Tata Teleservices (Mah.) Ltd reported a sharp improvement in it's quarterly numbers for Q1 of this fiscal. TTML's Total Income was flat Q-o-Q at Rs.758 crores despite the fact that revenues from Interconnect charges had reduced sharply during this quarter. This was made possible by continued growth in revenues from Wireless Data revenues. Stable revenues with a sharp drop in Interconnect Costs & Employee expenses resulted in a sharp 28% jump in TTML's EBITDA for the quarter to it's best ever figure of Rs.219 crores and an EBITDA margin of 28.9%, which is 640 bps higher than the previous quarter. The higher EBITDA also helped TTML bring down it's Interest Cost by 5% Q-o-Q and resulted in the company posting it's best quarterly Cash Profit figure in the last 5-6 years!!
Have a look at the charts below:
The primary reasons being 25% drop in Interconnect Costs on the back of reduction in interconnect fee from 20 paise/min to 14 paise/min by the telecom regulator and 44% drop in Employee Costs. (Have a look at the charts alongside) As we can see from the charts, the Interconnect Cost was rising sharply from the Sept'14 quarter to the March'15 quarter on the back of increased voice call volumes on TTML's GSM network after the company got aggressive on the 3G rollout front. In June'15 quarter, the Interconnect cost has dropped to less than Rs.125 crores from over Rs.168 crores in the previous quarter, translating into a savings of over Rs.43 crores for the company. Add to that the company's Employee costs have dropped by about Rs.19 crores to hit the lowest level in many years. The reasons behind this are unknown.
The total savings of about Rs.62 crores from these 2 parameters helped improve TTML's EBITDA by about Rs.49 crores, which improved the company's Cash position and helped in a reduction of about Rs.9 crores in the company's Interest Cost Q-o-Q, which bolstered it's Cash Profit further to hit a level of over Rs.52 crores from a Cash Loss of Rs.5 crores in the previous quarter. This smart return to Cash Profit should make the company's Bankers happy, who will now have more confidence in the company's 4G network rollout plans. We should see some action on the 4G front from TTML early in 2016, soon after RelJio's commercial launch of 4G services by the end of this year.
Over the next few months we could also see Tata Teleservices dropping the 'DoCoMo' brand and adopting a new Brand name. It will be interesting to see if the company drops the brand only after definitive agreement is signed with another Telecom company for sale of stake in the company or the company reverts to something like the Tata Indicom brand before that. Or they could synchronize the change of Brand name with the launch of 4G services. We will have to wait for a few months to get more details on this.
Coming to TTML's VLR subscriber base (i.e. Active subscriber base), it's quite interesting to note that the company experiences a drop during the months of March to May of every year. In the year 2014, TTML saw a drop of over 2.5 lakh VLR subscribers during those 3 months, which were more than recovered in the following 3 months. This year too TTML's VLR base dropped by over 4 lakh during the same 3 months of March to May. I am guessing that it is because these months include summer vacations for schools in India and many families travel to their home towns during this period. Since there are many people in Maharashtra who are natives of other states, it does make sense that there is an outflow of people from the state during the summer vacations. A drop in VLR base must be having a negative impact on the company's revenues. And despite this negative impact of near 6% drop in VLR base during these months, TTML managing to hold to it's Total Income figure is a definite positive. We could see some decent growth in the company's Total Income during the current quarter as the VLR base returns back to normal during these months.
Have a look at the charts below:
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Quarterly numbers |
TTML's Total Income has been growing at a slow pace of around 5% Y-o-Y, while it's larger competitors are posting healthy double-digit growth rates. It's mainly because the larger operators have been aggressive both on 3G network rollout and marketing of it's services. TTML on the other hand expanded it's 3G coverage in RoM&G circle beyond the top few cities only in the last 2-3 quarters. Over the last few years, TTML was adding good number of subscribers to it's GSM network, but also losing substantial number of subscribers from it's CDMA network. The proportion of CDMA voice subscribers on it's network is now very small. The company could soon be using it's 800 MHz spectrum holdings for 4G rollout in both Mumbai and RoM&G circles, especially since the company has acquired fresh 2.5 MHz in this band in the recent auctions.
Coming back to Q1 numbers, TTML's EBITDA jumped from about Rs.170 crores to about Rs.219 crores Q-o-Q. This is despite a 5% jump in Network Operating costs on the back of expanding 3G coverage.
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Quarterly Numbers |
The total savings of about Rs.62 crores from these 2 parameters helped improve TTML's EBITDA by about Rs.49 crores, which improved the company's Cash position and helped in a reduction of about Rs.9 crores in the company's Interest Cost Q-o-Q, which bolstered it's Cash Profit further to hit a level of over Rs.52 crores from a Cash Loss of Rs.5 crores in the previous quarter. This smart return to Cash Profit should make the company's Bankers happy, who will now have more confidence in the company's 4G network rollout plans. We should see some action on the 4G front from TTML early in 2016, soon after RelJio's commercial launch of 4G services by the end of this year.
Over the next few months we could also see Tata Teleservices dropping the 'DoCoMo' brand and adopting a new Brand name. It will be interesting to see if the company drops the brand only after definitive agreement is signed with another Telecom company for sale of stake in the company or the company reverts to something like the Tata Indicom brand before that. Or they could synchronize the change of Brand name with the launch of 4G services. We will have to wait for a few months to get more details on this.
Coming to TTML's VLR subscriber base (i.e. Active subscriber base), it's quite interesting to note that the company experiences a drop during the months of March to May of every year. In the year 2014, TTML saw a drop of over 2.5 lakh VLR subscribers during those 3 months, which were more than recovered in the following 3 months. This year too TTML's VLR base dropped by over 4 lakh during the same 3 months of March to May. I am guessing that it is because these months include summer vacations for schools in India and many families travel to their home towns during this period. Since there are many people in Maharashtra who are natives of other states, it does make sense that there is an outflow of people from the state during the summer vacations. A drop in VLR base must be having a negative impact on the company's revenues. And despite this negative impact of near 6% drop in VLR base during these months, TTML managing to hold to it's Total Income figure is a definite positive. We could see some decent growth in the company's Total Income during the current quarter as the VLR base returns back to normal during these months.
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