refer to important disclosures at the end of this report ... · 16 hours ago · we resume...

Emkay Research is also available on www.emkayglobal.com and Bloomberg EMKAY<GO>. Please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.

We appreciate your support in the Asiamoney Brokers Poll 2020

CMP: Rs 760 as of (July 31, 2020)

TP: Rs 950 12 months

Rating: BUY Upside: 25.0 %

India Equity Research | Telecommunications

August 1, 2020

Company Update

Tata Communications Refer to important disclosures at the end of this report

Hope for sustained delivery

Change in Estimates

EPS Chg FY21E/FY22E (%) -/-

Target Price change (%) NA

Target Period (Months) 12

Previous Reco NA

Emkay vs Consensus

EPS Estimates

FY21E FY22E

Emkay 25.4 29.1

Consensus 18.4 26.1

Mean Consensus TP (12M) Rs 623

Stock Details

Bloomberg Code TCOM IN

Face Value (Rs) 10

Shares outstanding (mn) 285

52 Week H/L 760 / 200

M Cap (Rs bn/USD bn) 217 / 2.89

Daily Avg Volume (nos.) 1,59,697

Daily Avg Turnover (US$ mn) 1.2

Shareholding Pattern Jun '20

Promoters 75.0%

FIIs 17.2%

DIIs 1.5%

Public and Others 6.3%

Price Performance

(%) 1M 3M 6M 12M

Absolute 24 76 82 166

Rel. to Nifty 16 57 97 167

TCOM reported healthy growth in data revenues, driven by increased traction for its

connectivity solutions. EBITDA rose 20% qoq on cost savings (structural and Covid-19-

related). However, once the situation normalizes, Covid-related savings should moderate.

After turning EBITDA positive in FY20, Growth Services continued to see an uptick in

profitability, while the Innovations Services segment dragged performance, although the

loss was lower. TCOM has recorded strong order inflows – the highest in last two years.

The strategic shift from a product player to an integrated solutions provider should augur

well for TCOM. The company’s growth platforms/pillars are well defined, with financial

goals of double-digit EBITDA growth and 20% RoCE in 3 years, along with debt reduction.

Operating performance in GDS was strong, and management sounded confident on

revenue growth. We estimate EBITDA CAGR of 11% and FCF generation of Rs55bn over

FY21-23E. We resume coverage with a Buy rating and a SoTP-based TP of Rs950.

Relative price chart

Source: Bloomberg This report is solely produced by Emkay Global. The following person(s) are responsible for the production of the recommendation:

Naval Seth

[email protected]

+91 22 6624 2414

Sonali Shah

[email protected]

+91 22 6624 2482

-10

26

62

98

134

170

200

310

420

530

640

750

Aug-19Oct-19 Nov-19Jan-20 Mar-20May-20 Jul-20

%Rs

Tata Communications (LHS) Rel to Nifty (RHS)

Strong operating performance

Consolidated revenue rose 5.6% yoy to Rs44bn while it remained flat qoq due to the presence of

one-time real estate income in the base quarter. The yoy revenue increase was driven by strong

growth in the Data segment. Reported PAT saw strong qoq growth, driven by higher revenues and

lower depreciation cost, as the base quarter had a one-off charge. Although the contribution of

voice revenues to overall revenues declined marginally, EBITDA margins surprised positively by

expanding 266bps qoq. There was a Rs105mn exceptional item toward interest on unpaid

provisions for AGR dues, which took cumulative provision to Rs3.5bn.

Outlook

Traditional services should continue to see growth, with increased bandwidth requirements, and

margins are expected to improve ~200bps over the FY20 run rate. With enterprises ramping up

investments in collaboration and connectivity solutions, UCC, GHCC and NetFoundry portfolios

are expected to see healthy growth rates. TCOM has seen patchy performance in the past few

years and has under-delivered on guidance. We believe that the company has taken the brunt of

initial cash burn to develop strong growth engines. Management is confident of further

improvement in operating performance and reduction of losses in Innovations Services. In

addition, balance sheet deleveraging should be backed by stable capex and sustained EBITDA

growth, in turn leading to better valuations. Key risks: 1) delay in scaling up Innovations Services

and a sustained increase in its losses; 2) second wave of Covid-19 across the globe impacting

new business wins; 3) higher-than-expected price erosion with rising competitive intensity; and 4)

not meeting expectations, as seen in the last few years.

