call transcript rcom 2qfy12

8/3/2019 Call Transcript RCOM 2QFY12

1/23

RELIANCECOMMUNICATIONS

LIMITED

Registeredoffice:HBlock,1stFloor,DhirubhaiAmbaniKnowledgeCity,NaviMumbai 400710

TranscriptofEarningsConferenceCallfortheQuarterendedSeptember30,2011

Conductedat12.00pmISTonNov14,2011


2/23

2

Operator:

Thankyou forstandingbyandwelcome toRelianceCommunicationsglobalearnings

conferencecallontheRelianceAudioConferencingplatform.

Thisis

Mamta,

the

moderator

for

this

conference.

At this time,all theparticipantsare in listenonlymode.Therewill beapresentation

followedbyaquestionandanswersessionatwhichtimeifyouwishtoaskaquestion,

pleasepress*1onyourtelephone.Pleasebeadvised,thisconferenceisbeingrecorded

today.

Today, we have the senior management from Reliance Communications to present

secondquarter,FY12financialresults.

The call will begin with some key observations by Mr. Syed Safawi followed by a

questionand

answer

session.

Imust

remind

you

that

the

overview

and

discussions

today may include some forwardlooking statements that must be viewed in

conjunctionwiththerisksthatthecompanyfaces.

IhandoverthecallnowtoMr.SyedSafawi.Thankyou.

SyedSafawi:

Thankyou,Mamta.

It isagreatpleasure toonceagainwelcomeallofyou to thisearningscall todiscuss

RelianceCommunications

financial

performance

for

the

quarter

ended

September

30th

2011.

IampleasedtosharethatRCOMhasbeenabletogrowitsrevenuesandtotaltrafficin

minutes,notwithstandinganoverallseasonallyweakquarterfortheindustryatlarge.

Keyhighlightsforthequarter:

Letmesharewithyouthekeyhighlightsofthequarter:

1. Revenue: RCOM wireless revenue has grown by 2.1% in Q2, amongst the highestrevenue

growth

in

the

industry

based

on

various

initiatives

undertaken

in

the

last

34quarters

RPM: RPM stood steady at a solid 44.7 paisa per minute, a growth of 0.5%;amongstthehighestintheindustryforthelast7consecutivequartersnow.

EBIDTA:RCOMEBIDTAmarginat31.8%,amongstthehighestintheindustry


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3

2. Free Cash Flow and debtmanagement: RCOM continues to be Free Cash Flowpositive in this quarter and this financial year would be the first full year of free

cashflowpositive.

Allmajorprojectshavebeen implementedandpeakcapex isbehindus.Allfuture

Capex

requirements

are

only

incremental

and

focused

on

network

quality,capacity,enterprisedatacenterandwirelessdatagrowth

Asyouareaware,wehaveredeemedFCCBofUSD500Mn inthepreviousquarter.Wearefullygeareduptorepaythefuturedebtmaturities(including

redemptionofFCCBworthUSD1.1BndueinMarch,2012)

Asalreadycommunicated,RCOMwasthefirstandonlyoperatortorefinanceits spectrum fees through ECB from China Development Bank. RCOM is

benefiting fromextendedLoanMaturityof10yearsresulting insubstantial

annualinterestcostsavingsofRs.500crore.

Reliance Infratel transaction is progressing well and an update to all ourstakeholderswillbesharedatanappropriatetime.

Asacompany,ouraimistoreducedebtsignificantlybyMarch,2013.FinancialPerformance:

Now, I would like to share some of the key highlights of the financial performance

duringthequarter:

Consolidated

Revenue

at

Rs.

5,040

crore,

up

2.0%

against

Rs.

4,940

crore

(q

o

q)

EBIDTAatRs.1,605croreagainstRs.1,602crore(qoq) EBIDTAmarginat31.8%isoneofthehighestintheindustry NetprofitofRs.252crore,up60%againstRs.157crore(qoq) Onthecapexfront,wehavespentRs.350croreduringQ2.

Let me now briefyou on someof the initiatives taken by RCOM, whichhave already

startedshowingpositiveimpactonRCOMsperformance:

1. Wire Free India: We continue to rapidly execute our Wirefree India vision,which was unveiled by our Chairman during the AGM in Sept10. We have

remainedcommittedtoputacceleratedefforts inenablingwirelessbroadband

across India. We have expanded our HSD Network and have quality HSD

coverageinalmost1,000townsupfrom65townsoneyearback.


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The presence of 3G in 333 towns in 13 circles (including Delhi, Mumbai and

Kolkata), along with the rapidly expanding Highspeed CDMA data network,

makes RCOM the only nationwide private operator to offer seamless Wireless

Broadband experience in over 1,300 top towns across the country as of

September30,2011includingkeymetros.

Combinethiswithourextensive1XDatapresenceofferinghighqualityinternet

connectivity in 20,000 towns; it positions RCOM extremely well to take

advantage of the rapid increase in data consumption across the country and

enabling our visionof a WireFree India. Wecurrently serve~2.1 Mnactive

customersonour3Gnetwork,highestintheindustry.

2. Asanintegralpartofour3GStrategy,wehadestablisheda3GInnovationLabwiththeobjectiveoffacilitatingthedevelopmentofmobileservice innovations

byofferingrealtimeproductdevelopmentalcapabilitiesto3rdpartydevelopers.

a. As part of that effort, we successfully launched R.apps the Reliancebrandedapplicationstore,havingmorethan50,000appsandgames.

b. WehavealsorefreshedRWorldthenextgenerationentertainmentportal makingitmoreuserfriendlyandwithfasterdownloads.

c. WewillbelaunchingournewVideoonDemandapplicationshortly,thatwillrenderacrossvariousdevicessuchashandsets,tablets,PC,etc.

3. To help develop the 3G ecosystem in India, we launched our proprietary 3GTablet in August 2011, Reliance 3G Tab an Androidbased Tablet at a very

attractiveprice

of

under

Rs

13,000,

enabling

our

customers

to

enjoy

afuturistic

3Gexperienceandexploreaworldofunlimitedpossibilities.Thisisabigstepin

the 3G revolution in India and we have seen huge acceptance and increasing

demandacrossallcities.RCOMhasalsotiedupwithNokia,Samsung,LG,Sony

EricssonandotherOEMsfor3GmodelswithattractiveMoneyBackandMobile

Internetbundlingofferstodrivethe3Gecosystem.

