RCVL: A different tune & Steel sector

RCVL

Bharti enjoys a higher operating profit margin compared with RCVL
Reliance Communications Ventures (RCVL) has posted revenues of Rs 3,327 crore in the December 2005 quarter, a growth of 19 per cent over the September quarter.

At Rs 3025 crore, Bharti Tele’s numbers are not too different, though the growth was lower at 11.6 per cent q-o-q.

In the absence of detailed numbers, it is not known how much of RCVL’s top line comes from sales of handsets.

However, the operating profit for Bharti at Rs 1,116 crore is higher than RCVL’s 848 crore. So, currently, Bharti Tele certainly enjoys a higher operating profit margin at 37 per cent compared with RCVL’s 25.48 per cent.

Also in Bharti’s case, approximately 65 per cent of revenues accrue from mobile telephony. For RCVL, the proportion may be slightly lower, given the presence of Flag Telecom, but that is an assumption.

As of January end, RCVL had around 18.3 million subscribers, of which 15.5 million are mobile phone customers. Bharti Tele’s customer base isn’t too different with around 18.94 million subscribers, of which 17.7 million are mobile phone customers.

Thus, the average revenue per user (ARPU), which was Rs 470 for Bharti in the December quarter should not be very much lower for RCVL. RCVL is believed to be increasing its share of pre-paid users.

Since RCVL does not fully own Reliance Infocomm, Reliance Telecom and Reliance Communication Infrastructure, a portion of the profits would go to other shareholders. Bharti’s market capitalisation is approximately Rs 69,394 crore.

Analysts believe that though both companies are similar in size, RCVL today would command a lower market capitalisation given that its margins are lower.

The capex plans of both are likely to be similar—in the region of Rs 4,500-5,000 crore a year though there are industry watchers, who say that operating costs for CDMA are lower owing to the nature of the technology.

Looking ahead, RCVL’ margins should stabilise at around 30 per cent, as it scales up its network and grows other businesses such as broadband. That’s when the stock could get an even better multiple.

- Niraj Bhatt

Steel: Disciplined pricing

Is the worst over for steel companies in terms of price realisations? Prices are once again showing signs of rising, with hot rolled coil (HRC) prices going up by $15-20 a tonne over the last few weeks to about $420 a tonne, say analysts. Strong demand from American and Chinese housing markets is being seen as a trigger for the price hike.

Of equal importance, point out analysts, is the fact that large Chinese players have shown signs of returning to pricing discipline.

With international prices picking up, it does appear inevitable that domestic players could hike prices in March.

In addition, the domestic steel industry could also benefit from inputs such as met coke, which have displayed a definite downtrend in their spot prices over the past few weeks.

This improvement in operating environment helped the SAIL stock gain almost 6.5 per cent over three weeks compared with 3.45 per cent gain in the Sensex. Tata Steel, however, has gained only about 2 per cent during this period.

-Amriteshwar Mathur and Shobhana Subramanian