EBITDA) margin for the quarter was at 31 per cent, lower than 32.4 per cent a year earlier.

Reliance Communications shares, which give the company a market capitalisation of about $2 billion, closed 0.4 per cent lower at Rs 54.70 on Friday.

The stock had hit an all-time low of Rs 53.40 late in July and is down about 22 per cent on the year, underperforming a broader market up about 14 per cent.

By comparison, shares in mobile market leader Bharti Airtel which reported this week its 10th straight quarter of profit decline are down more than a quarter this year. Idea Cellular shares have lost about a tenth of their value.