Tata Teleservices Mah. Ltd. (HUGTEL)

Result Update
Rating matrix
Rating : Hold
Target : | 12
Target Period : 12 months
Potential Upside : -6%
Key Financials
(| Crore) FY10 FY11E FY12E FY13E
Net Sales 2098.3 2303.1 2488.4 2489.3
EBITDA 385.3 301.6 529.8 619.2
Net Profit -318.0 80.2 -517.6 -482.5
EPS | -1.7 0.4 -2.7 -2.5
Valuation summary
FY10 FY11E FY12E FY13E
PE (x) - - - -
Target PE (x) - - - -
EV/EBITDA (x) 16.7 23.5 15.1 13.0
P/BV (x) 1.0 1.0 1.0 1.0
RoNW (%) -12.8 3.2 -20.9 -19.5
RoCE (%) -2.8 -6.4 -0.2 0.6
Stock data
Market Capitalisation | 2523.3 Crore
Debt-Cons. (FY11) | 4652.6 Crore
Cash & Invst.-Cons. (FY11) | 74.7 Crore
EV | 7101.2 Crore
52 week H/L 24 / 12
Equity capital | 1897.2 Crore
Face value | 10
MF Holding (%) 0.7
FII Holding (%) 0.7
Price movement
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
May-11
Analyst’s name
Aug-11
Nov-11
Karan Mittal
karan.mittal@icicisecurities.com
Anil Shenoy
anil.shenoy@icicisecurities.com
Feb-12
Price (L.H.S) Nifty (R.H.S)
ICICI Securities Ltd | Retail Equity Research
25
20
15
10
5
0
May-12
WHAT’S CHANGED…
May 7, 2012
PRICE TARGET........................................................................... Changed from | 15 to | 12
EPS (FY12E)......................................................................... Changed from - | 2.6 to - | 2.7
EPS (FY13E)......................................................................... Changed from - | 2.6 to - | 2.5
RATING...............................................................................................................Unchanged
Subscriber base continues to fall…
Tata Teleservices Maharashtra (TTML) reported its Q4FY12 numbers. The
topline stood at | 651.5 crore against our expectation of | 595.2 crore,
growing 10.6% YoY and 3.3% QoQ. EBITDA for the quarter stood at
| 138.6 crore against our estimate of | 157.3 crore, growing 4.3% QoQ.
The EBITDA margin stood at 21.3% improving 20 bps QoQ. The company
reported a net loss of | 123.4 crore against our estimation of | 103.0
crore. TTML reported a forex loss of | 5.2 crore.
Highlights of the quarter
While the revenues of the company grew 3.3% QoQ, the wireless
subscriber base fell drastically from 14.8 million in Q3FY12 to 13.3 million
in Q4FY12 representing a fall of 9.7%. Even in Q3FY12, the company
witnessed a fall in subscriber base from 16.8 million to 14.8 million. The
wireline subscriber base, however, grew 2.4% to 0.78 million in Q4FY12.
The EBITDA margin for the company improved by 20 bps QoQ to 21.3%
as EBITDA in Q3FY12 included provisions of | 13.3 crore made by the
company. Keeping provisions aside, the EBITDA margin fell by 190 bps
owing to higher network operating expenditure in this quarter.
Valuation
Tata Teleservices Mah. Ltd. (HUGTEL)
A continuous decline in the subscriber base including in this quarter is a
major concern. We expect the topline to grow at 4.0% CAGR over FY11-
13E. However, the net loss is expected to increase to | 482.5 crore by
FY13 from positive PAT of | 80.2 crore in FY11 (on account of the sale of
the tower company for | 865.4 crore). Valuing the company at 35%
discount to Bharti Airtel at 1.0x FY13E sales, we have arrived at a target
price of | 12. At the CMP of | 13, the stock is trading at 1.0x FY13E sales.
Our target price of | 12 implies a downside of -6%. We continue to rate
the stock as HOLD.
