Reliance Communications Ltd. (RCom) used to be the flagship company of Reliance ADAG. At one time in late 2007, RCom used to enjoy a Market Cap of over Rs. 1,50,000 crores and was the 2nd or the 3rd largest Telecom company in India. But the last 7-8 years have been terrible for the company. RCom's current Market Cap stands at just about Rs.17,000 crores, that means nearly 90% below it's peak levels. In FY'09, RCom had posted a Total Income of Rs.22,948 crores and a Net Profit of Rs.6045 crores. While RCom posted a Total Income of Rs.22,321 crores and a Net Profit of Rs.1047 crores in FY'14. That means RCom's financial performance has degraded in these 5 years. Let's compare that with Idea Cellular's performance. During the same 5 years Idea's Total Income jumped from Rs.10,149 crores to Rs.26,518 crores, while Net Profit jumped from Rs.901 crores to Rs.1968 crores.
What happened to RCom during these 5-6 years??!! The Indian Mobile Service Industry went through a lot a turmoil during these years. First the entry of many new service providers in 2009, thanks to the ill-famous 2G Scam, which led to hyper competition in the market for a couple of years until SC stepped in & cancelled those new licences. Then the Auction of 3G spectrum in early 2010, where RCom managed to bag spectrum in 13 circles, including the crucial circles of Mumbai & Delhi. Probably RCom stretched it's Balancesheet a bit too much for the 3G auction & the subsequent network rollout. RCom can be said to be the biggest victim of the hyper-competition & the Debt trap created by it's ambitious bidding during 3G Auctions. And despite having one of the highest number of 3G circles in it's fold, RCom did not manage to capture a good amount of market share. It holds spectrum in 800 MHz CDMA band (across India), 1800 MHz 2G band (in 15-16 circles), 900 MHz 2G spectrum (in 6-7 circles) and 2100 MHz 3G spectrum (in 13 circles).
Look at RCom T-T-M Financial performance over the last 8 quarters. It has gone nowhere. All numbers are almost flat. During these 8 quarters, most other telecom operators have seen a huge surge in Data traffic & revenues from the same. With RCom having Nationwide CDMA spectrum & 3G spectrum in 13 important circles, there hasn't been much growth for RCom. Or atleast the growth from Data revenues has been equally negated by drop in Voice revenues. Over the recent quarters the company is working towards reducing it's Debt burden, which should lead to drop in Interest Costs & hence improvement in Cash Profits. The company has recently issued fresh shares to the Promoter Group at a price of Rs.150 per share. Few months back it raised funds abroad at low interest rate to retire some old high-cost debt. Plus RCom is expecting improved Cash Flows from it's Tower Assets & Optic Fibre Cable network once RelJio launches it's 4G service and starts paying Rent/usage fees to RCom. RCom has not done any significant CAPEX in the last 2 years. The improved Cash Flows should enable the company to work towards improving it's 3G coverage.
But all this is not going to help RCom survive the competition onslaught which is expected to intensify once RelJio launches it's services. RCom, which has not managed to grow it's revenues when all it's existing competitors are growing pretty well, will start losing revenues once RelJio starts and even other operators like Airtel, Vodafone & Idea start launching their 4G services. So, what is the Glimmer of Hope that I was talking about? It is the possibility of having a much larger partnership with RelJio. RelJio has already signed agreements with RCom to rent it's Towers and use the OFC network, wherever possible. But there is a possibility of RelJio using RCom's 2G & 3G network as a fall-back network for it's subscribers in regions where it will find it unviable to setup it's own 4G network, atleast in the initial years. This kind of arrangement can help RCom improve it's network utilisation levels & also add to increased Cash Flows. Another possibility is that RelJio could allow RCom to piggy-back on it's 4G network and allow RCom subscribers to experience 4G speeds without being charged any Roaming fees. If they do manage to have such an arrangement, then RCom will be able to protect it's existing Data subscribers & revenues from being churned. This kind of arrangement will be a win-win situation for both. RelJio will need quite a lot of time to build usage of it's brand new network on it's own. If it allows RCom subscribers to use it, revenues & utilisation levels will get a good boost. And if things improve between the two brothers, then they could even think of merging the two companies a few years down the line.
