Reliance Communication Q2FY11 Result Update; Disappointment continues, Downgrade to REDUCE; Target: Rs135

Reliance Communication

Reco: REDUCE

CMP: Rs154

Target Price: Rs135

Disappointment continues, Downgrade to REDUCE

·      Q2FY11 EBIDTA grew by 1.7% QoQ to Rs16.6bn (below est of Rs17.6bn), PAT of Rs4.45bn led by lower interest expense

·      ARPU falls 6.2% QoQ to Rs122 purely on MOU decline as RPM remains stable. Wireless traffic growth absent

·      Cut EBIDTA and EPS estimates by 1.8% /3.5% and 14% /16.3% for FY11E /12E respectively

·      Cut target price to Rs135 (from Rs180) and rating to REDUCE from HOLD earlier. Valuations expensive at 9.2x and 8.8x EV/EBIDTA  for FY11E and FY12E respectively

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