>Tata Teleservices Maharashtra Limited (TTML)

KPIs under pressure…
Tata Teleservices Maharashtra (TTML) reported its results, which were slightly higher than our expectation. It reported a topline of Rs 621.4 crore against our expectation of Rs 628.8 crore for Q4FY10. The topline grew 3.3% and 28.8% QoQ and YoY, respectively. The company reported better-than-expected EBITDA margin of 25.8%, growing 366 bps QoQ and 511 bps YoY. The improvement is attributed to lower SG&A and marketing cost, which declined 7.0% and 8.5%, respectively QoQ. Net loss for the quarter was at Rs 64.3 crore vs. our expectation of Rs 113.2 aided by higher other income and lower interest cost.

■ Highlights of the quarter
The company hived off its wholly-owned tower business subsidiary 21st Century Infra Tele Ltd to TT Info Services Ltd. The towers are valued at Rs 52 lakh per tower with an enterprise value of Rs 1,318 crore. The transaction would result in a net cash inflow to the company in excess of Rs Rs 900 crore. During the quarter, TTML added 1.4 million subscribers, growing 13.3% QoQ. ARPU for the quarter stood at Rs 125 down from Rs 143, declining 12.5% QoQ, higher than our estimate of 6.5%. MoU also declined by 6.0% QoQ to 250 minutes resulting in a 7.4% decline in ARPM from Rs 0.54 in Q3FY10 to Rs 0.50 in Q4FY10. However, the share of VAS was up from 13.9% in Q3FY10 to 14.8%. In the wireline segment, the company added 3,700 new subscribers in Q4FY10.

Valuation
The overall telecom industry is going through an unprecedented phase of hyper intensive competition. This has resulted in a sharp fall in operating metrics and slowing down of revenue growth and declining profitability. Valuing the stock at 1.4x FY12E sales of Rs 2515 crore, we have arrived at a target market capitalisation of Rs 3609 crore, implying per share value of Rs 19. At Rs 23, the stock is trading at 1.8x FY12E sales. Our target price implies downside potential of 17%. We rate TTML as SELL.

To read the full report: TTML