Please see our sector model portfolio (Emkay Alpha Portfolio): Telecommunications (4)

Financial Snapshot (Consolidated)

(Rs mn) FY19 FY20 FY21E FY22E FY23E

Total Revenue 1,65,250 1,70,680 1,78,200 1,87,331 1,98,092

EBITDA 27,449 32,890 38,728 42,149 45,363

EBITDA Margin (%) 16.6 19.3 21.7 22.5 22.9

APAT (846) 3,046 7,252 8,281 10,104

EPS (Rs) (3.0) 10.7 25.4 29.1 35.5

EPS (% chg) (281.0) 0.0 138.1 14.2 22.0

ROE (%) (53.7) (38.4) (70.6) (272.5) 207.4

P/E (x) (255.9) 71.1 29.9 26.1 21.4

EV/EBITDA (x) 10.6 9.1 7.3 6.4 5.5

P/BV (x) (117.6) (15.4) (33.1) 469.8 23.3

Source: Company, Emkay Research

http://www.emkayglobal.com/

https://www.euromoney.com/research-and-awards/surveys-and-awards/asiamoney-brokers-poll/vote-now

Tata Communications (TCOM IN) India Equity Research | Company Update


August 1, 2020 | 2

Story in charts

Exhibit 1: The key pillars that should drive future growth


Exhibit 2: Internal changes should help in ease of doing business


Exhibit 3: Shift to a holistic solutions provider can open the door to a huge market of opportunities


Exhibit 4: Global network spends (in USD bn) are expected to rise


Exhibit 5: Cloud and SD-WAN Managed services to see traction





August 1, 2020 | 3

The company is focusing on creating a proposition for the post Covid world, with its Secure

Connected Digital Experience (SCDx), which shall enable enterprises to build agile, future-ready

businesses.

SCDx allows enterprises to effectively prepare for the new workplace and the global market with

solutions that are secure, high performing, and scalable. This platform helps in enhancing digital

customer experience, real-time management of distributed partners, collaboration solutions, and

secure connectivity to enterprise applications and cloud through NetFoundry.

As per management, in post Covid world, companies are looking to integrate ultra-rich,

connected digital experiences into their operations as part of their digital transformation. As

stated in the strategy session held last month, this is the first step towards focus on platforms

and solutions to address customer needs.

SCDx will have offerings for:

Workplace - enabling enterprise employees to work remotely

B2C companies - enabling e-commerce and video collaboration for superior digital

engagement

B2B companies – digitizing and integrating various physical distribution channels and

supply chain.

Within Secure Connected Digital Workplace offering, TCOM provides a range of services to

enterprises looking to enhance and safeguard employee experience. Through NetFoundry, it will

provide secure and high-performance, zero-trust network access, giving remote employees

access to applications and data in the cloud, regardless of device or broadband connectivity.

Exhibit 6: Addressable opportunities for TCOM IN are only rising


Exhibit 7: Ambitious goals of the company





August 1, 2020 | 4

Exhibit 8: Core GDS revenue is expected to see 9% CAGR over FY20-23E


Exhibit 9: GDS EBITDA should rise on profitability from Growth Services and reduction in losses from Innovations segment


Exhibit 10: Cash generation should improve on the back of improving EBITDA and stable capex spends


Hoping for strong performance to fade memories of past patchy performance

away

Last month, while outlining the roadmap for its future, the company highlighted four key targets:

RoCE of 20% in the next three years

Profitable data revenue growth

Double-digit EBITDA growth

Significant debt reduction in the next three years

Given TCOM’s inconsistent track record with regard to following up on stated guidance (see

Exhibit 11), we remain vary and take a more cautious approach.

Having said that, the Data segment turned EBITDA positive in FY20 and is witnessing good

traction, thanks to the current Covid-19 scenario which has led to remote working with increased

bandwidth usage and higher collaboration traffic. Enterprises have upgraded their capacities and

are consuming more data to support this work model.

In addition, we believe that enterprise spends toward investments in Cloud and UCC, along with

traditional connectivity, will be elevated in the near term, giving a leg-up to the data business.

0%

5%

10%

15%

20%

20

70

120

170

220

FY16 FY17 FY18 FY19 FY20 FY21EFY22EFY23E

LHS: Revenue (Rs bn) RHS: Growth

0%

5%

10%

15%

20%

25%

30%

15

20

25

30

35

40

45

FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

LHS: EBITDA (Rs bn) RHS: Margin

0%

20%

40%

60%

80%

FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Capex /EBITDA OCF / EBITDA FCF / EBITDA




August 1, 2020 | 5

Exhibit 11: Management guidance and results have an inconsistent track record

Quarter Management commentary Delivery

Q1FY16 ROCE of 12-15% in 3 years Did not meet

Q2FY16 Data segment margin guidance at 20% for FY16 Accomplished

Q1FY17 (medium-term

perspective guidance)