4. Inrecentpast,wedidamassiveBrandRefreshdrivetomakethebrandyouthandinnovationcentric.WearecontinuingthefocusonourBrandthroughtheTV

Campaigns that are onair andas we speak andwe are seeingvery significant

tractionofbrandindicators.

IndustryHighlights&RegulatoryDevelopments

DuringthefirsttwoquartersofFY12,theindustrysawsubduedcompetitiveintensityas

far as tariffs are concerned and recent tariff hikes by almost all the incumbents is a

reflection of the abating competitive pressure on pricing. As mentioned during first

quarters earnings call, we have also revised tariffs upwards in both GSM and CDMA


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owingtoinflationarypressuresoncost.Thiswillcertainlyhelptheindustryinachieving

pricingstabilityandimprovingtherevenuegrowthtrajectory.

Overall, inthe2ndquarter,thenewsubscriberacquisitionshavesloweddownforthe

Industry.The industry added22.47 million wireless subscribersas compared to 40.23

millionsubscribers

in

the

first

quarter

of

2011.

The

total

wireless

subscriber

base

as

on

30thSeptember2011standsat868.6million.

ForRCOMalso,subscriberacquisitionshavebeeninlinewiththeindustryinthesecond

quarter.Weadded3.82millionwirelesssubscribersinthequarter. ForRCOM,thetotal

subscriber count stands at 147.1 million subscribers, maintaining a share of 17% of

customers.

DraftNTP 2011

During the quarter, honorable Minister for Communications and Information

Technologyunveiled

the

Draft

of

New

Telecom

Policy

2011.

The

policy

has

avision

of

BroadbandonDemandandenvisages leveragingtelecom infrastructuretoenableall

citizens and businesses, to participate in the Internet and web economy thereby

ensuring equitable and inclusive development across the nation. The policy aims

towardsconvergencebetweentelecom,broadcastandITservices,networks,platforms,

technologies and overcome the existing segregation of licensing, registration and

regulatorymechanismsintheseareastoenhanceaffordability,increaseaccess,delivery

ofmultipleservicesandreducecost.

TRAIresponsetoDoTonSpectrumManagementandLicensingFramework

Growthin

the

telecom

sector

in

India

has

been

pragmatically

supported

by

government

policiesandregulatoryframework.Earlierthismonth,TRAIrespondedtoDepartmentof

Telecommunications on various issues related with Spectrum Management and

Licensing Framework including M&A rules and spectrum sharing. Most of the

recommendationsareforwardlooking&constructiveandwouldsurelybridgethegap

betweentheincumbentsandnewplayersbycreatingalevelplayingfield.

We believe that TRAI recommendation on M&A regulations are progressive and will

help consolidation in the industry. TRAI has confirmed that committed spectrum for

GSM is6.2MHzwhileforCDMA, it is5MHz.Thusoperatorscangetupto6.2MHzin

GSMaspartofcontractedspectrum.Thiswillsignificantlyreducenetworkcostfornew

GSMnetworks

like

RCOM

and

further

help

RCOM

in

improving

its

business

and

cash

flows. The additional spectrum will significantly enhance the quality of network and

consequently the customer experience. TRAI has made it clear that the priority for

releaseofspectrumshallbetothosewhohavereceivedinitialstartupspectrumhallof

4.4MHz.Inthisregard,RCOMleadsthequeue.


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6

AspertheTRAI,theLicenseeswithspectrumbeyond6.2MHZwillhavetopayonetime

excessspectrumcharges.WhileRCOMhasexcessspectrummerelyinonecircle(Bihar)

and that too negligible, incumbent GSM operators have excess spectrum in many

circles. Operatorswhohavespectrumbeyond6.2MHzhavetopayhugesumsasone

timeexcessspectrumcharges.

Letmenowsharewithyouthefinancialandoperationalperformanceofourwireless

business.

Wireless revenue for the quarter stands at Rs. 4,417 crore, against Rs. 4,327croreinQ1,upby2.1%

EBIDTAstandsatRs.1,176croreagainstRs.1,173crore OurRPMstoodathealthy44.7paisa,growthby0.5%(qoq),amongthehighest

in the industry. We have successfully arrested decline in RPM for the last 7

consecutivequarters

amidst

increasing

competition,

driven

by

focus

on

the

qualityofoperationsandrecenttariffincreasehashelpedfirmRPMsforRCOM

We have continued our increased focus on data: we now provide high speeddatacoverageinover1,300towns.

Weserve~2.1Mnactivecustomersthroughour3Gnetwork. Withthisfootprintandsuperiorqualitynetwork,RCOMistheclearleaderinthe

3Gdatamarketspaceandwouldcontinuetodrivethisconsistently.

For

the

last

8

quarters,

the

focus

has

been

to

build

Quality

of

Operations

through

initiatives focused on segmentation and cluster level profitability. As shared with you

duringthepreviousfewquarters,wecontinuetoremainfocusedonpaidminutes.The

focus on driving a quality portfolio driven by increase in nonvoice services has

continued. Our nonvoice revenue contribution to overall revenues is amongst the

highestintheindustry,atcloseto20%,wetargettodoublethecontributionfromnon

voiceinthenext2years.

AsImentionedearlier,wecontinuedwiththedisciplineweimposedonourselvesafew

quartersagobykeepingastrictleashonMoUgrowthwithoutcommensuraterevenue

growth,bynotinducingfreeminutesorFAT. ThishashelpedintheRPMforWireless

remaininghealthy

and

now

reaching

45p/min.

We

have

further

cleaned

up

our

non

profitableproductsandtightenedacquisitionnormstoensurehigherretentionpost90

daysanddeliverbettercustomer lifecyclevalue.Weare focusingonspecialprograms

towardsbuildingtheonnetcommunity. CDMAbusinessisakeyfocusareaforRCOM

and various programs/initiatives have been lined up for the same. We believe that

theseinitiativeswillhelpRCOMdrivesustainedprofitablerevenuegrowth.


