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Reliance Comms Q2 profit drops more than expected

Indian telco posts a 44 percent decline in profit to INR 1.05 billion (US$19.6 million), due to a jump in refinancing costs which offset growth in ARPU.
Written by Ryan Huang, Contributor

Reliance Communications has reported a 44 percent drop in profit for the second quarter in a row on the back of a jump in refinancing costs.

In a statement (PDF) Wednesday, India's No. 3 telecommunications carrier said net profit for the three months ended December was 1.05 billion Indian rupees (US$19.6 million), down from 1.86 billion Indian rupees (US$34.6 million) a year earlier. This was despite a 5 percent rise in revenue to 53.1 billion Indian rupees (US$980 million).

According to a Reuters poll, analysts had expected Reliance to book a net profit of 1.83 billion Indian rupees (US$34 million) on sales of 52.8 billion Indian rupees (US$983 million).

Gurdeep Singh, CEO of Reliance Communications' wireless business, attributed the bigger-than-expected profit drop to a jump in interests costs, where the company had refinanced foreign currency convertible bonds (FCCBs) of US$1.18 billion through loans from a handful of Chinese banks, noted Reuters in a report Wednesday.

However, in an interview with the newswire, Singh pointed out that key operating metrics such as average revenue per user (ARPU) for the quarter grew.

Monthly average revenue per user rose 17 percent quarter on quarter to 119 Indian rupees (US$2.21), while minutes of usage per subscriber rose 15 percent sequentially to 271 minutes, Singh told Reuters.

Reliance's net debt of about US$6.9 billion--more than five times its annualised operating profit--makes it the most-leveraged Indian phone carrier, pointed out Reuters.

Its finance costs, which include interest expenses, grew 59 percent to 6.05 billion Indian rupees (US$112.7 million).

Indian telcos are expected to struggle to remain profitable while fulfilling regulatory payments to get back their cancelled 2G licenses, according to credit ratings agency Fitch, which has rated the sector negative for 2013.

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