Reliance Comm Q2 profit drops 60 percent on finance costs

Despite 3.2 percent rise in revenue, the Indian telco suffers larger than expected profit decline, dragged down by higher costs of its debt.
Written by Ryan Huang, Contributor

India's number three telco Reliance Communications booked a larger-than-expected decline in its second quarter net profit, weighed down by rising costs of its massive debt.

In its earnings results [PDF] announced Thursday, the telco said net profit was INR 1.02 billion ($18.8 million), down from INR 2.52 billion (US$46.4 million) a year earlier. This was despite a 3.2 percent rise in revenue to INR 52 billion (US$956.7 million) for the three months ended September.

The company was expected to book a profit of INR 1.64 billion (US$302.2 million) and revenue of INR 52.75 billion (US$971 million), according to a Thomson Reuters poll.

Reliance Communications

A jump in finance charges for the company's INR 360 billion (US$6.6 billion) including interests costs had hurt the bottomline, said Gurdeep Singh, CEO of Reliance Communications, in a Finanacial Times report. The company’s financing costs increased 161 per cent year-on-year, to INR 5.93 billion (US$109.2 million), which included the impact of refinancing a foreign currency convertible bond, it added.

Reliance Communications has been trying to raise funds by selling stakes in its units, but has so far been failed to do so, noted Reuters.

The newswire pointed out the planned sale of its telecommunication tower unit that had been expected to raise about US$3 billion has dragged on for more than two years. In July, Reliance was also forced to shelve a public offering in Singapore of its undersea cable unit due to weak investor demand.

The telco is likely to face more margin pressure with upcoming regulatory charges. India is planning to levy more than US$5.5 billion in surcharges on airwaves held by older telcos,which will significantly push up their expenses.



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