Exhibit 1: Valuation Metrics
(| Crore) Q4FY12 Q4FY12E Q4FY11 Q3FY12 QoQ (Chg %) YoY (Chg %)
Net Sales 651.5 595.2 589.2 630.6 3.3 10.6
EBITDA 138.6 157.3 111.3 132.9 4.3 24.6
EBITDA Margin (%) 21.3 26.4 18.9 21.1 20 bps 239 bps
Depreciation 143.0 136.9 334.5 139.4 2.6 -57.2
Interest 127.7 124.8 113.9 141.5 -9.7 12.1
Net Profit -123.4 -103.0 -300.2 -144.6 -14.7 -58.9
EPS (|) -0.7 -0.5 -1.6 -0.8 -14.7 -58.9
Source: Company, ICICIdirect.com Research
| 13

Result analysis
Margins improve…
The EBITDA margin of the company improved by 20 bps QoQ to 21.3%
as EBITDA in Q3FY12 included provisions of | 13.3 crore made by the
company. Keeping the provisions aside, the EBITDA margin fell by 190
bps owing to higher network operating expenditure in this quarter.
The PAT margin improved from a negative 22.9% to a negative 18.9% in
Q4FY12 primarily due to lower interest cost. The interest cost fell from
| 141.5 crore to | 127.7 crore.
Exhibit 2: EBITDA & PAT margin trend
120.0
100.0
80.0
60.0
40.0
20.0
0.0
-20.0
-40.0
-60.0
-11.7
ICICI Securities Ltd | Retail Equity Research Page 2
99.6
-8.9
19.5 22.2 18.9 20.2 22.7 21.1 21.3
Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12
-22.7
-17.0 -13.8
-20.2 -21.1 -22.9 -18.9
Source: Company, ICICIdirect.com Research
-50.9
EBITDA Margin PAT Margin

Outlook & valuation
The sequential decline in subscribers remains a major concern for TTML.
Also, the active subscriber base has been declining over the past few
quarters. The company has not declared the key metrics for Q4FY12 as
yet.
VAS share in Q3FY12 stood at 32.7% declining from 33.3% in Q2FY12.
Though this is significantly higher than its peers owing to high usage of
Tata Photon devices, the sequential decline may be a concern, going
ahead.
We estimate the topline will grow at 4.0% CAGR over FY11-13E.
However, the net loss is expected to increase to | 482.5 crore by FY13
from positive PAT of | 80.2 crore in FY11 (on account of the sale of the
tower company for | 865.4 crore).
Market cap to sales based target price of | 12/share
TTML, having a presence only in two circles and limited access to 2G
spectrum has been assigned a discount of 35% to Airtel’s multiple, which
is valued at a current market capitalisation of 1.5x FY13E sales.
Thus, valuing the stock at 1.0x FY13E sales of | 2489 crore, we have
arrived at a target market capitalisation of | 2371 crore, implying per
share value of | 12.
At the CMP of | 13, the stock is trading at 1.0x FY13E sales. Our target
price of | 12 implies a downside of 6%. We continue to rate the stock as
HOLD.
Exhibit 3: Key assumptions
Particulars Units
Bharti Mcap | Crore 118355
FY13E Sales | Crore 80774
Mcap/Sales x 1.5
TTML discount to Bharti % 35%
Target multiple x 1.0
TTML FY13E Sales | Crore 2489
Target Mcap | Crore 2371
No. of Equity shares Crore 189.7
Price per equity share
Source: Company, ICICIdirect.com Research
| 12
Exhibit 4: Valuation table
Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE
(| Cr) (%) (|) (%) (x) (x) (%) (%)
FY10 2098.3 -1.7 NA 16.7 -12.8 -2.8
FY11 2303.1 9.8 0.4 NA 31.5 23.5 3.2 -6.4
FY12E 2488.4 8.0 -2.7 NA NA 15.1 -20.9 -0.2
FY13E 2489.3 0.0 -2.5 NA NA 13.0 -19.5 0.6
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 3

Financial summary
Profit and loss statement
(| Crore)
(Year-end March) FY10 FY11 FY12 FY13E
Total operating Income 2,098.3 2,303.1 2,488.4 2,489.3
Growth (%) 7.8 9.8 8.0 0.0
Network Operating Costs 506.5 631.2 787.4 738.4
Employee Expenses 440.9 457.0 475.4 427.9
Marketing Expenses 371.9 322.0 259.7 271.6
Other Expenses 393.6 591.3 436.1 432.1
Total Operating Expenditure 1,713.0 2,001.5 1,958.6 1,870.0
EBITDA 385.3 301.6 529.8 619.2
Growth (%) -21.0 -21.7 75.7 16.9
Depreciation 564.0 757.6 543.4 572.4
Interest 350.5 351.7 521.2 542.2
Other Income 211.2 888.0 17.3 12.9
PBT -318.0 80.2 -517.6 -482.5
Total Tax 0.0 0.0 0.0 0.0
PAT -318.0 80.2 -517.6 -482.5
Growth (%) NM NM NM NM
EPS (|) -1.7 0.4 -2.7 -2.5
Source: Company, ICICIdirect.com Research
Balance sheet
(Year-end March)
Liabilities
FY10 FY11 FY12
(| Crore)
FY13E
Equity Capital 1,897.2 1,897.2 1,897.2 1,897.2
Reserve and Surplus 583.2 583.2 583.2 583.2
Total Shareholders funds 2,480.4 2,480.4 2,480.4 2,480.4
Total Debt 3,940.0 4,652.6 5,607.6 5,707.6
Others 0.0 0.0 4.5 4.5
Total Liabilities 6,420.3 7,133.0 8,092.5 8,192.5
Assets
Gross Block 6,163.6 7,840.4 8,298.7 8,636.9
Less: Acc Depreciation 2,212.4 2,947.7 3,491.1 4,063.6
Net Block 3,951.2 4,892.7 4,807.5 4,573.3
Capital WIP 204.7 63.2 243.1 243.1
Total Fixed Assets 4,155.9 4,955.9 5,050.6 4,816.4
Inventories 6.4 3.8 3.8 3.8
Debtors 292.4 295.0 304.8 254.4
Cash 23.0 74.7 138.0 152.3
Loans and Advances 331.1 517.5 460.5 460.6
Other Current Assets 0.0 0.0 172.1 172.2
Total Current Assets 653.0 890.9 1,079.2 1,043.3
Creditors 1,552.9 1,619.1 1,451.0 1,549.8
Provisions 12.7 191.6 200.7 214.4
Total Current Liabilities 1,565.6 1,810.6 1,651.7 1,764.1
Net Current Assets -912.6 -919.7 -572.5 -720.8
P&L Account Balance 3,177.0 3,096.8 3,614.3 4,096.8
Application of Funds 6,420.3 7,133.0 8,092.5 8,192.5
Source: Company, ICICIdirect.com Research
Cash flow statement
(Year-end March) FY10 FY11 FY12
(| Crore)
FY13E
Profit after Tax -318.0 80.2 -517.6 -482.5
Add: Depreciation 564.0 757.6 543.4 572.4
(Inc)/dec in Current Assets -66.5 -186.3 -125.0 50.2
Inc/(dec) in CL and Provisions 504.7 245.0 -159.0 112.5
CF from operating activities 684.2 896.6 -258.1 252.6
(Inc)/dec in Investments 10.0 0.0 0.0 0.0
(Inc)/dec in Fixed Assets -1,294.3 -1,557.6 -638.2 -338.2
Others 0.0 0.0 4.5 0.0
CF from investing activities -1,284.3 -1,557.6 -633.6 -338.2
Inc/(dec) in Unsecured loan 130.8 673.8 -1,206.6 0.0
Inc/(dec) in Secured loans 464.8 38.8 2,161.6 100.0
CF from financing activities 595.7 712.6 955.0 100.0
Net Cash flow -4.5 51.7 63.3 14.4
Opening Cash 27.5 23.0 74.7 138.0
Closing Cash 23.0 74.7 138.0 152.3