30% EBITDA margin in Data business Not accomplished

15% ROCE ROCE has still not reached 15% in FY20

Maintain 5-6% growth rate in Traditional Data Accomplished

Margin of 9-10%/17-20% for TCPSL/TCTSL TCPSL guidance achieved in FY20

TCTSL is still not achieved

Q1FY18 Exit the year with EBITDA neutral situation in Growth Services Did not meet

Q2FY18 Single-digit margin for Growth Services by middle of next year Did not meet - achieved EBITDA loss in middle of next

year

Q3FY18

Traditional portfolio will stabilize at 29-30% Exceeded margin guidance; FY20 margin was at 38%

Hope to touch 20-21% consolidated margins by end of next

fiscal as Growth Services will turn positive

Did not meet; Growth Services did not turn EBITDA

positive

Growth Services’ contribution to EBITDA will grow to 25% in

the next one year Did not accomplish

Q4FY18

Possibility of expanding margin to 23-25% by FY21 Margins in FY20 stood at 19%

Traditional Services to grow 5% CAGR till FY21, while Growth

Services will maintain 35% CAGR

Guidance for traditional segment is met so far, while

Growth Services was below estimates

Contribution of Growth Services to overall data service to

expand to 40% by FY21E Accounted for only 23% at the end of FY20

Q2FY19 Growth Services to be slightly EBITDA negative in FY19, but

positive EBITDA in Q4FY19 and FY20 Met guidance

Q4FY19 Growth Services margin at 5-7% for FY20 Met guidance


Exhibit 12: Consolidated quarterly financials

Rs mn Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 YoY (%) QoQ (%)

Total Sales 41,686 42,728 42,287 43,979 44,029 5.6 0.1

Network cost 17084 16966 16840 16886 17413 1.9 3.1

as % of sales 41.0 39.7 39.8 38.4 39.5

Employee Cost 7687 7320 7462 7922 7624 (0.8) (3.8)

as % of sales 18.4 17.1 17.6 18.0 17.3

Other operating expenses 8659 10105 10377 10482 8574 (1.0) (18.2)

as % of sales 20.8 23.6 24.5 23.8 19.5

Total Expenditure 33430 34391 34679 35291 33612 0.5 (4.8)

EBITDA 8256 8337 7608 8688 10418 26.2 19.9

Depreciation 5522 5583 5605 6867 5899 6.8 (14.1)

EBIT 2735 2753 2003 1821 4518 65.2 148.1

Other Income 88 95 140 373 147 66.7 (60.5)

Interest 1157 1157 1161 1232 1163 0.5 (5.6)

PBT 1666 1692 982 963 3503 110.3 263.8

Tax 852 1107 406 -98 812 (4.7) 925.3

PAT before MI 813 584 576 1061 2691 230.8 153.6

Minority interest 18 14 9 -30 -8

PAT 831 598 585 1031 2683 222.9 160.2

Exceptional item 65 59 0 3781 105

PAT from continued operation 766 539 585 -2750 2578 236.5 193.7

Margins (%) (bps) (bps)

EBIDTA 19.8 19.5 18.0 19.8 23.7 385 390

EBIT 6.6 6.4 4.7 4.1 10.3 370 612

EBT 4.0 4.0 2.3 2.2 8.0 396 577

PAT 2.0 1.4 1.4 2.3 6.1 410 375

Effective Tax rate 51.2 65.5 41.3 (10.2) 23.2 (2,799) 3,340





August 1, 2020 | 6

Other highlights

Global Data Solutions (GDS): strong operating performance

Gross revenue stood at Rs35.6bn (adjusted for rental revenues), up 9.8% yoy and flat qoq.

Growth was primarily driven by strong performance in Growth Services and Innovations

portfolio.

Net revenue stood at Rs23.2bn, up 6% yoy, while declining marginally qoq.

EBITDA at Rs9.8bn saw 32% growth yoy. EBITDA margin stood at 27.1% vs. 22.5% in

Q1FY20.

Traditional Services:

Led by increased bandwidth usage during the the lockdown, Traditional Data services

recorded 7.8% revenue growth yoy.

EBITDA stood at Rs9.4bn, with margins at 42.2% (+370bps)

Growth Services:

On the back of new deals and an increase in traffic in the UCC portfolio, Growth Services

revenue continued its solid momentum, recording 20% yoy growth.

UCC revenues grew 34% qoq, due to increased usage of collaboration tools. However,

media portfolio was negatively impacted due to a lack of live sporting events in the quarter.

The segment turned EBITDA positive in FY20 and recorded a 15.5% yoy rise in EBITDA.

Innovation Services

While segment registered 20.8% revenue growth yoy, revenues declined 46.5%

sequentially.

EBITDA loss narrowed qoq to Rs1bn from Rs1.3bn in Q4FY20.

