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Tata communications

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A financial perspective of Tata Communications Ltd.

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Tata communications

  1. 1. Internship 2014
  2. 2. Company Overview
  3. 3. Company Overview ♦ Tata Communication Ltd. (“TCL”) was founded in 1986, as Videsh Sanchar Nigam Limited and currently headquartered in Mumbai, India ♦ TCL provides telecommunications services to telecom service providers and enterprise customers worldwide ♦ Majority owned by the Tata Group, which is one of India’s largest and most reputed multinational conglomerates Source: Company Data (1) :As on 8/22/2014 3 ♦ The company operates mainly in 2 segments: Global Voice Solutions and Global Data Services ♦ The company’s customer base includes approximately 1,600 global carriers and service providers, 785mobile operators, 10,000 enterprises, 275,000 broadband and Internet subscribers, and 500 Wi-Fi public hotspots ♦ It is considered as a leader in enterprise data services & wholesale long distance voice services in India; and international voice services & wholesale connectivity globally ♦ Total 8,119 employees as of Jun’14. 929 employees in the South African operations and 7,190 in core business (Voice+Data) and corporate offices ♦ The company is listed on India’s NSE & BSE with a market cap of Rs 101.7bn (1)
  4. 4. Shareholding & Key Personnel Shareholding Pattern Key Personnel 48.9% 19.6% 5.5% 26.1% Tata Group Govt. of India Institutions Non-Institutions 4 Name Position Vinod Kumar MD & Group CEO Sanjay Baweja CFO Michel Guyot President - Voice Solutions Allan Chan President - Global Carrier Sumeet Walia Enterprise Solutions Sunil Joshi MD & CEO of Neotel Rangu Salgame CEO - Growth Ventures Aadesh Goyal Global Head - HR Tri Pham Chief Strategy Officer Sunil Rawal Head Business Excellence Julie Woods-Moss Chief Marketing Officer ♦ Tata group includes Panatone Finvest Ltd (31.10%), Tata Sons (13.06%), and Tata Power Ltd. (4.71%) ♦ Institutions include Mutual funds (2.59%), Financial institutions (6.58%), Insurance companies (2.51%) and Foreign Institutional Investors (7.87%) ♦ Non-institutions include individuals (4.01%), Bodies corporate (1.32%) and others (0.13%) Source: Company Data (upto June 30, 2014)
  5. 5. Business Model Products Summary Voice Solutions (49%) Stage: Mature & Stable Scale Business Position: Market Leader Offerings: Wholesale international voice carriage and termination, India national long distance voice, outsourcing/while label Market: Global carriers and service providers Ranking: #1 in international voice by minutes Data Services (40%) Stage: Mature Position: India Leader & Global Challenger Offerings: Connectivity (focusing on leased circuit networking and IP transit services), data centers, managed services, outsourcing Market: Global carriers and enterprises, and mid-market segment in India Ranking: #1 in India in enterprise data services by revenue Start-ups (primarily Neotel) 11% Stage: Startup Position: South Africa Investment (Neotel) – Concluded commercial discussions to sell to Vodacom Offerings: All telecom services except mobile, first CDMA network in South Africa Market: South African Carriers, entreprises, SMB and consumers Ranking: #2 in enterprise and wholesale data in South Africa Source: Company Data (upto June 30, 2014) 5
  6. 6. Financial Overview
  7. 7. Summary Financials Operating Revenue (INR mn) Cash Profit1 (INR mn) EBITDA (INR mn) Dividend % Per Share 7 110,256 119,320 141,961 172,130 196,196 FY10 FY11 FY12 FY13 FY14 Revenues 10,124 Source: Company Data 12,253 17,915 20,597 30,416 9.3% 10.6% 12.6% 12.0% 15.5% FY10 FY11 FY12 FY13 FY14 EBITDA Margin% 9,131 7,714 10,254 14,037 23,428 FY10 FY11 FY12 FY13 FY14 1Cash Profit computed as (Net Profit/Loss + Depreciation and Amortisation & Impairment) 0% 20% 20% 30% 45% FY10 FY11 FY12 FY13 FY14
  8. 8. Debt Profile Core Business – Net Debt Key Highlights Core Business - Average Cost of Loans 8 1,550 1,479 1,380 FY12 FY13 FY14 Source: Company Data ♦ Core business is operating at peak debt levels ♦ Consistent reduction in average cost of borrowing has driven lower interest expense ♦ Lower interest expense and capex intensity with improved operating performance have set stage for core business deleveraging 7.4% 6.0% 5.9% 5.8% 5.3% 5.1% 5.0% 4.9% 5.0% 4.4% 4.1% 4.2% 4.3% 4.2% Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
