Tata Communications Limited (TCL)’s standalone revenue grew 22.3% y-o-y to Rs9.8 billion, fuelled by robust growth in the enterprise and data carrier business, which mitigated the effect of a negative 8.3% y-o-y growth in the wholesale voice business.
EBITDA surged 30.9% y-o-y due to a 400-bps y-o-y fall in the network cost to sales.
We have downgraded our revenue growth estimate for the data business for the next two years.
For the voice business, we maintain our estimate for FY09 and FY10 at minus 1% due to the increasing competition, the shift of traffic to captive networks, and the loss of market share in the ILD services segment.
We hold a weak near-term outlook for the data segment, considering the expected poor performance by the IT/ITES businesses. The revenue growth estimate for this segment has been revised downwards by 2% and 12% to 10% and 9% for FY09 and FY10, respectively.
We believe that the commercial land bank across Pune, Delhi, Kolkata, and Chennai hold substantial value. We have valued these on the basis of the prevailing prices but have discounted them by 20% due to their location.
The aggregate value has also been downgraded by 20% as there is a conflict between the government and the Company over the sale of land.
Based on our sum-of-the-parts (SOTP) valuation, we have arrived at a fair value estimate of Rs381 after discounting the total value (except land) by 10%, which is the conglomerate discount.
This gives us a 25% downside from the current market price of Rs509.40. Therefore, we have downgraded our rating on the stock from Hold to SELL.