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Reliance Communications is clearly focused on building a 'healthy portfolio mix',

throughdrivingprofitableDataandVASbusinessestherebyfutureproofingthebusiness

against voice led growth alone. This is in line with the trends in the Global telecom

marketsofbuildinga strongportfoliomix.BoththesesegmentsofDataandVASare

growingatahealthydoubledigitrate.Wewillcontinuethisfocusandalreadyhavethe

largest,

widest

and

deepestfootprint

of

3G

enabled

data

services

in

the

country,

providingspeedsupto28Mbps.Coupledwiththis,theHSDServicesthatwecurrently

provide inalmost1,000townsand1xacrossthecountry in20,000townsand600,000

villages. Together Data and VAS would continue to drive the Companys Wireless

businessgrowthgoingforward.

We have already seen tangible evidence of accelerating mobile data adoption where

consumersandbusinesscustomersareseizingthebenefitsoffast,reliablemobiledata

networksusingsmartphonesandothermobiledatadevicessuchasTablets.Aspartof

ourDataandDevicesRoadmap,RelianceCommunicationshaslauncheditsveryown3G

TabthefirstofitskindinitiativeintheindustrybyaserviceproviderinIndia.

These transformational changes are beginning to yield constant consumption led

revenuegrowth.

Letmenowcoverthenonwirelessbusinesses.

In our Global Enterprise Business Unit, we achieved revenue of Rs. 2,335 crore as

comparedtoRs.2,292croreinQ1,agrowthof1.9%andEBITDAofRs.569croreforthe

QuarterendingSeptember30,2011.

CarrierBusiness

Second quarter witnessed strong growth in Carrier businesss sales order booking as

wellasrevenue.WehavebookedsalesordersofRs417croreinQ2FY201112whichis

10%higherthanthesalesorderssignedinQ1.Theincreaseisdrivenbyrobustdemand

inEurope,MiddleEastandAsia.WehaverecentlyupgradedourFEA(FLAGEuropeAsia)

and FALCON cable system to add 400 GB of capacity on EuropeGulf loop. We have

increasedthecapacityofFEAby400%whichwillhelpuscatertoallfuturebandwidth

requirementsandtechnologicalimplementationsofourCarrierandISPcustomers.Sales

ontheupgradedrouteswillhelpusmaintainourleadershippositionintheVoice&Data

CarrierbusinessandatthesametimeestablishourleadershipintheCloudComputing,

Managed

Services

and

Application

Services

portfolio.

The InternationalVoicesegmentcontinued itsrobustgrowth;traffichasgrown34% in

Q2 on YoY basis to over 5 billion minutes. Our transit business has also grown

significantly and has clocked on an average more than 125 mn minute of traffic per

monthinQ2.Weareconfidentofsurpassingthe150mnminutespermonthoftransit

trafficbyendofFY1112.


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8

In the National Long Distance business, we signed orders of more than Rs 100 crore

primarilyfromBandwidthsalestoprivateserviceproviders.

EnterpriseBusiness

As

indicated

in

the

last

earnings

call

that

there

is

a

robust

demand

for

managed

services

andenterpriseoutsourcing;playingonthemarkettrendwehadabonanzaquarterwith

salesordersbookedofRs1,818crore,thehighlightofthesamewasthe largestData

Center outsourcing deal in India with the second largest private bank in India, HDFC,

worthRs1,400crorefor15years.Reliancewillbuildandoperatethe60,000sqftData

CenterforHDFCbankforaminimumContractperiodof15years.Inordertomeetthe

huge demand of Data Center space, we are building a new 350,000 sqft Data Center

facility inDAKC.Thephase Iof100,000sqftwillbeready in12monthsandcomplete

DataCentrewouldbereadyin24months.

In India, USA and Europe, we have received sales orders of over Rs 418 crore in Q2

FY201112.

Our

Q

oQ

success

in

the

government

vertical

continued

as

we

bagged

a

three year MCGM (Municipal Corporation of Greater Mumbai) project worth Rs 52.4

croreanda3yeardealwithDITMaharashtraGovernment.Wehaveacquiredseveral

othernewlogosintheEnterprisespacenotablebeing(i)largestmanufacturerofpaper

packagingproductsintheAsianregion,(ii)AEuropeanMotorinsurancecompanywith

operationsin7majorcountries,(iii)AGlobaltechnologyproductandservicescompany

with customers in automotive, mechanical engineering sectors (iv) Worlds largest

onlinepaymentsolutionscompanyandtheWorldslargestonlinemarketplace.

WeexpectstrongandcontinuedgrowthintheCarrierandEnterprisespacefromboth

India and outside India. A strong sales pipeline in the carrier business driven by an

increasingdemand

of

bandwidth

in

Europe,

Middle

East

and

Asia

will

drive

top

line

and

profitability.Indiabusinesswillcontinuetofocusonwinningkeyordersandprojectsin

itskeyverticals,theGovernmentandFinancialservices.

Conclusion:

Toconcludemyinitialcomments, Iwouldliketosaythatthesecondquarterhasbeen

very satisfactory given the background of seasonality in the industry. We are now a

servicebrandalreadyservingover150millioncustomers.

Tosummarise:

1. WirelessbusinessdeliveredastrongMoUgrowthof1.6%andrevenuegrowthof2.1%qoq,thirdconsistentconsumptionledquarterlyrevenuegrowth

2. WeareattheforefrontofcreatingWirefreeIndiabyofferingseamlesswirelessbroadbandexperience inover1,300 towns across the country. With20% of our


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revenuescomingfromnonvoice,wearethelargestdataplayerinthecountry. We

targettodoublethecontributionfromnonvoiceinthenext2years.

3. Wearedrivinggrowthofpaidminutesandcombinedwiththerecenttariffhike,weareabletogrowRPM

4. Maintaining healthy trend in our Global Enterprise business backed by robustdemandforbandwidth,managedservicesandenterpriseoutsourcing

5. Wecontinuetodeliverstrongmarginsat31.8%EBIDTAandareFCFpositiveforthequarterandwillbeFCFpositivefortheyear.

Thankyou.

AndIwouldnowliketohandyoubackfortheQ&As.

Operator:

Thankyou,sir.

WewillnowopenthecallforQ&A. Werequestallofyoutofocusonkeystrategicand

business issues. Wealsorequesteachparticipantnottoaskmorethantwoquestions

andprovideanopportunitytoalltheparticipantstointeractwiththemanagement.

Iwouldrepeat,atthistimeparticipantswhowishtoaskanyquestions,pleasepress*1

on your telephone keypad and wait for your name to be announced. If you wish to

canceltherequest,pleasepresshashorthepoundkey.

