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Tata Comm.: Good operating performance, but… - Views on News from Equitymaster
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Tata Comm.: Good operating performance, but…
Jan 29, 2009

Performance summary
  • Net sales grow by 17% YoY during 3QFY09, 17% YoY during 9mFY09.
  • Operating margins expand during both the periods under consideration, largely on account of lower network costs.
  • Net rofits grow by over 200% YoY during the quarter, duly helped by an extraordinary expense during the corresponding quarter of FY08. Excluding this, profits are down 38% YoY.
  • Lower other income and higher depreciation and interest charges lead to the pressure on net profits.


Financial performance snapshot
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Sales 8,467 9,902 17.0% 24,331 28,374 16.6%
Expenditure 6,851 7,597 10.9% 19,605 21,933 11.9%
Operating profit (EBDITA) 1,616 2,305 42.7% 4,726 6,441 36.3%
Operating profit margin (%) 19.1% 23.3%   19.4% 22.7%  
Other income 759 325 -57.2% 1,308 1,348 3.0%
Depreciation 757 1,084 43.1% 2,155 2,811 30.5%
Interest 206 344 67.0% 131 800 511.4%
Profit before tax 1,412 1,202 -14.8% 3,749 4,177 11.4%
Extraordinary income/(expense) (1,036) -   (102) (956)  
Tax 109 393 260.1% 1,191 1,102 -7.5%
Profit after tax/(loss) 267 809 203.1% 2,456 2,119 -13.7%
Net profit margin (%) 3.2% 8.2%   10.1% 7.5%  
No. of shares (m)       284.9 285.1  
Diluted earnings per share (Rs)*         9.5  
P/E ratio (x)*         49.5  
* On a trailing 12-months basis

What has driven performance in 3QFY09?
  • Tata Communications (TCL) grew sales by 17% YoY during 3QFY09. This was aided by good performances from all the three business segments of the company, specifically the Enterprise & Carrier Data business. This grew by 16% YoY during the quarter and formed around 40% of the company’s total sales. The largest segment of Wholesale Voice grew by 9% YoY, largely on the back of higher volumes. For 9mFY09, for instance, the company’s total global voice traffic grew by 20% YoY to touch 26 bn minutes.

    Segment-wise performance
    (Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
    Wholesale Voice-Sales 4,302 4,666 8.5% 12,517 13,319 6.4%
    Share of total sales 50.8% 47.1%   51.4% 46.9%  
    PBIT margins 9.3% 22.0%   10.6% 17.2%  
    Enterprise & Carrier Data-Sales 3,435 3,989 16.1% 9,118 11,207 22.9%
    Share of total sales 40.6% 40.3%   37.5% 39.5%  
    PBIT margins 86.1% 76.7%   80.7% 77.0%  
    Others 730 1,247 70.8% 2,696 3,848 42.7%
    Share of total sales 8.6% 12.6%   11.1% 13.6%  
    PBIT margins 42.5% 50.4%   53.4% 57.8%  

  • TCL’s operating margins expanded by 4.2% YoY during 3QFY09. This was on account of lower network costs, which declined from 55% of sales in 3QFY08 to 48% of sales in 3QFY09.

  • Despite a solid performance at the operating level, TCL recorded a bottomline decline of 38% YoY during the quarter. This is excluding an extraordinary expense that the company had incurred in 3QFY08. Including this, the bottomline growth for 3QFY09 stands at 203% YoY.

What to expect?
At the current price of Rs 470, TCL is trading at a multiple of 49.5 times its trailing 12 months earnings, which we believe is expensive. Benefits of a good operating performance have once again failed to boost TCL’s bottomline performance. The company has seen volatility in its performance over the past several quarters as its huge capex in building up bandwidth capacity has not yet culminated into giving the company’s financial standing a major boost. We maintain a cautious view on the stock.

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