All these are just POSSIBILITIES and nobody knows as of now, on how things will pan out in the coming quarters. But at the current price of less than Rs.70/-, RCom is trading at very cheap valuations, though it's past performance doesn't deserve much higher valuations either. But if RCom does manage to tie-up an operating partnership with RelJio, it can change RCom's fortunes & it's financial health.
What happened to RCom during these 5-6 years??!! The Indian Mobile Service Industry went through a lot a turmoil during these years. First the entry of many new service providers in 2009, thanks to the ill-famous 2G Scam, which led to hyper competition in the market for a couple of years until SC stepped in & cancelled those new licences. Then the Auction of 3G spectrum in early 2010, where RCom managed to bag spectrum in 13 circles, including the crucial circles of Mumbai & Delhi. Probably RCom stretched it's Balancesheet a bit too much for the 3G auction & the subsequent network rollout. RCom can be said to be the biggest victim of the hyper-competition & the Debt trap created by it's ambitious bidding during 3G Auctions. And despite having one of the highest number of 3G circles in it's fold, RCom did not manage to capture a good amount of market share. It holds spectrum in 800 MHz CDMA band (across India), 1800 MHz 2G band (in 15-16 circles), 900 MHz 2G spectrum (in 6-7 circles) and 2100 MHz 3G spectrum (in 13 circles).
Look at RCom T-T-M Financial performance over the last 8 quarters. It has gone nowhere. All numbers are almost flat. During these 8 quarters, most other telecom operators have seen a huge surge in Data traffic & revenues from the same. With RCom having Nationwide CDMA spectrum & 3G spectrum in 13 important circles, there hasn't been much growth for RCom. Or atleast the growth from Data revenues has been equally negated by drop in Voice revenues. Over the recent quarters the company is working towards reducing it's Debt burden, which should lead to drop in Interest Costs & hence improvement in Cash Profits. The company has recently issued fresh shares to the Promoter Group at a price of Rs.150 per share. Few months back it raised funds abroad at low interest rate to retire some old high-cost debt. Plus RCom is expecting improved Cash Flows from it's Tower Assets & Optic Fibre Cable network once RelJio launches it's 4G service and starts paying Rent/usage fees to RCom. RCom has not done any significant CAPEX in the last 2 years. The improved Cash Flows should enable the company to work towards improving it's 3G coverage.
But all this is not going to help RCom survive the competition onslaught which is expected to intensify once RelJio launches it's services. RCom, which has not managed to grow it's revenues when all it's existing competitors are growing pretty well, will start losing revenues once RelJio starts and even other operators like Airtel, Vodafone & Idea start launching their 4G services. So, what is the Glimmer of Hope that I was talking about? It is the possibility of having a much larger partnership with RelJio. RelJio has already signed agreements with RCom to rent it's Towers and use the OFC network, wherever possible. But there is a possibility of RelJio using RCom's 2G & 3G network as a fall-back network for it's subscribers in regions where it will find it unviable to setup it's own 4G network, atleast in the initial years. This kind of arrangement can help RCom improve it's network utilisation levels & also add to increased Cash Flows. Another possibility is that RelJio could allow RCom to piggy-back on it's 4G network and allow RCom subscribers to experience 4G speeds without being charged any Roaming fees. If they do manage to have such an arrangement, then RCom will be able to protect it's existing Data subscribers & revenues from being churned. This kind of arrangement will be a win-win situation for both. RelJio will need quite a lot of time to build usage of it's brand new network on it's own. If it allows RCom subscribers to use it, revenues & utilisation levels will get a good boost. And if things improve between the two brothers, then they could even think of merging the two companies a few years down the line.
All these are just POSSIBILITIES and nobody knows as of now, on how things will pan out in the coming quarters. But at the current price of less than Rs.70/-, RCom is trading at very cheap valuations, though it's past performance doesn't deserve much higher valuations either. But if RCom does manage to tie-up an operating partnership with RelJio, it can change RCom's fortunes & it's financial health.
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