Transformation Services:

Revenue declined 8% sequentially, impacted by a loss in revenue due to the termination of

an onerous contract. The profitability of the business was negatively affected by this.

After the contract termination, profitability is expected to improve.

Exhibit 13: Financials for Global Data Solutions


Gross revenues 32784 33986 34200 35950 36040 9.9 0.3

Less: Direct Costs 10976 11800 12220 12570 12830 16.9 2.1

Net revenues 21808 22186 21980 23380 23210 6.4 (0.7)

Less: Operating Exp 14444 14662 14840 15150 13460 (6.8) (11.2)

EBITDA 7364 7524 7140 8230 9750 32.4 18.5

EBITDA margin 22.5% 22.1% 20.9% 22.9% 27.1% 459 bps 416 bps

Less: Depreciation 5452 5511 5530 6780 5810 6.6 (14.3)

EBIT 1912 2013 1610 1450 3940 106.1 171.7

EBIT margin 5.8% 5.9% 4.7% 4.0% 10.9% 510 bps 690 bps





August 1, 2020 | 7

Global Voice Solutions (GVS)

Gross revenue at Rs8bn declined 10.3% yoy and 0.5% qoq.

Net revenue at Rs1.3bn was up 15.3% qoq, while declined yoy.

ILD minutes were down 4% qoq, while NLD minutes were relatively stable.

EBITDA at Rs670mn was up 46% qoq, driven by lower operating expenses, which fell 6.2%

qoq. EBITDA margin stood at 8.4% vs. 5.7% in Q4FY20 and 10% in Q1FY20.

Exhibit 14: GVS quarterly performance


Gross revenues 8903 8741 8088.8 8030 7990 (10.3) (0.5)

Less: Direct Costs 7425 7248 7058.8 6920 6710 (9.6) (3.0)

Net revenues 1478 1493 1030 1110 1280 (13.4) 15.3

Less: Opex 586 681 560 650 610 4.1 (6.2)

EBITDA 892 812 470 460 670 (24.9) 45.7

EBITDA margin 10.0% 9.3% 5.8% 5.7% 8.4% -164 bps 266 bps

Less: Depreciation 69 72 72.3 90 90 30.4 -

EBIT 823 740 397.7 370 580 (29.5) 56.8

EBIT margin 9.2% 8.5% 4.9% 4.6% 7.3% -199 bps 265 bps


Tata Communications Payment Solutions Ltd (TCPSL)

The business was severely affected by the lockdown, with gross revenues declining

36.6%/41.5% qoq/yoy.

Average transactions per ATM dropped to 56 from 84 in the previous quarter. The company

expects a steady improvement in transaction count and financial performance going

forward.

Exhibit 15: TCPSL quarterly performance


Gross Revenue 889 850 870 820 520 (41.5) (36.6)

Total ATMs managed 12,399 12,362 12,278 12,240 12,198 (1.6) (0.3)

Managed ATMs 4,076 4,011 3,993 3,955 3,949 (3.1) (0.2)

White label ATMs 8,323 8,351 8,285 8,285 8,249 (0.9) (0.4)

Total POS managed 8,365 5,823 5,791 5,584 3,412 (59.2) (38.9)


Cash generation and debt profile

Operating Cash flow stood at Rs6.7bn vs. Rs5.2bn in Q1FY21, boosted by higher EBITDA.

Data OCF increased to Rs6.6bn from Rs4.9bn in Q1FY20 and Rs2.4bn in Q4FY20.

Voice OCF declined to Rs540mn from Rs450mn in the previous quarter.

Net debt reduced marginally to Rs90bn from Rs91.8bn in Q4FY20.

INR-denominated loans rose to Rs8.2bn from Rs4.8bn in Q4.

Weighted average cost of debt reduced to 3% from 3.7% in the previous quarter, primarily

due to a decline in average LIBOR from 1.2% in Q4 to 0.4% in the current quarter.

Exhibit 16: Key revenue assumptions

Particulars (Rs mn) FY19 FY20 FY21E FY22E FY23E

Global Voice Solutions 38,703 33,763 29,075 24,859 21,963

Global Data Solutions 1,25,243 1,35,311 1,47,405 1,60,672 1,74,329

Others 1,304 1,606 1,720 1,800 1,800

Total revenue 1,65,250 1,70,680 1,78,200 1,87,331 1,98,092





August 1, 2020 | 8

Exhibit 17: Data revenue mix – Contribution of growth & innovation services portfolio shall rise


72% 68% 65% 63% 61% 59% 58%

15% 20% 22% 24% 26% 28% 29%

13% 12% 12% 12% 12% 12% 12%

0%

20%

40%

60%

80%

100%

120%

FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Traditional services Growth & Innovation services Subsidiaries




