Hold Tata Teleservices; target of Rs 16: ICICIdirect.com

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Hold Tata Teleservices; target of Rs 16: ICICIdirect.com

ICICIdirect.com has recommended hold rating on Tata Teleservices with a target of Rs 16, in its May 11, 2011 research report.

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ICICIdirect.com has recommended hold rating on Tata Teleservices with a target of Rs 16, in its May 11, 2011 research report.

"Tata Teleservices Maharashtra's (TTML) consolidated numbers for Q4FY11 were disappointing. The top line at Rs 589.2 crore was marginally below our estimate of Rs 599.0 crore. EBITDA margin contracted 331 bps to 18.9% against our expectation of 22.6% primarily due to higher network operating cost provisioning of contingency payment to DoT. The company reported EBITDA of Rs 111.3 crore against our expectation of Rs 135.3 crore. The company reported higher interest cost and depreciation as it started charging 3G related interest cost and amortization to P&L and a change in depreciation policy towards certain CDMA equipment. This led to negative PAT of Rs 300.2 crore in Q4FY11 vis-à-vis our expectation of negative Rs 96.0 crore."

"TTML reported ARPU of Rs 179 (based on active subscriber base) for Q4FY11, growing 5.3% QoQ on active subscriber base. However, according to our estimates active subscribers as a percent to total subscribers reduced from ~54% in Q3FY11 to ~45% in Q4FY11. The company managed to improve both MoU and ARPM to 407 and 44 paisa up from 401 and 42 paisa in last quarter respectively. With increasing usage of Tata Photon services, non voice revenue increased to 26.7% from 24.1% in last quarter. The company also recorded lowest quarterly addition in the wireless segment in the last seven quarters."

"We estimate the top line to grow at 5.9% CAGR over FY11-13E, however, net loss is expected to increase to Rs 646.7 crore by FY13 from positive PAT of Rs 80.2 crore in FY11 (on account of sale of Tower company for Rs 865.4 crore). Valuing the company at 30% discount to Airtel at 1.2x FY13E sales we arrive at a target price of Rs 16. At CMP of Rs 17, the stock is trading at 1.3x FY13E sales. Our target price of Rs 16 implies a downside of 6%. We maintain HOLD rating on the stock," says ICICIdirect.com research report.

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