“Buy land, they’re not making it anymore," famously said Mark Twain. But if land is such a treasure, the movement in Tata Communications shares following the de-merger of its land bank is intriguing.

Tata Communications’ shares have risen the maximum possible 5% in the past two trading sessions and are now valued at Rs292 per share. Before the adjustment in the company’s shares for the land bank demerger, the shares traded at Rs427 a piece.

Graphic by Satish Kumar/Mint
Graphic by Satish Kumar/Mint

For backdrop, the demerged land bank assets will be a part of Hemisphere Properties India Ltd (HPIL) under the proposed demerger scheme. Even if this entity lists at Rs135 per share, investors, who bought the shares just before the adjustment, would easily break-even on their investment.

But if the listing price is more than Rs135, then the demerger would have unlocked value for shareholders.

Analysts’ estimates for the surplus land parcel have been higher. For instance, analysts at Kotak Institutional Equities assigned a value of Rs170 per share to the land bank in their sum-of-the-parts valuation. And this is after assigning a 60% discount to gross value of the asset. Analysts at ICICI Direct had valued the land bank at as high as Rs263 per share.

The good news is that Tata Communications investors can now breathe easy as the much-awaited event is finally out of the way. As such, focus will shift to fundamentals hereon.

It helps that the Tata Communications’ first quarter results were encouraging wherein margins were strong in the voice as well as data segment. Of course, sustainability remains key. “Innovation services (major chunk of five-year growth plan) would need continuous investments, which would keep margin expansion under check," said ICICI analysts after its June quarter results.

That apart, some other developments need to be monitored too. “Uncertainties/ challenges include – (a) change in leadership with the long-serving CEO Vinod Kumar quitting recently; the new CEO assumes office in the next few weeks and the Street could prefer to wait to see if there is any change in strategic direction under the new CEO; and (b) Jio’s potential entry into the enterprise data segment; even as Jio hasn’t announced anything specific yet, the fear of a ‘Jio disruption’ could remain an overhang on Tata Communications," said Kotak analysts.

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