  9. 9. Valuation Summary 5 year Index Share Price Performance Comparison Valuation Broker Comments Particulars FY13 FY14 FY15E FY16E Revenue (Rs cr) 17,213 19,666 22,126 25,224 Growth (%) 21% 14% 13% 14% Operating profit 2,060 3,088 3,380 4,085 Growth (%) 15% 50% 10% 21% EBITDA margin (%) 12% 16% 15% 16% Adjusted PAT (Rs cr) (623) 35 363 520 Reported PAT (Rs cr) (727) 101 363 520 EPS (Rs) (26) 4 13 18 PER (x) - 104 29 20 EV/EBITDA (x) 10 8 7 6 Net debt/EBITDA (x) 5 5 4 3 P/Book value (x) 7 13 9 6 As per a research report from Sharekhan, in view of the strong cost rationalisation efforts of the company, increasing contribution of the data business in its portfolio and various new initiatives like ATM business, which is on the cusp of attaining a break-even, analysts expect the EBITDA of the company to grow at a compounded annual growth rate of 14.4% over FY2014-16. This coupled with its deleveraging exercise (through measured capex) is likely to improve its net debt/EBITDA level from 3.7x currently to around 3x by FY2016. The steadily improving core performance coupled with the management’s initiative to sharpen its focus and deleverage its balance sheet via Neotel stake sale and monetisation of the non-core assets keeps us positive on the stock. Analyst expects the stock to provide additional 12-15% returns from the current levels. Source: Company Data, Moneycontrol.com, Sharekhan 9
  10. 10. Business Environment
  11. 11. SWOT Analysis Strength Weakness ♦ An attractive business environment with many emerging local as well as foreign players ♦ Strong mobile- communication development, with latest technologies offering attractive services at faster pace ♦ Due to faster growth of industry always attractive to foreign investors ♦ Delayed execution of important policies due to issues among TRAI, Telecom ministry ♦ Limited spectrum availability and interconnection charges issue between the private and state operators ♦ Wireless Business and prepaid services are growing at faster pace while wired services and post-paid services are lagging behind Opportunities Threat ♦ Regulator recommended foreign players participation without any local player ♦ All service providers are keen to provide more services which is great opportunity for them ♦ Telecom industry is likely to see an excellent growth of services in rural as well as semi-urban areas ♦ High 3G service charges may reflect negative influence on demand for licenses ♦ Average Revenue Per User i.e. APRU is falling due to price war between different players ♦ Huge capacity requirements can hamper the fast growth in mobile sector Source: Company Data, Moneycontrol.com, Sharekhan 11
  12. 12. Airtel Vodafone ♦ Delayed execution of important policies due to issues among TRAI, Telecom ministry ♦ Limited spectrum availability and interconnection charges issue between the private and state operators ♦ Wireless Business and prepaid services are growing at faster pace while wired services and post-paid services are lagging behind. Competition Overview ♦ An attractive business environment with many emerging local as well as foreign players ♦ Strong mobile- communication development, with latest technologies offering attractive services at faster pace ♦ Due to faster growth of industry always attractive to foreign investors Reliance Communication Idea ♦ Regulator recommended foreign players participation without any local player ♦ All service providers are keen to provide more services which is great opportunity for them ♦ Telecom industry is likely to see an excellent growth of services in rural as well as semi-urban areas ♦ High 3G service charges may reflect negative influence on demand for licenses ♦ Average Revenue Per User i.e. APRU is falling due to price war between different players ♦ Huge capacity requirements can hamper the fast growth in mobile sector Source: Company Data, Moneycontrol.com, Sharekhan 12
  13. 13. Industry Overview
  14. 14. Telecom Industry Overview Indian Telecom Market ♦ In 2013-14, the Indian telecom market grew to 45,643 crores, at a rate of approximately 8% y-o-y ♦ During FY14-19, the market is expected to grow at a compounded annual growth rate (CAGR) of approximately 9%, on the back of the mid-teens growth forecast in the mobile services and managed services space ♦ Growth in the Indian market is mainly driven by higher penetration of mobile services, growth in consumer broadband services and increased adoption of network services by Indian businesses ♦ In the financial year 2013-14, the Indian International Long Distance (ILD) voice market had eight major operators, a total inbound market size of 85 billion minutes and outbound market size of 4.5 billion minutes  TCL's market share was 21% in both inbound and outbound traffic ♦ India’s National Long Distance (NLD) voice market size was 372 billion minutes during the year and consisted of 10 major operators  TCL's NLD addressable market size was 15 billion minutes, of which its market share was 39% ♦ In 2013-14, TCL had a 28% market share of the Indian data market and a 25% market share of the Indian data centre market Source: Company Data 14
  15. 15. Telecom Industry Overview Global Telecom Market ♦ In 2013, the global telecom market was relatively flat, growing just 0.2% y-o-y to USD 2.2 trillion ♦ Telecom services accounted for 75% of the total market while mobile devices accounted for 16% and telecom infrastructure for 9% ♦ The near-flat growth rate of the past year is likely to improve, with the total telecom market expected to grow at a CAGR of 2.5% from 2013 to 2018 Mobile Penetration 2014 Mobile Telecom Revenues 2014 92 96.4 108 124 140 140 158 0 50 100 150 200 Sub-Saharan Africa Asia & Australasia North America Latin America Middle East & North Africa Western Europe Eastern Europe Subscriptions per 100 people 356,731 Revenue (USD Bn) 189,791 170,356 77,899 38,592 Asia & Australasia Western Europe North America Latin America Eastern Europe Source: Company Data, The Economic Intelligence Unit 15