Firstin

line

we

have

question

from

Mr.

Sachin

Salgaonkar

from

Goldman

Sachs.

You

may

goaheadplease.

Mr.SachinSalgaonkar:

Hi,thankyouforthecall.Ihavetwoquestions.Firstly,Iwantedtounderstandwhynet

interest expense was lower so much on a QoQ basis. Also, could you help us

understandtheforeignexchange impactinthisquarteronP&LandBalanceSheetdue

tothe10%rupeedepreciation?Mysecondquestionison3G.Ofthe2.1millionactive

3Gsubscribers,howmanyofthemareontabletsandhowmanyofthemareonsmart

phones?Andwhereareyouseeingmoredemandasofnow,tabletsorsmartphones?

Mr.SyedSafawi:

Sachin,letmehandlethesecondquestionfirstandhandyoubacktoArvindforthefirst

one.The2.1millionactive3Gcustomersareacrossdevices.Theecosystemforhandset

is much larger. Tablets are an emerging category in India. Therefore, it would be

obviously smaller in terms of size. Majority of the current demand is from handsets


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10

ratherthantablets.Wewillnotknowhowthemarketevolvesbut,ifyouaretalkingof

850900 million total subscribers or 600 million unique customers, they are all on

handset.Astheyupgradetheirhandsetsto3Ghandsets,a largernumberwouldagain

cometohandsets.LetmehandyoubacktoArvindforthefirstquestion.

Mr.Arvind

Narang:

Hi,Sachin.Onyourquestionontheforexandthenet financecharges,pleasereferto

the notes to accounts where we have mentioned that pursuant to the scheme of

arrangement the company is permitted to adjust the variations on account of the

changes in the exchange rates related to loans in foreign currency by withdrawal or

credit to the General Reserves. And this necessary effect, whether it is positive or

negativewillbecarriedoutattheendoftheyear.


Sir,just

one

follow

up

question

on

my

first

part

on

tablets.

Currently,

RCOM

is

one

of

theveryfewoperatorsinIndiaofferingtablets.Whatistheapproximatemarketshare

RCOMishavingintablets?

Mr.SyedSafawi:

Sachin,itishigherthan20%ofallthetabletssoldinIndiaincludingiPad,Galaxytaband

everythingelse.


Got

it,

thank

you.

Operator:

Thank youSir.Next in line wehavequestion fromMr. Suresh Mahadevan fromUBS.

Youmaygoaheadplease.

Mr.SureshMahadevan:

Good afternoon and congratulations on a good set of numbers with both revenue

growthandminutesgrowth.IhaveonequestionregardingRCOMsaspirationrightnow

in terms of incremental market share. Tariff is one of the levers available to the

operators.Hence,whatisRCOMsaspirationontariffsandmarketshare?

Mr.SyedSafawi:

Wearepleasedwiththisquartersresult,beingconsistentoverthelastthreequarters,

driven by consumption led growth. This is a key driver for us. In the voice side, our

objectiveistodrivemarktomarketorhigherconsumptionledgrowthwithoutdiluting


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11

rateperminute.Wehavesaidthis foralmostsevenquartersthat,wewillkeepRPMs

firm.Weareat45paisanowandwemayseethepositiveimpactofalmost1paisaon

RPMfromtherecentpricehikeoverthenexttwotothreequarters.Thesecondleveris

onthedatasidewhereweareseeingsignificantgrowthgivenour1,300townsofhigh

speeddataand3G.Regardingtheincrementalrevenuemarketshare,wearetargetinga

minimum20%

incremental

RMS.

Simultaneously,

it

is

also

important

to

look

at

EBITDA

shareoftheindustrywhichisalsoourfocus.Wewanttobeaprofitableplayerandnot

onlyarevenueplayer.So,wewanttotargetmorethan20%profitshareoftheindustry

aswell.

Mr.SureshMahadevan:

ThankyouSyed.

Mr.SyedSafawi:

Thanks,Suresh.

Operator:

Thank you Sir. Next question comes from Mr. Rajiv Sharma from HSBC. You may go

aheadplease.

Mr.RajivSharma:

Thankyoufortheopportunity.Ihavegotacoupleofquestions.Firstoneis,Syedwhat

isthereasonthatinthisquartertherewasminutesdeclineacrossGSMoperators,but

RCOMs

total

traffic

has

grown?

And

second,

do

you

think

in

the

interim,

someone

like

Uninor,wholaunchedclosertoyouontheGSMside,startstakinghighershareoftraffic

wouldyougetworried?Andwouldyourability tobe firmontherevenueperminute

needacheck?Or,whatwouldchangeyourstandontheRPMfront?Lastly,whenisyour

spectrumrenewaldate,isit2021or2028?

Mr.SyedSafawi:

Rajiv,IwillansweryourfirsttwoquestionsonMOUsandRPMsfirst.Wehavesaidfor

the last seven quarters that we are not focused on minutes but on RPM. We need

profitabilityandeachminutehastobeprofitable.WehavenotletRPMsdropbelow44

paisaover

the

last

seven

quarters

and

we

do

not

intend

to

do

that.

There

will

always

be

somemarginalplayerswhowill try andplaya tariffgame.But it is notaboutpricing

alone.Itisalsoaboutthetotalnetworkexperienceandthecustomerexperiencebeing

offeredattherightvaluewhere,wehavenotseenanycompromise.Initially,whenwe

tookout freeminutesasadeliberatestrategyover the last fourquarters,RCOMsaw

slightly below marked to market growth in terms of MOU. Finally that discipline is

payingoffand todaywearegettingamuchhighershareofpaidminutesattheright

rate which is translating into the 2.1% consumption led growth. We are focused on


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12

driving this quality portfolio and quality of minutes. Onyour specific question on the

spectrumorthelicense,thisiscomingupnotbefore2020.

Mr.ArvindNarang:

We

got

GSM

spectrum

in

2008

for

all

issuance,

validity

is

20

years.

Also

I

would

like

to

add that currently the process of delinking the spectrum and licensing has been

undertakenbytheGovernment.Wewillkeepyouupdatedontheprogress.

Mr.RajivSharma:

Arvind,giventhepresentregulationwhatwouldbetherenewaldatesinceyougotyour

GSM spectrum on your CDMA license? So, will the current date on the present

regulationbe2021?

