Tata communications

Internship 2014

Company Overview

Company Overview

Source: Company Data (1) :As on 8/22/2014

3

♦ 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

♦ 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)

48.9%

26.1%

19.6%

5.5%

Tata Group Govt. of India Institutions Non-Institutions

Shareholding & Key Personnel

Key PersonnelShareholding Pattern

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

Source: Company Data (upto June 30, 2014)

♦ 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%)

Business Model

5Source: Company Data (upto June 30, 2014)

Voice Solutions

(49%)

Stage: Mature & Stable Scale BusinessPosition: Market LeaderOfferings: Wholesale international voice carriage and termination, India national long distance voice, outsourcing/while labelMarket: Global carriers and service providersRanking: #1 in international voice by minutes

Data Services

(40%)

Stage: MaturePosition: India Leader & Global ChallengerOfferings: Connectivity (focusing on leased circuit networking and IP transit services), data centers, managed services, outsourcingMarket: Global carriers and enterprises, and mid-market segment in IndiaRanking: #1 in India in enterprise data services by revenue

Start-ups (primarily

Neotel)11%

Stage: StartupPosition: South Africa Investment (Neotel) – Concluded commercial discussions to sell to VodacomOfferings: All telecom services except mobile, first CDMA network in South AfricaMarket: South African Carriers, entreprises, SMB and consumersRanking: #2 in enterprise and wholesale data in South Africa

Products Summary

Financial Overview

Summary Financials

Cash Profit1 (INR mn)Operating Revenue (INR mn)

Dividend % Per ShareEBITDA (INR mn)

7

FY10 FY11 FY12 FY13 FY14

110,256 119,320 141,961

172,130 196,196

Revenues

Source: Company Data


10,124 12,253

17,915 20,597

30,416 9.3%

10.6%

12.6% 12.0%

15.5%

EBITDA Margin%


9,131 7,714

10,254

14,037

23,428

1Cash Profit computed as (Net Profit/Loss + Depreciation and Amor -tisation & Impairment)


0%

20% 20%

30%

45%

Debt Profile

Key HighlightsCore Business – Net Debt

Core Business - Average Cost of Loans

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FY12 FY13 FY14

1,550

1,479

1,380

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

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

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%

Valuation Summary

5 year Index Share Price Performance Comparison

9Source: Company Data, Moneycontrol.com, Sharekhan

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.

Business Environment

SWOT Analysis


Opportunities Threat

WeaknessStrength

♦ 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

♦ 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

♦ 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


Reliance Communication Idea

VodafoneAirtel

♦ 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

♦ 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

Industry Overview

Telecom Industry Overview

14Source: Company Data

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

Telecom Industry Overview

15Source: Company Data, The Economic Intelligence Unit

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

Eastern Europe

Western Europe

Middle East & North Africa

Latin America

North America

Asia & Australasia

Sub-Saharan Africa

0 20 40 60 80 100

120

140

160

180

158

140

140

124

108

96.4

92

Subscriptions per 100 people

Asia & Aus-

tralasia

Western Europe

North America

Latin America

Eastern Europe

356,731

189,791 170,356

77,899 38,592

Revenue (USD Bn)

Vodafone/Kabel Deutschland

Rostelecom/Svyazinvest

Qatar Foundation/Bharti Airtel (5% stake)

Hutchinson/Telefonica

Accelero Capital/MTS Allstream

Entel/Nextel del Peru

T-Mobile USA/US Cellular spectrum

10,100

3,029

1,263

1,116

520

400

308

Telecom Industry – M&A Overview

16Source: www.ey.com

Top Telecoms Merger & Acquisition by deal value

Top Telecoms Merger & Acquisition in Asia-Pacific

Buyer/Seller Deal Value (USD mn)

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-13Telstra (Australia);

HealthEngine na (US$11 mn) Online health directorySeven 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

TCL – Mergers & Acquisitions

17Source: www.ey.com

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

Taxation Overview - Telecom

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

Telecom Industry – Taxation Overview

Source: Ernst & Young Budget Impact – Telecommunication Sector

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

Telecom Industry – Taxation Overview

Internship Overview

Job profile- InternDuration of Internship - 2nd June to 31st August, 2014Department - FinanceJob 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

Internship Overview

Tata communications

Business

Transcript of Tata communications