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Tata Teleservices (TTLS IN)
UW: Tariff hikes confirmed, challenges remain
TTML confirms increases in tariffs but adopts a gradual
approach
VAS as a percentage of revenues at 29.8% (up 11.3% y-o-y),
data cards growth support CDMA
Maintain Underweight (remove the V Flag) and raise target
price to INR18 (from INR15)
1QFY12 results were mixed, management confirmed tariff hikes: Revenues in the quarter
were flat; EBITDA was down 9.5% and net loss for the quarter at INR1.2bn, was 26% higher
than our estimates. However, the highlight of the results was confirmation from Tata
Teleservices (TTML) that it has raised SMS tariffs from July by c67%, while post-one-year
STD voice tariffs will rise from 1p/second to 2p/second. Furthermore management suggested
that it had tweaked some of the existing products in a manner that would result in better voice
realisation. TTML views the tariff hike as sustainable and suggested that availability of
incremental GSM spectrum will reduce its capex but not necessarily have any impact on the
new tariffs. We view the tariff hikes by TTML as positive for the sector and believe that its
participation in the tariff hikes, even though not with similar vigour, supports our view that the
recent tariff hikes by Idea (IDEA IN, INR94.8, N), Bharti (BHARTI IN, INR432, OW) and
Vodafone India (Not listed) are sustainable.
Operating parameters during the quarter were strong: ARPU increased 2.8% to INR184,
while MoU’s increased by 2.2% to 416 minutes for the quarter. The key positive was a 0.6%
increase in RPM to 44.2 paisa from 43.9 paisa in the previous quarter. VAS as a % of revenues
for TTML increased to 29.8% compared to 18.5% in the same quarter last year (see figure 3).
A key concern for the company is the high percentage of inactive subscriber base; as per the
TRAI, c55% of TTML’s subscribers are inactive.
Valuation and rating: We retain our Underweight rating (remove the volatility flag) but raise
our 12-month target price to INR 18 (from INR15), which reflects our higher estimates
following the tariff hikes by the company. We raise our FY13 estimates for profit-after-tax by
17% and EBITDA by 8%. Our UW rating reflects TTML’s late entry in GSM, poor subscriber
quality, significant capex requirements in GSM given limited spectrum of c4.4MHz and lack
of 3G spectrum in Mumbai. Upside risks include the ability to churn high-end subscribers from
GSM incumbents and receipt of additional spectrum on GSM.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Teleservices (TTLS IN)
UW: Tariff hikes confirmed, challenges remain
TTML confirms increases in tariffs but adopts a gradual
approach
VAS as a percentage of revenues at 29.8% (up 11.3% y-o-y),
data cards growth support CDMA
Maintain Underweight (remove the V Flag) and raise target
price to INR18 (from INR15)
1QFY12 results were mixed, management confirmed tariff hikes: Revenues in the quarter
were flat; EBITDA was down 9.5% and net loss for the quarter at INR1.2bn, was 26% higher
than our estimates. However, the highlight of the results was confirmation from Tata
Teleservices (TTML) that it has raised SMS tariffs from July by c67%, while post-one-year
STD voice tariffs will rise from 1p/second to 2p/second. Furthermore management suggested
that it had tweaked some of the existing products in a manner that would result in better voice
realisation. TTML views the tariff hike as sustainable and suggested that availability of
incremental GSM spectrum will reduce its capex but not necessarily have any impact on the
new tariffs. We view the tariff hikes by TTML as positive for the sector and believe that its
participation in the tariff hikes, even though not with similar vigour, supports our view that the
recent tariff hikes by Idea (IDEA IN, INR94.8, N), Bharti (BHARTI IN, INR432, OW) and
Vodafone India (Not listed) are sustainable.
Operating parameters during the quarter were strong: ARPU increased 2.8% to INR184,
while MoU’s increased by 2.2% to 416 minutes for the quarter. The key positive was a 0.6%
increase in RPM to 44.2 paisa from 43.9 paisa in the previous quarter. VAS as a % of revenues
for TTML increased to 29.8% compared to 18.5% in the same quarter last year (see figure 3).
A key concern for the company is the high percentage of inactive subscriber base; as per the
TRAI, c55% of TTML’s subscribers are inactive.
Valuation and rating: We retain our Underweight rating (remove the volatility flag) but raise
our 12-month target price to INR 18 (from INR15), which reflects our higher estimates
following the tariff hikes by the company. We raise our FY13 estimates for profit-after-tax by
17% and EBITDA by 8%. Our UW rating reflects TTML’s late entry in GSM, poor subscriber
quality, significant capex requirements in GSM given limited spectrum of c4.4MHz and lack
of 3G spectrum in Mumbai. Upside risks include the ability to churn high-end subscribers from
GSM incumbents and receipt of additional spectrum on GSM.
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