Mr.ArvindNarang:

ItisaUASLlicensewhichisupforrenewalaround20212022.Thespectrumsgivenarefor20yearvalidity.

Mr.RajivSharma:

Andmylastquestionisoncapitalworkinprogress(CWIP)whichhashalvedduringthis

quarter.However,thereisstillsomeRs.9,200croreleft.Whatistheremainingamount

andbywhattimethatwillgetcapitalized?

Mr.ArvindNarang:

Rajiv,we

had

mentioned

in

the

last

quarter

that

you

will

see

asignificant

reduction,

once the 3G license fees and related assets are capitalized. Secondly there is part of

CWIPintheRelianceInfratelwherewehavenotincreasednumberoftowersrelatively

in the last 34 quarters as the overall landscape of tower industry has changed.

Additionally,CWIPrelatedtoglobalassetsalsoexists.

Mr.RajivSharma:

Okay,thankyousomuch.

Operator:

ThankyouSir.NextquestioncomesfromMr.SrinivasRaofromDeutscheBank.Youmay

goaheadplease.

Mr.SrinivasRao:

Ijustwanted toask twoquestions.First is, in theEnterprisebusiness therehasbeen

commentary over the last couple of quarters in terms of increasing sales and new


13/23

13

clients.Butifyoulookataslightlylongerterm,neithertherevenuenortheEBITDAlevel

hasgone up. And Icontrast this with some smaller players likeTulipwho has seena

discernible increase in its revenue and EBITDA run rate. Second is, over the last 12

months,yournetworkcosthasnotgoneupbuttheemployeecost,hasactuallybeen

flattofallingwhichseemssurprisinggiventhelevelofinflationbothforfuelandwages.

Mr.SyedSafawi:

Srinivas, let mejust answer the second part and hand over to Punit to discuss the

Enterprise business. We have always said that we are driving a lot of efficiency in

network cost. The QoQ initiatives like State Electricity Board (SEB) connectivity and

alsoinitiativesintermsofdieselconsumptionarehelpingus.TodayourSEBconnectivity

is among the highest in the industry. We have driven it as a project and therefore,

despitenewnetworkrolloutwehavemanagedtocontainournetworkcost.Theslight

increasethisquarterofapproximatelyRs.40croreisbecauseofnewrolloutsthathave

happenedin3G.Intheemployeecost,duetorightsizingandredimensioning,thereisa

Rs.22

crore

decrease

on

Q

oQ

basis,

and

this

trend

is

going

to

continue.

The

employee

costsmaycomedown furtheroverthenextcoupleofquarters.Networkcostsshould

notgoupbecausewearecontainingthefuelconsumptionverytightly.Letmejusthand

overtoPunitforyourfirstquestion.

Mr.PunitGarg:

Thanks,Syed.Srinivas,inthelastquarterofthelastfiscalyear,therewasanaccounting

policy change on IRU treatment. As a result, the way IRU revenue and EBITDA were

treatedearlier,thosebenefitsarenotavailablefromQ1onwardsofthisfiscalyear.To

thatextenttherewouldbeadip.Butwearestillabletomaintainandgrow,mainlydue

toEnterprise

orders

which

are

acting

as

monthly

recurring

revenue,

and

are

also

flowing

intothebottomline.

Mr.SrinivasRao:

Fair enough. And Sir, I wanted to ask you regarding the HDFC order. I thought that

RCOMhadexistingcapacityorsparefloorspaceavailablefordatacenterorthatisnot

thecase?Isitthereasonwhyyouarebuildingacompletelynewoutsourcedatacenter

forHDFC?

Mr.PunitGarg:

Srinivas,thedatacenterswhichwehave inMumbaiarealmostfull.Mumbaihasbeen

the strongest growth region for RCOMs data center business. Our additional data

center isessentiallycoming tomeetourgrowingdemand inMumbaiand that isalso

where the HDFCs outsourcing of the data center would be housed. Regarding your

questionthat,isHDFCanexistingcustomerofReliance?Theansweris,Yes.Theyareon

allfront,whetheritisforthewireless,orthedataconnectivityorvoiceconnectivityor


14/23

14

data center connectivity. But this particular order is like an outsourcing deal of data

center they have done, rather than taking a service which is on a monthly recurring

revenuebasis

Mr.SrinivasRao:

Sir,thepaymentisonapermonthbasisoryearlybasis?

Mr.PunitGarg:

Srinivas,letusnotdiscussthecontractualtermshere.

Mr.SrinivasRao:

OK,Iunderstand.ThanksalotSir,thisishelpful.

Operator:

ThankyouSir.NextquestioncomesfromMs.MalvikaGuptafromJ.P.Morgan.Youmay

goaheadplease.

Ms.MalvikaGupta:

Thankyoufortakingmyquestions.Ihaveacoupleofquestions.Ijustwantedtoclarify

aboutthe2.1millionactive3Gsubs,whetherthatcomparestothe2millionreported

lastquarteror toadifferentnumber?Mysecondquestion isonSG&Aexpenses,just

lookingforlittleclaritythere,giventheQoQincrease.Thirdone,isabouttheminutes

growthbeingabovetheindustry.Istheearlierexerciseofremovingfreeminutes,now

helping?And

lastly

on

tax,

could

you

give

us

an

indication

on

full

year

tax

expense?

Mr.SyedSafawi:

Malvika, Iwillhandlethe firstthreeandthenhandovertoArvind for the fourthone.

The2.1millionareactivecustomersonthe3Gnetwork.Untillastquartertheindustry

reported total3Gcustomers.Thisquarteronwards the industryhas started reporting

active customers as well. So, we have started reporting active customers and will

continuetoreportactivecustomershenceforth.Duringthe lastquarter,2millionwas

totalcustomers,andnotactivecustomers.Thisquarter,2.1million isactivecustomer

base,so it isnotliketolikecomparisontoansweryourquestion.This isamuchmore

aggressive number, and active customers are better number to track. On the SG&A

expenses,wehave increasedsomeofourTVcommercialsoverthe lastthreemonths.

