Thursday, September 26, 2013

Tata Communications Ltd : say hello to this Tata



Tata Communications Ltd (TCL)  is the erstwhile VSNL.

The company has 3 main businesses:

Voice : 50% of revenues
Data : 39% of revenues
Neotel : 11% of revenues

Neotel is South Africa’s 2 nd largest Telecom company.and TCL own about 67.32% stake in Neotel.

Lets briefly look at each of the 3 businesses:

1)      Voice:
·         TCL is the World's largest carrier of International wholesale traffic.
·         During 2012-13, the company carried  5340 cr minutes of international voice traffic globally.
·         TCL has relationships with 1600 leading international voice telecom providers
·         This business is largely a commoditized and a mature one. Company's strategy is to furher consolidate its leaership and take advantage of increasing traffic volumes while protecting margins
·         In the National ( Indian ) long distance voice business, the company haa approx 55% market share

2)      Data:
·         Carries 20% of the world’s’s internet traffic  directly over its network
·         Has 15 terabits of International bandwidth lit capacity
·         Its network consists of 2,10,000 km of terrestrial and subsea network fibre and reaches countries representing 99.7% of the world’s GDP
·         Own’s 1 Mlllion sq feet of data centre and co-location space across 42 global locations

3)      Neotel:
·         South Africa’s first converged communications network operator, offering services that bring together voice, data & internet, delivered via optical fibre or wireless access. Services delivered via Neotel’s own independent network
·         Turned profitable at operating level in June 2013 quarter

Financials:

Equity : 285 cr
Consolidated Debt: approx Rs.11,000 cr
CMP: Rs.191-193

Where’s the Honey ?:

When the Govt of India divested  its majority shareholding in VSNL, it was agreed upon that the Surplus land ( specifically identified at that time) would be hived off into a separate company.

Accordingly after an agonizing  gap of nearly 10/11 years,  as per the scheme of demerger ( for the surplus land) , a new company called Hemishpere Properties India Ltd has been formed.Presently, the boards of TCL & Hemisphere are awaiting the scheme of demerger to be placed before them.

Expected shareholding of Hemisphere is as follows:
Govt of India : approx 51%
Minority Shareholders who tendered their shares in the oen offer of VSNL: approx 20%
Current minority shareholders: approx 29%

The surplus land is as follows:

Dighi—Pune 524.00 acres
Halishahar,Kolkata -35.19 acres
Chattarpur ,Delhi-58.00 acres
Greater Kailash.,Delhi-70.00 acres
Padianallur,Chennai-85.94 acres

Total 773.13 aacres

The land has been valued at between 15,000 cr & 25,000 cr.  
 Is this valuation correct 
What will be the stamp duty & capital gain tax on the transaction ? 
In the present scenario, are there buyers who can cough up this kind of monies ? 
What will be the time frame ? 

Above are all relevenat questions to which I have no meaningful answers.

That the  demerger will happen eventually is a given.

Anther point of interest is that besides the so–called Surplus land, there are various other invaluable real estate assets sitting with Tata Communications.
e.g VSNL Tower in mumbai's fort area  , the prabhadevi administrative headquarter in mumbai , vsnl bhavan at kolkata, Telecom Centre Building at bandra-kurla complex in Mumbai and many many others which include the erstwhile VSNL staff quarters in different cities in prime locations. It is evident that from these assets the company will keep on monetizing the non core ones.

e.g. in the previous financial year,the company has completed a sale transaction of the land parcel and building situated at Nungambakkam, Chennai, for a transaction value of Rs 192.3 crore. This land parcel and building was earlier being used as a staff housing colony.

In its core business, the company has been steadily leveraging each layer of capability and mving up to the next. One example of this is, the company's foray into White -label ATM's which is a natural and logical extension of its Data capabilities and infrastructure. The company currently operates around 16,000 ATM's and is looking at adding another 12,000-13,000 over the next year and a half.

 Notwithstanding this, considering the commoditized nature of its core business and the numerous other possibilities laced with question marks which I have tried to highlight above, it is difficult to arrive at a meaningful valuation for the company.

On one aspect though, there should not be any ambiguity, that the current market price of about Rs.192 / 193 does not do justice. But can’t that be said about numerous other companies in today’s scenario ? 

What is different here though is that here it does seem that the bride is all ready and raring to go, the groom too is in place. All that remains is parental consent and providential blessings.

At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments. 


11 comments:

  1. Good to see you back after a long hiatus. I think the debt is 1100 cr. and not 11000 cr. as you have mentioned.

    ReplyDelete
  2. Hello Anant,

    Debt figure mentioned by me is on a consolidated basis..approx 11,000 cr.

    ReplyDelete
  3. Hats off sir!.....TCL has been an excellent pick, the script has been doing great.

    Thanks!

    ReplyDelete
  4. Thank you (Equity Tracker Delhi) for the appreciation.

    ReplyDelete
  5. It's my pleasure!
    Anything latest/interesting on your radar, if so, pls do share.

    Cheers!

    ReplyDelete
  6. Thanks for lovely piece of research. Shud we buy it at CMP post Neotell sell off n Modi govt coming in? Any clarity on land sale now?

    ReplyDelete
  7. Hello Vivek,

    it seems in the interest of all 3 parties ( tata's, goi & minority) that the de-merger happens. The core biz also seems in good health with no negative worry points visible in the near horizon.

    as the French playwright Moliere said ' Trees that are slow to grow bear the best fruit'

    i'm hoping to have my 'worry cap' off and 'patience cap' on..

    ReplyDelete
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