August 1, 2020 | 9

Valuation

Exhibit 18: SoTP based valuation

Particulars Sep'22

Global Voice Solutions (GVS)

EBITDA (Rs mn) 1,939

EV/EBITDA (x) 3.0

Enterprise value (Rs mn) 5,817

Global Data Solutions (GDS)

EBITDA (Rs mn) 41,990

EV/EBITDA (x) 8.2

Enterprise value (Rs mn) 3,44,320

Total Enterprise Value (Rs mn) 3,50,137

Net debt (Rs mn) 82,482

Implied market cap (Rs mn) 2,67,655

Value from core business (Rs/share) 939

Add: 26% stake in Data Centre (Rs/share) 63

Less: Potential AGR liability (Rs/share) 53

Target price (Rs/share) 950


We believe that management will divest their stake in land holdings in the medium to long term

time frame and hence we do not factor the same into our valuations. As and when the stake sale

occurs, we will account for the same.

Exhibit 19: Land details post demerger with HPIL

Location Total land in

B/S (Acre)

Land with HPIL

post demerger (Acre)

Land with TCOM

post demerger (Acre)

Dighi – Pune, Maharashtra 678.1 524 154.1

Chattarpur, Delhi 162.4 58 104.4

GK-I, Delhi 119.1 69.5 49.6

Halisahar, W.B. 81.7 35.2 46.5

Padianallur, Chennai, TN 53 53 0

Mumbai 10.2 0 10.2

Rest of Western India 241.1 0 241.1

North and East India 123.6 0 123.6

South India 27.2 0 27.2

Total 1496.4 739.7 756.7





August 1, 2020| 10

Conference call highlights

Covid-19 impact: Revenues were negatively impacted by Rs400-450mn, while costs had

a positive impact of Rs500-600mn.

Revenues: Funnel (order book) added in Q1FY21 was the strongest-ever in a single

quarter over the last two years. Growth was driven by strong push to drive new

opportunities, and additions came from both India and international markets.

Some of the sporting events have started, and the company has started providing

services related to them. TCOM recently provided services connectivity for a Lady

Gagaconcert on Amazon in the US and Europe.

Increased volumes from existing customers offset the weakness in new business, which

was impacted by Covid-19.

The Innovation portfolio has a strong outlook.

TCTSL has one-time revenue from real estate in the last quarter.

Voice: Better destination mix of minutes led to an improvement in margin.

Costs: Cost-cutting initiatives implemented over the last few months have started to

deliver. However, Covid-19-led cost reduction in travel, marketing and government

concessions overseas will bounce back once travel normalizes.

Total cost reduction related to Covid-19 stood at Rs500-600mn, while structural cost

control stood at Rs1bn, 50% of which was largely driven by employee cost optimization

with reducing mix of overseas employees.

Capex: Guidance remains unchanged at USD200-250mn

Exhibit 20: 1-year forward EV/EBITDA valuation band


2.0

4.0

6.0

8.0

10.0

12.0

14.0

Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20

1yr fwd Ev/Ebitda Mean STd+1 STd-1




August 1, 2020| 11

Key Financials (Consolidated)

Income Statement

Y/E Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E

Total Revenue 1,65,250 1,70,680 1,78,200 1,87,331 1,98,092

Expenditure 1,37,801 1,37,790 1,39,472 1,45,181 1,52,729

EBITDA 27,449 32,890 38,728 42,149 45,363

Depreciation 20,676 23,577 23,653 24,186 24,650

EBIT 6,773 9,312 15,075 17,963 20,713

Other Income 603 697 1,308 1,429 1,481

Interest expenses 3,966 4,707 4,625 4,389 3,889

PBT 3,410 5,302 11,758 15,002 18,304

Tax 2,733 2,267 4,529 6,751 8,237

Extraordinary Items 22 (3,905) (105) 0 0

Minority Int./Income from Assoc. 19 11 94 120 146

Reported Net Income (824) (860) 7,147 8,281 10,104

Adjusted PAT (846) 3,046 7,252 8,281 10,104

Balance Sheet


Equity share capital 2,850 2,850 2,850 2,850 2,850

Reserves & surplus (4,670) (15,634) (9,388) (2,389) 6,432

Net worth (1,820) (12,784) (6,538) 461 9,282

Minority Interest 58 48 (47) (167) (313)