Thisisthefullquarterimpactofthethreecampaignsthatwearerunning,on3G,high

speeddata,aswellasvoice.Therefore theSG&Aexpensesarehigher.Going forward

theyshouldbesustainedandshouldnotbegoingupbeyondtheselevels.OntheMOU,

youareabsolutelyright.Thedisciplineoftakingoutfreeminuteshashelpedus.Wesaid

it will take three to four quarters and we are at the fourth quarter now, so that has


15/23

15

reallyhelpedus indrivingpaidminutegrowth.That isclearly the trend thatwehave

seenand1.6%totalMOUgrowthinthisquarterispartofthatexerciseaswell.Letme

handovertoArvindforthetax.

Mr.ArvindNarang:

Malvika,Iwillnotbeabletogiveyoutaxguidancebutyouhavetheactualdatapoints

onforthelastmanyquarters.Thecompanyisentitledforexemptionundersection80

I(A)commencingfromassessmentyear200809,whichwillcontinue.

Ms.MalvikaGupta:

Okay,thankyou.Wouldyoubeabletoindicatetousthepercentageofyoursubscribers

thatareactuallyactiveon3G,whetheritisthe2530%wearehearingfortheindustry

orwhetheritisadifferentnumber?

Mr.

Syed

Safawi:

Itwillbeahighernumber.Wewillnotbegivingthisnumberbecausenowweareonly

goingtoreportactivecustomers.Thatiswhatwearefocusedonrightnow. WhatIcan

tellyouis,2.1millionisthehighestnumberofactive3Gcustomersintheindustry,and

thatisaverygooddatapointtostart.

Ms.MalvikaGupta:

Okay,thankyouverymuch.

Mr.SyedSafawi:

Thanks,Malvika.

Operator:

Thankyoumadam.NextquestioncomesfromMr.VinayJaisinghfromMorganStanley.


Mr.VinayJaisingh:

Thankyousomuch.Ihavetwoquestions.OnetoSyed,Whatdoyouthinkabouttraffic

growth,for

the

industry,

for

the

next

two

to

three

quarters,

this

quarter

being

adull

quarter which went by? The second question is on cash flows, RCOMs convertible

bondsarecomingupforpaymentinthenext12months.Howdoyouplantofundthat

consideringthecurrentcashflow,netofCapexandinterestcostthisquarter?Youmay

need to raise money or probably sell towers about which you have been talking for

sometime.Anyupdateonhowyouwillfundtherepaymentofconvertiblebond?


16/23

16

Mr.SyedSafawi:

Letmeanswerthefirstone.IntermsofMOUgrowth,IthinkQ2isatypicallyseasonal

quarterandmostof the industryparticipants saw the impact.Luckily,givenourearly

initiatives,wewereabletodrivegoodaggressivegrowth.WeseefromQ3onwards,this

typicallybeing

afestive

quarter,

consumption

coming

back.

Ido

not

think

the

industry

sawanylackofelasticitybecauseoftariffhike,andthatiswhatpeopleareconjecturing.

Wemanaged to takeprice increaseaswellasdrive trafficup. Iamnotsurewhether

theywillgoback to810% levelsQoQbut, theywilldefinitelycomeback todecent

levels for the industry. And we will like to be marked to market or be higher on

consumptionledgrowth.IntermsofthecashflowsandthelikelyFCCBredemption,the

redemptioniscomingupinMarch2012foraboutUS$1.1billion.Vinay,ifyouseeour

EBITDA,wearegeneratingapproximatelyRs.1,600croreplusofEBIDTAeveryquarter,

andgiventhatourpeakCapexisbehindus,ourguidanceisRs.1,500croreforthisyear.

WehavedoneaboutRs.350croreofCapexinQ2andaboutRs.360croreinQ1ofthis

fiscalyear.So,weareverymuchontrackandwearegeneratingenoughfreecashflows

QoQ

to

be

able

to

manage

the

FCCB

redemption

from

internal

accruals.

Also,

we

do

notseeanymajorissuesgoingforwardonthisredemptionaswell.

Mr.VinayJaisingh:

Syed,ifyouusethecurrentquartersnumbersaswell;usetheRs.1,600croreEBITDA,

usethe interestcostnumber,aswellastheCapex forthisquarter,yougetnetofRs.

600crorecoming in.Rs.600650croremultipliedby3or4dependingonhowmany

quartersyouwanttomoveon,youstillhaveUS$1.1billiontopay.Youwillhaveagap,

unlessyoudonotplantospendanyCapexornotpayanyinterestforaquarter.

Mr.Syed

Safawi:

Our interestcostsarecomingdownbyaboutRs.500croreonannualizedbasiswhich

we shared last time because of the CDB 10year maturity loan and couple of other

transactionsthatwehavedone.SecondisourcapitalexpenditureisataboutaRs.1,500

crore level, quarterly Rs. 300350 crore. Considering these combinations as well as

improvingoperatingperformanceandconsistentlydeliveringfreecashflows,wearein

the ballpark Vinay. Hence it is very difficult to predict five months before, the exact

quantumthatyoumayneedoryoumaynotneed.

Mr.

Vinay

Jaisingh:

In case there is a need then do you have easy access to some debt or would you

drawdown?


17/23

17

Mr.SyedSafawi:

Vinay,wewillcrossthatbridgeonlyifrequired.ButatthispointintimeIcantellyouwe

havejustredeemedhalfabilliondollarsinMayandwewillbeoncoursetoredeemthe

nextoneaswell.Idonotthinkweshouldbestressedaboutit.

Mr.VinayJaisingh:

One lastquestion. If you look at the Others segment, the losses in theEBIDTA is still

significantly high around Rs. 140 crore. Any thoughts of how that goes down to zero

becausethatiswhereyourEBITDAgoesupbythesameamount?

Mr.SyedSafawi:

Vinay, the Others segment constitutes largely DTH business, Reliance World Stores,

RelianceTechServicesand soon.DTHbusinesscontinues togrowandwehaveseen

some

of

the

examples

in

the

industry

at

what

ballpark

number

they

start

having

positive

EBITDA.SodirectionallyitisEBITDAnegativeatthispointoftime,butoverthenextfew

quartersitshouldsignificantlyimprove.

Mr.VinayJaisingh:

Thankyou.

Mr.SyedSafawi:

ThanksVinay.

Operator:

ThankyouSir.NextquestioncomesfromMs.ReenaVermafromMerillLynch.Youmay

goaheadplease.

