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Tata Communications (TATA.BO)
Sell Equity Research
Below expectations on revenue; turnaround not in sight yet
What surprised us
We reiterate our Sell rating on Tata Communications (TCOM) and its ADR
after the company reported 4QFY11 revenue that was 3.4%/1.2% below
GS/Bloomberg consensus estimates. However, EBITDA was 11.5%/18.6%
above GS/consensus estimates largely due to lower network expenses.
Reported PAT for the quarter was a loss of Rs1.6bn vs. GS/consensus loss
estimate of Rs2.6bn/Rs2.4bn largely due to higher EBITDA and lower net
interest expense. Positives: 1) EBITDA margin improved 130bp qoq and was
160bp ahead of our estimate as network expense declined 1.5% qoq (6.0%
below our estimate); 2) Net interest expense declined 36% qoq and was 40%
below our estimate due to lower cost of debt, in our view; and 3) Neotel’s
implied EBITDA margin improved 480bp yoy to -28.6% in FY11, indicating
improvement in operations. Negatives: 1) Total revenue missed our
estimate largely due to enterprise data and wholesale voice revenue that
were 4.6%/2.3% below GS estimates; 2) Voice tariffs continued to decline
yoy and net RPM reduced 23% in FY11 to US$0.46 (vs. US$0.60 in FY10); 3)
TCOM reported severance costs of Rs460mn and wrote-off fixed assets
worth Rs251.5mn, increasing 4QFY11 net loss by 25%.
What to do with the stock
We lower our FY12E-FY13E revenue by 2.1%/2.6% to account for weakerthan-expected 4QFY11 revenue. We also factor in lower operating expense,
and as a result our loss per share decreases to Rs15.96/Rs13.40 (from
Rs27.59/Rs15.86). Our 12m SOTP-based TP, however, reduces by 9% to
Rs200 (ADR: US$8.91) to reflect higher capex (based on TCOM’s stated 3-
year capex plan). We introduce FY14E EPS and roll forward our core
business DCF value by 3m. Risk: Resolution of surplus land issue.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Communications (TATA.BO)
Sell Equity Research
Below expectations on revenue; turnaround not in sight yet
What surprised us
We reiterate our Sell rating on Tata Communications (TCOM) and its ADR
after the company reported 4QFY11 revenue that was 3.4%/1.2% below
GS/Bloomberg consensus estimates. However, EBITDA was 11.5%/18.6%
above GS/consensus estimates largely due to lower network expenses.
Reported PAT for the quarter was a loss of Rs1.6bn vs. GS/consensus loss
estimate of Rs2.6bn/Rs2.4bn largely due to higher EBITDA and lower net
interest expense. Positives: 1) EBITDA margin improved 130bp qoq and was
160bp ahead of our estimate as network expense declined 1.5% qoq (6.0%
below our estimate); 2) Net interest expense declined 36% qoq and was 40%
below our estimate due to lower cost of debt, in our view; and 3) Neotel’s
implied EBITDA margin improved 480bp yoy to -28.6% in FY11, indicating
improvement in operations. Negatives: 1) Total revenue missed our
estimate largely due to enterprise data and wholesale voice revenue that
were 4.6%/2.3% below GS estimates; 2) Voice tariffs continued to decline
yoy and net RPM reduced 23% in FY11 to US$0.46 (vs. US$0.60 in FY10); 3)
TCOM reported severance costs of Rs460mn and wrote-off fixed assets
worth Rs251.5mn, increasing 4QFY11 net loss by 25%.
What to do with the stock
We lower our FY12E-FY13E revenue by 2.1%/2.6% to account for weakerthan-expected 4QFY11 revenue. We also factor in lower operating expense,
and as a result our loss per share decreases to Rs15.96/Rs13.40 (from
Rs27.59/Rs15.86). Our 12m SOTP-based TP, however, reduces by 9% to
Rs200 (ADR: US$8.91) to reflect higher capex (based on TCOM’s stated 3-
year capex plan). We introduce FY14E EPS and roll forward our core
business DCF value by 3m. Risk: Resolution of surplus land issue.
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