Source: Company, ICICIdirect.com Research
Key ratios
(Year-end March)
Per share data (|)
FY10 FY11 FY12 FY13E
EPS -1.7 0.4 -2.7 -2.5
Cash EPS 1.3 4.4 0.1 0.5
BV 13.1 13.1 13.1 13.1
DPS 0.0 0.0 0.0 0.0
Cash Per Share
Operating Ratios (%)
0.1 0.4 0.7 0.8
EBITDA Margin 18.4 13.1 21.3 24.9
PBT / Total Operating income -15.2 3.5 -20.8 -19.4
PAT Margin -15.2 3.5 -20.8 -19.4
Inventory days - - - -
Debtor days 47.4 46.5 44.0 41.0
Creditor days
Return Ratios (%)
224.1 251.4 225.2 220.0
RoE -12.8 3.2 -20.9 -19.5
RoCE -2.8 -6.4 -0.2 0.6
RoIC
Valuation Ratios (x)
-2.8 -6.5 -0.2 0.6
P/E 0.0 31.5 0.0 0.0
EV / EBITDA 16.7 23.5 15.1 13.0
EV / Net Sales 3.1 3.1 3.2 3.2
Market Cap / Sales 1.2 1.1 1.0 1.0
Price to Book Value
Solvency Ratios
1.0 1.0 1.0 1.0
Debt/EBITDA 10.2 15.4 10.6 9.2
Debt / Equity 1.6 1.9 2.3 2.3
Current Ratio 0.4 0.5 0.7 0.6
Quick Ratio 0.4 0.5 0.6 0.5
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 4

ICICIdirect.com coverage universe (Telecom companies)
Bharti Airtel Sales (| Cr) EPS (|) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code BHATE FY11 59467.2 15.9 19.6 8.9 12.4 8.6
CMP 312 FY12 71450.8 11.2 27.8 7.8 8.4 8.4
Target 420 FY13E 80773.9 16.3 19.1 6.5 11.0 10.4
MCap (| Cr)
RCOM
118,355 % Upside 34.8% FY14E 88828.4 22.7 13.7 5.4 13.4 12.5
Idirect Code RELCOM FY11 22430.4 6.5 11.2 5.9 3.3 2.4
CMP 73 FY12E 19408.1 3.4 21.1 8.8 1.7 2.1
Target 84 FY13E 20773.7 2.2 33.3 7.7 1.1 2.3
MCap (| Cr)
Idea
15,026 % Upside 15.6% FY14E 21849.6 3.6 20.2 6.4 1.8 2.7
Idirect Code IDECEL FY11 15438.4 2.7 29.8 10.3 7.3 5.5
CMP 81 FY12E 19541.2 2.2 37.1 7.8 5.6 8.0
Target 85 FY13E 23682.2 3.7 22.0 6.0 8.6 10.8
MCap (| Cr)
TTML
26,790 % Upside 4.9% FY14E 26561.7 5.8 14.0 4.8 11.9 14.2
Idirect Code HUGTEL FY10 2098.3 -1.7 NA 16.7 -12.8 -2.8
CMP 13 FY11 2303.1 0.4 31.5 23.5 3.2 -6.4
Target 12 FY12E 2488.4 -2.7 NA 15.1 -20.9 -0.2
MCap (| Cr) 2,523 % Upside
Source: Company, ICICIdirect.com Research
-6.0% FY13E 2489.3 -2.5 NA 13.0 -19.5 0.6
Exhibit 5: Recommendation History
25
20
15
10
5
0
May-11
Jun-11
ICICI Securities Ltd | Retail Equity Research Page 5
Aug-11
Source: Reutuers, ICICIdirect.com Research
Sep-11
Nov-11
Dec-11
Price Target Price
Feb-12
Mar-12
May-12
Exhibit 6: Recent Releases
Date Event CMP Target Price Rating
5-Jul-11 Q1FY12 Result Preview 20 17 SELL
3-Aug-11 Q1FY12 Result Update 21 19 SELL
5-Jul-11 Q2FY12 Result Preview 17 17 HOLD
29-Nov-11 Q2FY12 Result Update 15 16 HOLD
6-Jan-12 Q3FY12 Result Preview 13 16 BUY
7-Feb-12 Q3FY12 Result Update 16 16 HOLD
4-Apr-12 Q4FY12 Result Preview 15 15 HOLD
Source: Company, ICICIdirect.com Research

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
ANALYST CERTIFICATION
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
We /I, Karan Mittal MBA, Anil Shenoy MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our
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ICICI Securities Ltd | Retail Equity Research Page 6