HDFC Securities has come up with a report on Tata Tele Services. The research firm has maintained buy rating on the stock with target price of Rs 44. HDFC report on Tata Tele Services:
Key investment arguments:
High growth rates with spectrum availability:
The subscriber acquisition rate for TTML at 37.7% CAGR for FY07-10E will be higher than the industry CAGR of 27%. It will gain market share from 12.3% to 15.7%, due to extensive micro coverage expansion and increased focus on data products.
Turnaround story, cruising ahead:
TTML has shown a remarkable turnaround in financial and operational parameters, which we believe will reflect in future performance, backed by expert top management. The company has reported positive EBITDA of Rs 3026 million (FY07), compared to negative EBITDA of Rs 661 million (FY05). We expect this to go up to Rs 8843 million (FY10E) at 43% CAGR (FY07- 10E) compared to Bharti and RCOM's CAGR of 34% for the same period. We expect TTML to report a profit of Rs 3,777 million (FY10E) from a loss of Rs 3,106 million (FY07), with further upside potential due to margin expansion.
TTML has shown a remarkable turnaround in financial and operational parameters, which we believe will reflect in future performance, backed by expert top management. The company has reported positive EBITDA of Rs 3026 million (FY07), compared to negative EBITDA of Rs 661 million (FY05). We expect this to go up to Rs 8843 million (FY10E) at 43% CAGR (FY07- 10E) compared to Bharti and RCOM's CAGR of 34% for the same period. We expect TTML to report a profit of Rs 3,777 million (FY10E) from a loss of Rs 3,106 million (FY07), with further upside potential due to margin expansion.
Integrated product offering – voice and data:
Compared to Idea, Hutch and BPL Mobile of pure voice plays, TTML has integrated its product offerings for voice and data for both retail and enterprise customers. TTML is the leader in the enterprise segment, with 54% market share (FY07) in Mumbai, with assets already in place for leased lines, ADSL, wireless
etc and accessibility to the group's expertise in technology, software and finance.
Compared to Idea, Hutch and BPL Mobile of pure voice plays, TTML has integrated its product offerings for voice and data for both retail and enterprise customers. TTML is the leader in the enterprise segment, with 54% market share (FY07) in Mumbai, with assets already in place for leased lines, ADSL, wireless
etc and accessibility to the group's expertise in technology, software and finance.
Key Developments:
The launch of wireless data card in July 2007 has elicited tremendous response with average additions at 6000-8000 subscribers per month, which would be ramped up to 20,000 per month by Dec 2007. Data cards being high ARPU products and better margins should affect the performance positively. Subscriber additions per month are on track with a market share gain as per our expectations (as on Aug 2007 end – 186000 net adds, 3.56 mn subs, 13.2% market share compared to Mar, 2007 – 2.77 mn subs with 12.3% market share )
The launch of wireless data card in July 2007 has elicited tremendous response with average additions at 6000-8000 subscribers per month, which would be ramped up to 20,000 per month by Dec 2007. Data cards being high ARPU products and better margins should affect the performance positively. Subscriber additions per month are on track with a market share gain as per our expectations (as on Aug 2007 end – 186000 net adds, 3.56 mn subs, 13.2% market share compared to Mar, 2007 – 2.77 mn subs with 12.3% market share )
Valuation and Outlook:
TTML has shown a remarkable turnaround in financial and operational parameters, which we believe will reflect in its future performance, backed by expert top management. Subscriber acquisition rate for TTML at 38% CAGR for FY07-10E will be higher than the industry CAGR of 27%, with a gain in market share from 12.26% to 15.65%, due to extensive micro coverage expansion and increased focus on data products. The stock is currently trading at 19.3 and 12.6 times EV/ EBIDTA on FY08E and FY09E basis. We maintain BUY rating with a price target of Rs 44 that values the stock at 19.1 and 13.3 times EV/EBIDTA on FY08E and FY09E basis.
TTML has shown a remarkable turnaround in financial and operational parameters, which we believe will reflect in its future performance, backed by expert top management. Subscriber acquisition rate for TTML at 38% CAGR for FY07-10E will be higher than the industry CAGR of 27%, with a gain in market share from 12.26% to 15.65%, due to extensive micro coverage expansion and increased focus on data products. The stock is currently trading at 19.3 and 12.6 times EV/ EBIDTA on FY08E and FY09E basis. We maintain BUY rating with a price target of Rs 44 that values the stock at 19.1 and 13.3 times EV/EBIDTA on FY08E and FY09E basis.
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