>Tata Teleservices Maharashtra Limited

■ Plenty of one-off items distorts reported numbers
TTML posted a normalized topline of INR5.6bn (a sequential decline of 8%), normalized EBITDA of INR1.2bn and a loss of INR0.59 per share on normalized basis against our expectation of a loss of INR0.62. This is the first time that TTML has posted standalone only results and as such a number of one-off items makes comparison to previous quarters untenable. The company reported an EPS of INR2.94 where the bottomline got a boost from the one-time gain from the disposal of tower business, amounting to INR8.3bn (positive impact of INR4.4 per share). In addition to this, EPS was distorted by a one-time provision of INR1.7bn (1.5x normalized EBITDA of the current quarter) set aside for contingencies towards outstanding loans/litigations against the company relating to DoT and other regulators.

■ EBITDA, ARPM decline, no Income Tax provision for FY11
EBITDA margins shrunk to 20.5% from 23% in the previous quarter, reflecting the sustainability (of EBITDA margins) of the core business. The company estimates that there will be no taxable profit for the year hence no provision has been made for the same. Until the last quarter, TTML had included USO subsidies in calculating ARPM. These expired last quarter hence the ARPM shows a sequential decline of 14% to INR0.43. The management highlighted in its earnings conference that
the tariff war is subsiding and it expects the ARPM to flatten out.

■ Maintain Sell
Excluding the one-time gain from hiving off the tower business, results were disappointing across the board. At CMP, the stock is trading at 15x FY12E EV/EBITDA and 8x FY12E Net debt/EBITDA (with an indicative sustainable margin of ~20%). These ratios are quite stretched in comparison to other telecom operators with higher EBITDA margins hence we maintain our SELL recommendation and target price of INR20.

To read the full report: TTML