>TATA COMMUNICATIONS (JAYPEE CAPITAL)

Investment Rationale
■ Wholesale Voice Business continues to face pressure: The core wholesale voice business continues to remain under pressure due to increased competition. In spite of increased volume the revenue growth is expected to be sluggish due to pricing pressure.

■ Enterprise and Carrier Data business: The revenues from the data segment have been sluggish over the last 3‐4 quarters, but are expected to improve going ahead as the world economy slowly recovers and corporates increasing their spending. The Enterprise segment has seen price cut over the last few quarters due to slowdown in the global economy.

■ Capex and BWA Auction: On a consolidated basis Tata Communication had a net debt of Rs 57894.5 million as on FY09 and net debt to equity ratio of 1.13. With the upcoming auction and other capex plans the balance sheet for TCOM would be stretched. TCOM would find it difficult to compete with the larger players like Bharti and Reliance Communication given that they have strong distribution and branding in place.

■ Valuation: We value TCOM on a SOTP basis with a fair value of Rs 347. We have valued the core business at Rs 91 (EV/EBITDA), surplus land at Rs 177 and the stake in TTSL at Rs 79 (EV/Subscriber).

To read the full report: TATA COMMUNICATIONS