  16. 16. 10,100 Top Telecoms Merger & Acquisition by deal value Buyer/Seller Deal Value (USD mn) 3,029 Telecom Industry – M&A Overview 1,116 1,263 308 400 520 T-Mobile USA/US Cellular spectrum Entel/Nextel del Peru Accelero Capital/MTS Allstream Hutchinson/Telefonica Qatar Foundation/Bharti Airtel (5% stake) Rostelecom/Svyazinvest Vodafone/Kabel Deutschland Top Telecoms Merger & Acquisition in Asia-Pacific Date Bidder Target Stake (Value) Business nature of target 26-Jun-13 Telstra Ventures (Australia) Kony Solutions (US) 100% (US$18.3 mn) App developer 17-Jun-13 NTT Corp (Japan) Solutionary Inc (US) 100% (US$210 mn) Security service provider 4-Jun-13 NTT Communications Corp (Japan) Digital Port Asia Limited (Thailand) 74% (US$40 mn) Data center service provider 7-May-13 Telstra (Australia); HealthEngine na (US$11 mn) Online health directory Seven West Media (Australia) 28-Apr-13 Telecom New Zealand Revera Limited (NZ) 100% (US$82 mn) Integrity computing infrastructure and service provider 26-Apr-13 NTT DoCoMo (Japan) Nihon Ultmarc Inc (Japan) 77.5% (US$26 mn) Provider of medical database and contract research Source: www.ey.com 16
  17. 17. TCL – Mergers & Acquisitions Acquired company Country Stake Year BT Group's (BT) Mosaic business UK 100% January-10 Neotel South Africa 30% January-09 China Enterprise Communications Limited (CEC) China 50% equity interest June-08 Transtel Telecoms (TT) South Africa April-07 Tata Power Broadband India September-05 Teleglobe International US July-05 Tyco Global Network US November-04 Dishnet DSL's ISP division India March-04 Gemplex US July-03 Source: www.ey.com 17
  18. 18. Taxation Overview - Telecom
  19. 19. Telecom Industry – Taxation Overview Direct Tax Highlights ♦ Surcharge • Proposed to levy a 5% surcharge on individuals with income of INR 10 million and 10% on domestic companies with income exceeding INR 100 million • The revised effective tax rate for domestic companies with income above INR 100 million would be 33.99 % (vis-a-vis 32.445%) • For foreign companies with operations in India, 5% surcharge for income exceeding INR 100 million, which increased the effective tax rate for foreign companies from 42% to 43.26% ♦ Dividend Distribution Tax ('DDT') • Surcharge on DDT increased by 10%, which would result in effective DDT of 16.995% ♦ Dividends from foreign subsidiaries • Currently, a beneficial tax rate of 15% is applicable on dividends received from foreign subsidiaries (i.e., companies in which Indian company holds more than 26%) ♦ Taxation of income by way of royalty or fees for technical services ('FTS') • Rate of tax applicable on payments in the nature of royalty and FTS made to nonresidents has been increased to 25% from 10% ♦ Modified General Anti-Avoidance Rules ('GAAR') effective from April 1, 2016 Source: Ernst & Young Budget Impact – Telecommunication Sector
  20. 20. Telecom Industry – Taxation Overview In-Direct Tax Highlights ♦ Central Excise duty • Standard rate of Excise duty maintained at 12% ♦ Custom duty • Standard rate of Customs duty maintained at 10% ♦ Service tax • Standard rate of Service tax maintained at 12% ♦ Cenvat Credit Rules • Amendment to clearly provide for recovery, in case of non-reversal of Cenvat credit on:  ‘As such’ removal of inputs or capital goods;  Removal after use of capital goods; or  Full/ partial write off of inputs or capital goods ♦ Goods and Service tax • With respect to GST, the commitment and intention has been reiterated and the Finance Minister is hopeful that a draft bill on the constitutional amendment and draft bill on GST will be put forth in the Parliament soon
  21. 21. Internship Overview
  22. 22. Internship Overview Job profile- Intern Duration of Internship - 2nd June to 31st August, 2014 Department - Finance Job description  Calculation of tax for TCL clients like Airtel, Tata Docomo, Viom and Infinet  Updating Bangladesh Telecom Limited (BTCL) data put up on excel sheet  Checking invoicing errors  Preparation of reconciliation statement  Preparation of data for payment received Learning from Internship  Learned Types of taxes applicable on telecom bills  Assisted professionals in Finance and Data Analysis projects  Understood the SAP functioning  Gained working knowledge of Excel data analysis features while working on region wise projects  Understood the F-FORM process Learning from Project Work  Learned about TCL’s business and factors affecting the firm  Learned about factors affecting the industry  Learned about Direct & Indirect Taxation affecting the Telecom Industry  Learned about the business opportunities for Telecom Industry

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