Subscriber valuation better than Bharti, Reliance Comm.
NTT DoCoMo of Japan today said it will buy 26 per cent in Tata Teleservices Ltd for approximately Rs 13,070 crore ($2.7 billion), valuing the closely-held mobile services operator at Rs 50,269 crore ($10.38 billion) and each of its 25 million subscribers in 20 circles at Rs 19,334.
Of the 26 per cent stake, DoCoMo will buy six per cent from Tata Sons and other group companies and the remaining 20 per cent will be new shares issued by Tata Teleservices.
In accordance with the takeover regulations of the Securities and Exchange Board of India (Sebi), DoCoMo, along with Tata Sons, will make an open offer for 20 per cent in Tata Teleservices Maharashtra Ltd, which operates services in Maharasthra and Mumbai and has five million subscribers, in which Tata Teleservices holds 37.7 per cent. Together, the two companies have a 9.3 per cent share of the Indian mobile market.
With over 53 million customers, DoCoMo is one of the world’s largest mobile services companies. Out of this, 46 million are FOMA subscribers, the brand name for the world’s first 3G mobile service based on W-CDMA technology. The company hogged the spotlight in 1999 when it launched i-Mode, the first mobile Internet service, challenging the domination of the personal computer. It was also the first to launch a handset with “wallet transactions” (meaning it can be used as a credit card).
Tata Teleservices operates CDMA-based services and has a licence to operate GSM services, for which it has already recieved spectrum in many circles. It reported a loss of Rs 1,813 crore in 2007-08, down from Rs 2,062 crore the previous year. A DoCoMo spokesperson in Tokyo said the company will have the right to appoint three directors on the Tata Teleservices board.
The valuation paid by DoCoMo shows the buoyancy in the Indian telecom market, notwithstanding the global economic meltdown. In 2006, Sivasankaran had paid Rs 1,200 crore for 8 per cent in Tata Teleservices, giving it a per subscriber valuation of Rs 15,000. In the same year, Temasek paid about Rs 1,500 crore for 9.9 per cent in the company at a somewhat similar subscriber valuation (see table).
The price that Tata Teleservices has received is attractive when compared with the per subscriber market capitalisation of companies like Bharti Airtel and Reliance Communications, which have seen their stocks battered in the market.
The per subscriber market capitalisation of the country’s largest private sector telecom player, Bharti Airtel, is Rs 14,977, and that of Reliance Communication is Rs 7,420, based on today’s market capitalisation. It has also paid much lower than Telekom Malaysia which picked up a 15 per cent stake in Idea Cellular, which has a near similar subscriber base, at a per subscriber value of Rs 23,152, in July this year.
However, DoCoMo has paid much lower than Vodafone, which picked up 67 per cent in Hutchison-Essar Ltd in 2006 for an enterprise value of $18.8 billion (Rs 80,840 crore). It paid a staggering Rs 32,336 per subscriber to acquire the stake.
Experts said that the Japanese company could buy the stake held by Temasek and Sivasankaran and take its stake in Tata Teleservices higher. Sivasankaran, however, said DoCoMo has not made him an offer. The DoCoMo spokesperson denied reports that the company plans to up its stake in the Indian company from 26 per cent to over 50 per cent.
Sector experts said the deal makes strategic sense for both. “DoCoMo brings in significant technology and service experience in 3G which it has pioneered in the world and puts Tata Teleservices in a different league,” telecom analyst Mahesh Uppal said, adding: “For DoCoMo, this marks its entry into one of the fastest growing telecom markets in the world.”
(Other recent deals in Indian telecom)
value (Rs crore)
|Idea Cellular -2008||Spice Comm||40.8||6,800||4.5||15,111|
|Maxis Comm. Bhd (2005)||Aircel||74||6570||2.2||29,863|
|Telekom Malaysia (2006)||Spice Comm||49||16,42.5||1.7||9,661.5|
|Etisalat (2008)||Swan Telecom||45||9,200||—||—|
|Telenor (2008)||Unitech Wireless||60||11,620||—||—|
|Telekom Malaysia (2008)||Idea Cellular||15||62,651||27.1||23,152|
Says Seiji Ota, executive director, BMR Advisors, who oversees the Japanese practice : “With the Japanese market saturated DcComo has been looking at India for growth. With valuation down in the Indian market this was an ideal time for them to get in especially as the yen has appreciated against the dollar and the rupee. This is really the first big strategic stake that they are taking.” DoCoMo has picked up minority equity stakes in telecom services operators in Hong Kong, Taiwan, the Philippines, Malaysia and Bangladesh.
“This is a positive development for the Tata group and is in line with its strategy of foraying into GSM and latter 3G. The move to bring in a strategic investor is a better fit for the company than bringing in a private equity player,” added Frost & Sullivan Deputy Director (telecom practice) Girish Trivedi.