Loan Funds 99,349 1,07,788 1,02,788 87,788 77,788

Net deferred tax liability (887) 304 304 304 304

Total Liabilities 96,700 95,356 96,508 88,386 87,061

Net block 1,11,791 1,26,704 1,16,277 1,10,091 1,03,441

Investment 14,913 15,631 15,631 15,631 15,631

Current Assets 67,816 73,576 92,135 96,985 1,11,165

Cash & bank balance 9,153 9,091 20,306 19,539 30,990

Other Current Assets 25,825 28,870 32,815 34,496 36,478

Current liabilities & Provision 1,01,923 1,26,259 1,32,744 1,39,530 1,48,385

Net current assets (34,106) (52,683) (40,610) (42,545) (37,219)

Misc. exp 21 1,238 0 0 0

Total Assets 96,700 95,356 96,508 88,386 87,061

Cash Flow


PBT (Ex-Other income) (NI+Dep) 2,807 4,605 10,450 13,574 16,823

Other Non-Cash items 0 0 0 0 0

Chg in working cap (1,946) 19,705 (859) 1,168 6,126

Operating Cashflow 17,898 41,196 31,085 33,515 40,733

Capital expenditure (23,380) (38,875) (13,969) (18,000) (18,000)

Free Cash Flow (5,482) 2,321 17,116 15,515 22,733

Investments (2,411) (718) 0 0 0

Other Investing Cash Flow 0 0 0 0 0

Investing Cashflow (25,188) (38,896) (12,661) (16,571) (16,519)

Equity Capital Raised 0 0 0 0 0

Loans Taken / (Repaid) 10,080 8,439 (5,000) (15,000) (10,000)

Dividend paid (incl tax) (1,534) (1,140) (1,283) (1,283) (1,283)

Other Financing Cash Flow (1,091) (4,953) 3,698 2,961 2,409

Financing Cashflow 3,489 (2,362) (7,210) (17,711) (12,763)

Net chg in cash (3,800) (62) 11,215 (767) 11,451

Opening cash position 12,954 9,153 9,091 20,306 19,539

Closing cash position 9,153 9,091 20,306 19,539 30,990





August 1, 2020| 12

Key Ratios

Profitability (%) FY19 FY20 FY21E FY22E FY23E

EBITDA Margin 16.6 19.3 21.7 22.5 22.9

EBIT Margin 4.1 5.5 8.5 9.6 10.5

Effective Tax Rate 80.2 42.8 38.5 45.0 45.0

Net Margin 0.4 1.8 4.1 4.4 5.1

ROCE 7.7 10.5 17.2 21.0 25.3

ROE (53.7) (38.4) (70.6) (272.5) 207.4

RoIC 10.3 14.0 25.1 34.8 49.8

Per Share Data (Rs) FY19 FY20 FY21E FY22E FY23E

EPS (3.0) 10.7 25.4 29.1 35.5

CEPS 69.6 93.4 108.4 113.9 121.9

BVPS (6.5) (49.2) (22.9) 1.6 32.6

DPS 5.4 4.0 4.5 0.0 0.0

Valuations (x) FY19 FY20 FY21E FY22E FY23E

PER (255.9) 71.1 29.9 26.1 21.4

P/CEPS 10.9 8.1 7.0 6.7 6.2

P/BV (117.6) (15.4) (33.1) 469.8 23.3

EV / Sales 1.8 1.8 1.6 1.4 1.3

EV / EBITDA 10.6 9.1 7.3 6.4 5.5

Dividend Yield (%) 0.7 0.5 0.6 0.6 0.6

Gearing Ratio (x) FY19 FY20 FY21E FY22E FY23E

Net Debt/ Equity (40.9) (5.9) (10.2) 114.2 3.4

Net Debt/EBIDTA 2.7 2.5 1.7 1.2 0.7

Working Cap Cycle (days) (95.6) (132.1) (124.8) (121.0) (125.7)

Growth (%) FY19 FY20 FY21E FY22E FY23E

Revenue (1.5) 3.3 4.4 5.1 5.7

EBITDA 13.8 19.8 17.8 8.8 7.6

EBIT 33.9 37.5 61.9 19.2 15.3

PAT 0.0 0.0 0.0 15.9 22.0

Quarterly (Rs mn) Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21

Revenue 41,686 42,728 42,287 43,979 44,029

EBITDA 8,256 8,337 7,608 8,688 10,418

EBITDA Margin (%) 19.8 19.5 18.0 19.8 23.7

PAT 766 539 585 (2,750) 2,578

EPS (Rs) 2.7 1.9 2.1 (9.6) 9.0


Shareholding Pattern (%) Jun-19 Sep-19 Dec-19 Mar-20 Jun-20

Promoters 75.0 75.0 75.0 75.0 75.0

FIIs 18.3 18.2 17.7 17.5 17.2

DIIs 1.7 1.5 1.5 1.5 1.5

Public and Others 5.0 5.3 5.9 6.0 6.3

Source: Capitaline




August 1, 2020| 13

RECOMMENDATION HISTORY TABLE

Date Closing

Price TP

Period (months)