Ms.ReenaVerma:

Thank you very much for the call. I have some housekeeping questions on your

quarterly results andjust a few more. Firstly,just pertaining to the results, can you

comment on how your paid minutes did versus last quarter, so that we can have a

clearerpictureonseasonality?Andmysecondquestionagainrelatingtoresultsis,the

reductionin

your

CWIP

you

said

is

due

to

3G

getting

commercialized.

So,

have

we

seen

thefullimpactofthatoninterestaswell?WhatisVASasapercentageofrevenue?Can

you please share with us what was the number in the previous quarter in 1Q FY12?

ThosearemyresultrelatedquestionsandIhaveonemorequestionforyouplease.


18/23

18

Mr.SyedSafawi:

Let me try and answer your questions on MOU and nonvoice VAS. Yes, this is paid

minutesgrowththatwearelookingat.Ihadmentionedfourquartersbackthatoverthe

nextthreefourquarterswewilltakeoutfreeminutes.Currentlyfreeminutesaredown

tosmaller

level

which

Ithink

is

lower

than

the

industry

right

now,

as

well

as

the

exact

details across the industry might not be available. If you see the mathematics, 1.6%

minutesgrowth,0.5%RPMgrowthoveralltranslatesintoa2.1%growthofrevenue.You

shouldseeconsistentpaidminutegrowthfromhereon.

Ms.ReenaVerma:

Asmallclarification,isthatintotalminuteterms?Werethefreeminutesarelativelybig

numberinQ1thatyouescapedtheseasonalitywhichhurtotheroperators?

Mr.SyedSafawi:

Iamnotsurewhether Iamqualifiedtoansweronbehalfoftheotheroperators.Ican

answeronmybehalfthatwehavecontinuouslyfocusedontakingoutfreeminutesover

thelastfourquarters.WearenowatalevelwherethefreeminutesorFATisatavery

marginal level and therefore you are seeing whatever minutes you are generating.

WhenIsaidfreeminutesReenaIhavealwayssaidthatevenlossmakingminutesneed

to be reduced. Therefore today you are seeing more profitable minutes getting

generated at 45 paisa RPM and that is what is translating into revenue growth.

Managingaportfolio ofbillionminutes aday, takingout freeminutes, reducingnon

profitable minutes and increasing the share of paid minutes, is a complex portfolio

management.ItisnotasimpleanswerofXpercentbutacombinationofallthesethings

whichresult

into

MOU

growth

and

therefore

the

revenue

growth.

Let

me

come

to

your

VAS or nonvoice revenue question. Our nonvoice revenue is about 20% of total

revenuewhichisthehighestintheindustrybyasignificantamount.Itwasslightlylower

than20%inthelastquarter.

Ms.ReenaVerma:

Sir, in terms of the premium that your RPM enjoys, your RPM is higher versus the

market leader.DoyouseethatasbeingsustainablegiventhatyourVASwasmoreor

lessstable?

Mr.Syed

Safawi:

Yes, we have seen it stable for the last seven quarters. We focused and deliberately

managedtheportfolioinawaywherewedidnotletitdrop.Themomentwesee loss

makingminutesgettinggeneratedorlossmakingdataplans,weimmediatelyfocuson

that. We want to drive customer life cycle value as a way of life, and that focus has

helpedus translating into thisgrowth. Itwill always beablended number. The same


19/23

19

blended number six to eight quarters back used to be at 44 paisa RPM. And in the

industry,someoftheplayerswereat53to54paisa.Nowitisreverse.Wehaveheldon

steadfastedlywhiletheotherplayersarenowprobablyat42/43/44paisa levels. It is

howmuchyoufocusonRPMsandpaidminutesandpaiddata.

Ms.Reena

Verma:

Thank you for that. I think you had a great call on the RPM convergence across

operators a couple of quarters ago. That has completely panned out as you said it

would. But now when I look at your overall RPM, you are now at a premium to the

market leader. I do not think we see it in too many markets globally that the

challengers RPM is higher than the market leaders. So, do you think that we should

expectatrendreversalagainstwhatwehavebeenseeingoverthelastfewquarters?

Mr.SyedSafawi:

Absolutelynot,

because

first

of

all

the

full

impact

of

the

tariff

increase

in

voice

has

still

pannedoutandthatIjustmentionedprobably20minutesbackthatitisgoingtohave

an impact of one paisa on RPM over the next two to three quarters. Currently the

impact isaround0.2paisa.That isstillto flow ingiventheblendthatwehave inour

portfolio with increasing post paid customers. We did not have this earlier which is

driving better quality of minutes and higher end customers. As we are getting 3G in

mostofthetowns,wearegettingamuchbetterpostpaidbaseaswellwhichwedid

nothaveearlieronGSM. It isacombinationofall these factorswhich is resulting in

betterandsteadyRPM. Today,ifyouareat44.745paisaandtheotherplayersinthe

industryarealsoat4344paisa,youareinthesamerange.Butitwillbeyourqualityof

portfoliooryourportfoliomixthatwilldeterminewhetheryoucanretainit.Andgiven

ourhealthy

and

changing

portfolio

mix

we

think

it

will

sustain.

One

is

RPM

increase,

second is nonvoice which is a more profitable part of the business going up further

from20%levelsto3540%levels,whichisglobaltrendagain.Ithinkthisissustainable

attheselevels.

Ms.ReenaVerma:

On3Gcapitalization?

Mr.ArvindNarang:

Wehave

full

impact

of

3G

in

fixed

assets

and

we

also

have

impact

of

depreciation

and

interest intheP&L.Variouscircleshavebeen includedatvariouspointoftimeduring

the quarter mostly in August and September, so accordingly the net effect has been

taken.


20/23

20

Ms.ReenaVerma:

Thank you very much. Ijust have one final question which is the news about the

imminententryofReliance Industries intotelecom.Doyousee itoverallasapositive

foryourselfgiventhatyoumighthaveatenantordoyouseeitasaconcerngiventhat

thereis

anew

competitor

on

board?

Mr.SyedSafawi:

If there is any responsible player coming into the industry and growing the business

especiallybydata,itisverygoodnews.Thisisbecauseweareatveryearlystagesofthe

datarevolutionandwehavealwayssaidthis isgoingtobethedecadeofdata.Given

thefactthatspectrum is limited, in5MHz, in3Gandalso inLTE,playersaregoingto

haveasmallerfootprintofsize,everybodyisgoingtoberesponsibleinthedataplay.If

anewplayercomes inandoverthenexttwotofouryearsbuildsanecosystemwhich

drives data revolution, it will be positive for the industry. On the tenancy side, if we

havetenancies

coming

in

that

will

be

anet

benefit

for

us.

