Better than expectation but still poor… Tata Teleservices Maharashtra:: ICICI Sec

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Better than expectation but still poor…
Tata Teleservices Maharashtra (TTML) reported its Q2FY11 results,
which were slightly higher than our expectation. It reported a topline of
Rs 576.3 crore against our expectation of Rs 565.0 crore. The topline
grew 2.9% and 6.2% QoQ and YoY, respectively. The core income
remained flat QoQ at Rs 557.7 crore. The EBITDA margin declined 159
bps YoY and 104 bps QoQ to 19.5%. The decline was due to higher
network operating cost. It increased by 33.3% YoY and 11.0% QoQ. Net
loss for the quarter was Rs 97.9 crore against our expectation of Rs
161.1, aided by lower interest and depreciation cost. PAT cannot be
compared QoQ as Q1FY11 included income from sale of assets of Rs
834.9 crore.
􀂃 Highlights of the quarter
During the quarter, TTML added 1.1 million subscribers, growing
8.4% QoQ. ARPU for the quarter stood at Rs 170, marginally up by
3.7% QoQ from Rs 164, higher than our estimate of Rs 157. The
MoU improved by 4.9% QoQ to 403 minutes resulting in a 2.3%
decline in ARPM from Rs 0.43 in Q1FY11 to Rs 0.42 in Q1FY11.
However, the share of VAS was up from 19.0% in Q1FY11 and
14.0% in Q2FY10 to 22.0%. The increase in ARPU and increasing
share of VAS was on account of higher sales and usage of
broadband on Photon+ devices. On the wireline segment, the
company added 190 new subscribers in Q2FY11.
Valuation
The overall telecom industry is going through an unprecedented phase of
hyper intensive competition. This has resulted in a sharp fall in operating
metrics and slowdown of revenue growth and declining profitability.
Valuing the stock at 1.4x FY12E sales of Rs 2515 crore, we have arrived at
a target market capitalisation of Rs 3609 crore, implying per share value
of Rs 19. At Rs 23, the stock is trading at 1.8x FY12E sales. Our target
price implies a downside potential of 17%. We rate TTML as SELL.