Reliance Communications Annual Profit Falls to Four-Year Low

May 30, 2011, 8:40 PM EDT By Ketaki Gokhale

May 31 (Bloomberg) -- Reliance Communications Ltd., the worst performer on India’s benchmark index this year, reported its lowest annual profit in at least four years as competition cut network usage.

Net income fell 71 percent to 13.5 billion rupees ($299 million) in the year ended March 31, from 46.6 billion rupees a year earlier, the Mumbai-based company said in an e-mailed statement yesterday. That compared with the 15.2 billion-rupee average of 31 analyst estimates compiled by Bloomberg.

The results yesterday underscore the challenges facing billionaire Anil Ambani’s flagship company, as competition intensifies following the start of number portability this year and the arrival of Telenor ASA and NTT DoCoMo Inc. in the world’s second-largest market for wireless services. Reliance added fewer customers last quarter than smaller rival Vodafone Group Plc’s Indian unit, the nation’s third-largest mobile phone company by subscribers.

“Minutes on the network have been coming down,” said Abhishek Gupta, an analyst at IDFC Securities Ltd. in Mumbai. “You can blame churn for that, or people shifting to the other guys.” The brokerage rates Reliance shares “underperform.”

Reliance, India’s largest mobile phone company after Bharti Airtel Ltd., added 10.1 million connections, while Vodafone added 10.3 million. Reliance had 136 million subscribers at the end of March, according to data from the nation’s telecommunications regulator.

Falling User Revenue

Net income fell 86 percent to 1.69 billion rupees in the three months ended March 31, from 12.2 billion rupees a year earlier, the Mumbai-based company said. That compared with the 3.14 billion-rupee average of 19 analyst estimates compiled by Bloomberg and is the seventh consecutive drop in quarterly earnings.

Average revenue per user, a key metric in the telecommunications industry, declined 23 percent to 107 rupees per wireless customer each month from 139 rupees a year earlier. The number of minutes each client spent on Reliance’s network in a month slumped 24 percent to 241 from 318 in March 2010.

Owning multiple mobile-phone connections is common in India, where Japan’s NTT DoCoMo and Norway’s Telenor sparked a price war in 2009 that pared call rates to as low as half a U.S. penny a minute.

Reliance rose 2.9 percent to 87.55 rupees at the 3:30 p.m. close of trading in Mumbai yesterday, while the Bombay Stock Exchange’s benchmark Sensitive Index, or Sensex, fell 0.2 percent. The stock has lost 40 percent this year, compared with an 11 percent decline in the Sensex and Bharti’s 3.5 percent climb.

Net Debt

Reliance’s debt exceeded cash and equivalents by 320 billion rupees as of the end of March from 199 billion rupees a year earlier, according to the phone operator.

Reliance will spend 15 billion rupees on capital expenditure in the year ending March 2012, said Syed Safawi, president of the company’s wireless business, in a call with analysts yesterday. The spending will be funded by internal funds, he said.

The company was in talks to sell a stake or hold an initial public offering of its mobile-phone tower unit, after negotiations to sell it to GTL Infrastructure Ltd. collapsed on Aug. 31 with neither side attempting to extend the deadline.

The transaction would result in a “significant” reduction of debt, Reliance had said.

The board had also approved a separate plan to sell a 26 percent stake in the company at an “appropriate” premium to the market price, to a strategic buyer or a private equity firm, the company said in an e-mailed statement on June 6.

Second to China

The Indian wireless market is forecast by researcher Gartner Inc. to exceed 993 million users by the end of 2014. India had 812 million mobile-phone accounts in March, according to the nation’s phone regulator, second only to China’s market in size.

Three officials of the Reliance Anil Dhirubhai Ambani Group are among nine people charged in April and subsequently arrested by India’s Central Bureau of Investigation in connection with its probe of a government sale of wireless permits. A Reliance ADA Group e-mailed statement said its three employees deny the charges and have a legal presumption of innocence pending the completion of a trial.

Seventeen of the 42 analysts tracked by Bloomberg recommend selling Reliance shares, 15 have a “hold” or equivalent rating, and 10 make a recommendation for buying the stock.

--Editors: Abhay Singh, Arijit Ghosh

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

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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