Ms.ReenaVerma:

Sir,havethetalkscommencedfortenancy?

Mr.SyedSafawi:

Yes,thetalkshavecommenced.

Ms.ReenaVerma:

Thankyou.

Operator:

Thank you madam. Next question comes from Mr. Gaurav Malhotra from Citi Group.


Mr.GauravMalhotra:

Most of my questions have been answered. I have only one question. Despite the

increaseinminutestheaccesschargeseemstohavegonedown.Whatisthereason?

Mr.ArvindNarang:

Gaurav,accesschargeshavecomedownmarginallyfromRs.668croreinQ1toRs.651

crore inQ2,orbyjustRs.17crore. This isduetothereductionofoffnetMOUsand

relatedterminationcharges.


21/23

21

Mr.SyedSafawi:

Gaurav, it isalwaysablendednumberbetweenonnetandoffnetandwehavealso

said intheearningscallthatwearedrivingconsciouslyononnetcommunity.Andas

thecommunitybecomes147to150million,theonnetminutesincrease.Alsothefact

thatdata

is

growing

very

well,

in

all

it

is

ablended

number

combination.

Mr.GauravMalhotra:

ThankyouSir.

Operator:

ThankyouMr.GauravMalhotra.NextquestioncomesfromMr.SunilThirumalaifrom

CreditSuisse.Youmaygoaheadplease.

Mr.SunilThirumalai:

Mostofmyquestionshavebeenanswered.Justafollowupquestion,Ididnotcatchthe

reason behind the reduction in the finance charges despite the 3G number getting

included.

Mr.ArvindNarang:

Sunil,as Imentionedearlier,wehavementioned inournotestoaccountsaswell,the

treatment related to foreign exchange. Because of the scheme of arrangement the

company is permitted to adjust the variations on account of the changes in the

exchangeratesrelatedto loans inforeigncurrencybyawithdrawalorcreditfromthe

GeneralReserves. And thisnecessary effect, whether it ispositive ornegativewillbecarriedoutattheendoftheyear.

Mr.SunilThirumalai:

Okay,sure.Thankyou.

Operator:

Thank you Sir. Next in line we have a question from Mr. Shobhit Khare from Motilal

Oswal.Youmaygoaheadplease.

Mr.ShobhitKhare:

Good afternoon Sir, and thanks for the opportunity. I had a couple ofquestions. The

paid minutes focus is also visible in your wireless net revenues. In the last three

quarters, it has gone up almost by 46% every quarter, but the same has not flown

throughon the EBITDA line.Thus thewireless EBITDAhasbeenalmostat the similar


22/23

22

levelaroundRs.1,180croreforthelastthreequarters.Whatisthisincreaseinwireless

operatingexpensesbelowthenetrevenueline?Arethereanyoneoffs,isitrelatedto

somewriteoffs,etc.?Andsecondis,thegrossdebtnumberinthequarterlyreportand

then the loans which are reported in the stock exchange, there is a meaningful

differenceofaroundRs.7,000crore.Whatisdrivingthisdifference?

Mr.SyedSafawi:

Shobhit,letmehandletheMOUoneandtheEBITDAimpactonthat.Yes,indeedweare

seeing good paid minutes growth which is helping in the top line growth of 23%

consistently for the last three quarters.TheEBITDAbeing marginallygrowingonly by

0.2%,asyourightlysaid, isbecauseofSG&Aexpensesgoingup inthisquarter.This is

because of the full quarter impact of the three advertising campaigns that we are

running,focusedonbranding.Thesecondoneisthe3Gnetworkfullyrolledoutinthe

fullquarterimpactandthenetworkcostgoingupa littlebit.Despitethefactthatour

employeecostshavecomedownbyRs.22crore,thesearethetwo itemswhichhave

goneup.

This

is

sustainable

and

it

can

improve

as

your

top

line

improves

given

better

RPMsandMOUgrowth.LetmejusthandovertoArvindforthegrossdebtquestion.

Mr.ArvindNarang:

Shobhit,thenumbersmentioned inthenotestoaccountsversus inthebalancesheet

will not match because that notes to accounts is relevant to the scheme of

arrangement. So, if you look at the foreign exchange loan mentioned in the balance

sheet, that loan amount is Rs. 26,184 crore. The relevant forex impact which is

mentioned in the notes to accounts is Rs. 2,714 crore. There is also buyers credit

involved which is there in our annual report, in the range of around Rs. 1,100 crore,

whichis

apublished

number.

If

you

take

all

these

into

consideration

and

reconcile

them,

youwillgettheforeigncurrencyloanamountofRs.29,961crorewhichismentionedin

thenotestoaccounts.

Mr.ShobhitKhare:

Okay,Sir,howmuchofthebuyerscreditwouldbethereapartfromthenumberwhich

isinthequarterlyreport?ItusedtobearoundRs.4,000toRs.5,000crore.

Mr.ArvindNarang:

Buyerscredit

is

apart

of

the

current

liability

in

the

quarterly

report.

The

amount

mentioned i.e. Rs. 1,100 crore is an approximate amount which is mentioned in the

annualreportandisapartofthecurrentliabilityinquarterlyreport.

Mr.ShobhitKhare:

Okay sure Sir. Finally what is the data incremental ARPU RCOM is getting on the 2.1

millionactive3Gsubscribers?


23/23

23

Mr.SyedSafawi:

Shobhit, it isdifficulttotalkaboutspecificARPUsoneverysegment,but itsufficesto

saythatthedataARPUswouldbetypicallythreetofourtimesofvoiceARPUsonalike

tolike,prepaidtoprepaidorpostpaidtopostpaidbasis.Postpaidwouldbesimilaror

slightlyhigher

than

prepaid.

Mr.ShobhitKhare:

OkaySir.Okay,thanksalot.

Mr.SyedSafawi:

ThankyouverymuchShobhit.

Operator:

Thankyou

Sir.

At

this

time

there

are

no

further

questions

from

the

participants.

That

does conclude our conference for today. Thank you for participating. You may all

disconnectnow.

call transcript rcom 2qfy12

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