The stock of Reliance Communications BSE -1.58 %has yet to recover from the sharp slide a day after it declared its third quarter results on January 23. It fell 9% in a single trading session, marking the worst drop since August 2011.
The telecom operator's poor performance in the December quarter prompted investors to book profits after enjoying 55% return over the previous three months. With peers like Bharti Airtel BSE 0.48 % and Idea Cellular too reporting lackluster results in the following weeks, RCOM's stock continued to drop, falling over 17% in the past month.
A quick recovery appears difficult considering that there has not been any major change in the company's performance or in the fundamentals of the sector. RCOM's topline has remained in the range of Rs4,900-5,300 crore in the seven quarters to 31 December 2012.
Between December 2010 and December 2011, its quarterly revenue grew just 2.6%, compared with 19% for Bharti's domestic revenue and 19% for Idea. Besides, the company had a debt of over Rs38,558 crore at the end of the December quarter.
This is a cause of concern as the company had to spend over 84% of its profit before interest and tax to cover finance costs during the quarter. The proportion was 60% a year ago and just over 20% two years ago.
In the medium term, one factor that could work in favour of RCOM is the increasing data usage. The company reported a 29.4% sequential jump in data traffic during the December quarter. Data usage per customer increased 20.7%.Data services yield higher revenue per user and better margins.
At Tuesday's closing of Rs73.1, RCOM's enterprise value is over eight times its EBITDA. While this is in line with Bharti (7.3) and Idea (8.7), RCom's growth rate is relatively lower.