Rating Analyst

08-Apr-19 361 540 12m Hold Naval Seth

01-Feb-19 304 540 12m Hold Naval Seth

02-Nov-18 299 541 12m Hold Naval Seth

13-Aug-18 341 624 12m Hold Naval Seth

14-May-18 388 735 12m Accumulate Naval Seth

09-Feb-18 389 730 12m Accumulate Naval Seth

26-Oct-17 412 654 12m Hold Naval Seth


RECOMMENDATION HISTORY CHART

Source: Bloomberg, Company, Emkay Research

210

318

426

534

642

750

03

-Aug

-17

31

-Ja

n-1

8

31

-Ju

l-1

8

28

-Ja

n-1

9

28

-Ju

l-1

9

25

-Ja

n-2

0

24

-Ju

l-2

0

BUY Hold SellAccumulate Reduce PriceTarget Price




August 1, 2020| 14

Emkay Alpha Portfolio – Telecommunications

EAP sector portfolio

Company Name BSE200 Weight

EAP Weight

OW/UW (%)

OW/UW (bps)

EAP Weight (Normalised)

Telecommunications 2.62 2.62 0% 0 100.00

Bharti Airtel 2.24 2.38 6% 14 90.65

Bharti Infratel 0.27 0.21 -25% -7 7.90

Tata Communications 0.00 0.04 NA 4 1.45

Vodafone Idea 0.11 0.00 -100% -11 0.00

Cash 0.00 0.00 NA 0 0.0

Source: Emkay Research

High Conviction/Strong Over Weight High Conviction/Strong Under Weight

Sector portfolio NAV

Base Latest

1-Apr-19 30-Oct-19 31-Jan-20 30-Apr-20 29-Jun-20 31-Jul-20

EAP - Telecommunications 100.0 99.7 132.4 133.0 149.1 144.3

BSE200 Neutral Weighted Portfolio (ETF) 100.0 80.6 108.7 105.5 122.6 117.1

*Performance measurement base date 1st April 2019


NAV chart


Please see our model portfolio (Emkay Alpha Portfolio): SMID

Please see our model portfolio (Emkay Alpha Portfolio): Nifty

“Emkay Alpha Portfolio – SMID and Nifty are a supporting document to the Emkay Alpha

Portfolios Report and is updated on regular intervals”

75

92

109

126

143

160

Apr-19 Jun-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20

NAV

EAP - Telecommunications BSE200 Neutral Weighted Portfolio (ETF)

Analyst: Naval Seth

Contact Details

[email protected]

+91 22 6624 2414

Sector

Consumer Durables, Media &

Entertainment, SMID and Telecom

Analyst bio

Naval holds an MBA in Finance and has

more than 12 years of experience in

equity research. His team currently

covers 18 stocks spread across three

different sectors.


https://web3.emkayglobal.com/ResearchAccess/Upload/SMID_Jul20.pdf

https://web3.emkayglobal.com/ResearchAccess/Upload/Nifty_Jul20.pdf

mailto:[email protected]



August 1, 2020| 15

Emkay Rating Distribution

Ratings Expected Return within the next 12-18 months.

BUY Over 15%

HOLD Between -5% to 15%

SELL Below -5%

Completed Date: 02 Aug 2020 01:06:16 (SGT) Dissemination Date: 02 Aug 2020 01:07:16 (SGT)

