RCom’s leverage metrics will be further pressured if it participates in auctions: Moody’s

Ratings firm Moody’s Friday said that Reliance Communications (RCom) outlook will remain negative but the company’s FY 2015-16 results can be accommodated in its Ba3 corporate family rating and senior secured rating. RCom’s consolidated revenues for Q4 ended March 2016 were up 3.8% year-on-year (YoY) to around Rs 59 billion. Revenues from India operations, — the largest contributor — were up 6.5% over the same period. In India, a decline of 8%YoY in voice revenue in 4Q 2016 was offset by a 27% increase on non-voice revenues.

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At the same time, RCom’s global operations– accounting for approximately 19% of total revenues — reported a 4% decline in revenues in 4Q 2016. For the full year ended 31 March 2016 (FY2015-16), the company reported broadly stable revenues at Rs 221 billion, due mainly to its cancellation of licenses in five circles earlier this year.

“RCOM reported EBITDA of around Rs 74 billion, with its EBITDA margin decreasing by 0.4% over the previous year to 33.6%. The decline in EBITDA margin is in line with Moody’s expectation, owing to increased contribution of data revenues and higher customer acquisition costs,” Nidhi Dhruv, a Moody’s Vice President and Senior Analyst, said in a statement.

Moody’s estimates RCom’s adjusted, consolidated debt/EBITDA was around 6.3x for the year ended 31 March 2016, compared to 5.3x last year. This increase in leverage is notably due a Rs 38 billion increase in reported debt and the inclusion of Rs 33 billion deferred spectrum liabilities. Upon the completion of the share swap transaction with Sistema Shyam Teleservices (SSTL unrated), RCom will have adequate spectrum.