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Tata Communications (TCOM)
Telecom
1QFY12 – good operating performance. TCOM reported a quarter of robust 4%
qoq revenue growth and 100 bps qoq margin expansion at the standalone level.
Consolidated earnings were impacted by full consolidation of Neotel – TCOM increased
its stake in Neotel to 61.5% from 49% in the previous quarter. Core business (which
forms 25% of our fair value estimate) fundamentals have little relevance for the stock.
The stock would trade on developments on surplus real estate monetization. REDUCE.
1QFY12 standalone results surprise on both revenues and margins
At the standalone level (see Exhibit 1), TCOM reported revenues of Rs9 bn for the June 2011
quarter, a robust growth of 4.1% sequentially and 2.7% ahead of our estimate. EBITDA margins
at 25.8% (+100 bps qoq) were 80 bps ahead of our expectation, driving a 5.7% beat at the
EBITDA level. Higher-than-expected forex losses and lower-than-expected depreciation drove net
income beat – the company reported standalone net income of Rs478 mn versus our estimate of
Rs238 mn. TCOM has changed the way it reports segmental information from the June 2011
quarter and hence, reported segmental (global voice/ global data) results are not comparable to
previous quarters.
Consolidated 1QFY12 reflects the impact of full consolidation of Neotel
TCOM’s reported consolidated financials for the June 2011 quarter (see Exhibit 2) are not
comparable to previous quarters as the company now consolidates 100% of Neotel line by line as
opposed to equity accounting for proportionate share of Neotel’s net income till March 2011
quarter. This follows TCOM raising its stake in Neotel to 61.5% from 49% during 1QFY12. The
company reported consolidated revenues of Rs32.6 bn, EBITDA of Rs3.3 bn (OPM down 160 bps
qoq on account of Neotel full consolidation), and net loss of Rs2.2 bn for 1QFY12.
Stock performance hinges on developments on surplus real estate monetization
Core business fundamentals have little relevance for the stock – core business equity value forms
just about 25% of our SOTP valuation with surplus land and TTSL stake contributing the rest. We
present our SOTP-based fair valuation for the company in Exhibit 3. The stock is trading close to
our fair value estimate (which builds in a high probability of surplus real estate monetization by
end-FY2013E) and hence, we reiterate our REDUCE rating on the stock. Our SOTP break-up –
Core business valued at Rs51/share – based on 6X FY2013E estimated consolidated EBITDA of
Rs15.8 bn less net debt of Rs80 bn.
9% stake in TTSL (post the recent rights issue) valued at Rs47/share.
Surplus land assets valued at Rs107/share – at 50% discount to the fair value.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Communications (TCOM)
Telecom
1QFY12 – good operating performance. TCOM reported a quarter of robust 4%
qoq revenue growth and 100 bps qoq margin expansion at the standalone level.
Consolidated earnings were impacted by full consolidation of Neotel – TCOM increased
its stake in Neotel to 61.5% from 49% in the previous quarter. Core business (which
forms 25% of our fair value estimate) fundamentals have little relevance for the stock.
The stock would trade on developments on surplus real estate monetization. REDUCE.
1QFY12 standalone results surprise on both revenues and margins
At the standalone level (see Exhibit 1), TCOM reported revenues of Rs9 bn for the June 2011
quarter, a robust growth of 4.1% sequentially and 2.7% ahead of our estimate. EBITDA margins
at 25.8% (+100 bps qoq) were 80 bps ahead of our expectation, driving a 5.7% beat at the
EBITDA level. Higher-than-expected forex losses and lower-than-expected depreciation drove net
income beat – the company reported standalone net income of Rs478 mn versus our estimate of
Rs238 mn. TCOM has changed the way it reports segmental information from the June 2011
quarter and hence, reported segmental (global voice/ global data) results are not comparable to
previous quarters.
Consolidated 1QFY12 reflects the impact of full consolidation of Neotel
TCOM’s reported consolidated financials for the June 2011 quarter (see Exhibit 2) are not
comparable to previous quarters as the company now consolidates 100% of Neotel line by line as
opposed to equity accounting for proportionate share of Neotel’s net income till March 2011
quarter. This follows TCOM raising its stake in Neotel to 61.5% from 49% during 1QFY12. The
company reported consolidated revenues of Rs32.6 bn, EBITDA of Rs3.3 bn (OPM down 160 bps
qoq on account of Neotel full consolidation), and net loss of Rs2.2 bn for 1QFY12.
Stock performance hinges on developments on surplus real estate monetization
Core business fundamentals have little relevance for the stock – core business equity value forms
just about 25% of our SOTP valuation with surplus land and TTSL stake contributing the rest. We
present our SOTP-based fair valuation for the company in Exhibit 3. The stock is trading close to
our fair value estimate (which builds in a high probability of surplus real estate monetization by
end-FY2013E) and hence, we reiterate our REDUCE rating on the stock. Our SOTP break-up –
Core business valued at Rs51/share – based on 6X FY2013E estimated consolidated EBITDA of
Rs15.8 bn less net debt of Rs80 bn.
9% stake in TTSL (post the recent rights issue) valued at Rs47/share.
Surplus land assets valued at Rs107/share – at 50% discount to the fair value.
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