Sources for all charts and tables are Emkay Research unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER BY EMKAY GLOBAL FINANCIAL SERVICES LIMITED (EGFSL): Emkay Global Financial Services Limited (CIN-L67120MH1995PLC084899) and its affiliates are a full-service, brokerage, investment banking, investment management and financing group. Emkay Global Financial Services Limited (EGFSL) along with its affiliates are participants in virtually all securities trading markets in India. EGFSL was established in 1995 and is one of India's leading brokerage and distribution house. EGFSL is a corporate trading member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), MCX Stock Exchange Limited (MCX-SX). EGFSL along with its subsidiaries offers the most comprehensive avenues for investments and is engaged in the businesses including stock broking (Institutional and retail), merchant banking, commodity broking, depository participant, portfolio management, insurance broking and services rendered in connection with distribution of primary market issues and financial products like mutual funds, fixed deposits. Details of associates are available on our website i.e. www.emkayglobal.com EGFSL is registered as Research Analyst with SEBI bearing registration Number INH000000354 as per SEBI (Research Analysts) Regulations, 2014. EGFSL hereby declares that it has not defaulted with any stock exchange nor its activities were suspended by any stock exchange with whom it is registered in last five years, except that NSE had disabled EGFSL from trading on October 05, October 08 and October 09, 2012 for a manifest error resulting into a bonafide erroneous trade on October 05, 2012. However, SEBI and Stock Exchanges have conducted the routine inspection and based on their observations have issued advice letters or levied minor penalty on EGFSL for certain operational deviations in ordinary/routine course of business. EGFSL has not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has its certificate of registration been cancelled by SEBI at any point of time. EGFSL offers research services to clients as well as prospects. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Other disclosures by Emkay Global Financial Services Limited (Research Entity) and its Research Analyst under SEBI (Research Analyst) Regulations, 2014 with reference to the subject company(s) covered in this report EGFSL and/or its affiliates may seek investment banking or other business from the company or companies that are the subject of this material. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that may be inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest including but not limited to those stated herein. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject EGFSL or its group companies to any registration or licensing requirement within such jurisdiction. Specifically, this document does not constitute an offer to or solicitation to any U.S. person for the purchase or sale of any financial instrument or as an official confirmation of any transaction to any U.S. person. Unless otherwise stated, this message should not be construed as official confirmation of any transaction. No part of this document may be used by private customers in United Kingdom. All material presented in this report, unless specifically indicated otherwise, is under copyright to Emkay. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of EGFSL . All trademarks, service marks and logos used in this report are trademarks or registered trademarks of EGFSL or its Group Companies. The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized reading, dissemination, distribution or copying of this communication is prohibited unless otherwise expressly authorized. Please ensure that you have read “Risk Disclosure Document for Capital Market and Derivatives Segments” as prescribed by Securities and Exchange Board of India before investing in Indian Securities Market. In so far as this report includes current or historic information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.

This publication has not been reviewed or authorized by any regulatory authority. There is no planned schedule or frequency for updating research publication relating to any issuer.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets Disclaimer for U.S. persons only: This research report is a product of Emkay Global Financial Services Limited (Emkay), which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of Financial Institutions Regulatory Authority (FINRA) or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors.





August 1, 2020| 16

ANALYST CERTIFICATION BY EMKAY GLOBAL FINANCIAL SERVICES LIMITED (EGFSL) The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible of the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer, director or employee of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant). The research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. EGFSL has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the EGFSL and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of EGFSL compensation to any specific investment banking function of the EGFSL. 1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interest that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at the arm’s length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES BY EMKAY GLOBAL FINANCIAL SERVICES LIMITED (EGFSL):

Disclosures by Emkay Global Financial Services Limited (Research Entity) and its Research Analyst under SEBI (Research Analyst) Regulations, 2014 with reference to the subject company(s) covered in this report-: 1. EGFSL, its subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of August 1, 2020 2. EGFSL, and/or Research Analyst does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report Disclosure of previous investment recommendation produced: 3. EGFSL may have published other investment recommendations in respect of the same securities / instruments recommended in this research

report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by EGFSL in the preceding 12 months.

4. EGFSL , its subsidiaries and/or other affiliates and Research Analyst or his/her relative’s does not have any material conflict of interest in the securities recommended in this report as of August 1, 2020.

5. EGFSL, its subsidiaries and/or other affiliates and Research Analyst or his/her relative’s does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the August 1, 2020

6. EGFSL, its subsidiaries and/or other affiliates and Research Analyst have not received any compensation in whatever form including compensation for investment banking or merchant banking or brokerage services or for products or services other than investment banking or merchant banking or brokerage services from securities recommended in this report (subject company) in the past 12 months.

7. EGFSL, its subsidiaries and/or other affiliates and/or and Research Analyst have not received any compensation or other benefits from securities recommended in this report (subject company) or third party in connection with the research report.

8. Securities recommended in this report (Subject Company) has not been client of EGFSL, its subsidiaries and/or other affiliates and/or and Research Analyst during twelve months preceding the August 1, 2020




August 1, 2020| 17

RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is not for distribution into Australia.

Hong Kong This report is not for distribution into Hong Kong.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia This report is not for distribution into Malaysia.

Singapore

This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 16800306E) or DBSVS (Company Regn. No. 1860024G) both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an agreement under Regulation 32C of the financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

United Kingdom

This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

Dubai International Financial Centre

This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608-610, 6th Floor, Gate Precinct Building 5, PO Box 506538, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United Arab Emirates

This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

United States

DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Emkay Global Financial Services Ltd.

CIN - L67120MH1995PLC084899

7th Floor, The Ruby, Senapati Bapat Marg, Dadar - West, Mumbai - 400028. India

Tel: +91 22 66121212 Fax: +91 22 66121299 Web: www.emkayglobal.com


www.emkayglobal.com

refer to important disclosures at the end of this report ... · 16 hours ago · we resume...

Documents