Big relief for Tata Teleservices

Viom's Rs 14,306 cr valuation a shot in the arm, Tata Tele to get Rs 2,700 cr for its 19% stake sold to American Tower

With a massive Rs 34,000 crore of debt on its books, the Viom Networks stake sale has come as a big relief for Tata Teleservices. Bankers said the Rs 14,306 crore equity valuation of Viom has come as a shot in the arm for loss-making Tata Tele, which is to get Rs 2,700 crore for its 19 per cent stake, sold to American Tower Corp.

Tata Tele is one of India’s worst performing wireless telephony companies, despite being among the first to launch services. A stake sale in Viom was thus important for the company to survive.

 “Finance costs are eating into Tata Tele's books and it is making such high losses that Tata Sons (the group holding entity) had no option but to keep pouring money into the company in the past two years, so that it could repay its loans,” said a banker.

With the Viom deal, Tata Tele has pared its stake to 35 per cent stake from the earlier 54 per cent. Once the new owner, American Tower, merges its own India operations of around 14,000 towers with Viom, Tata Tele will hold 26 per cent stake in the merged entity. American Tower has the option to buy back the entire stake held by Tata. An e-mail sent to Tata Tele on Wednesday did not elicit a response.

Analysts said for both Tata Tele and American Tower, an alliance made sense as the former is Viom’s largest customer and Tata Tele would prefer control in telecom infrastructure like its rivals, Bharti Airtel, Idea and Vodafone. As of now, the Tata, Vodafone, Idea, Uninor and Aircel combine account for 75 per cent of Viom’s revenues. American Tower will have an option to acquire the remaining stake in Viom from the Tatas and other investors, beginning in 2018-2019.

The sale was also important for Tata Tele, as for 2014-15, the company had made a loss of Rs 3,846 crore. Tata Sons, the group holding company, infused Rs 1,025 crore on the last day of 2014-15, so that Tata Tele could meet its financial obligations.

Tata Tele’s revenue rose marginally to Rs 10,944 crore in FY15 from Rs 10,452 crore in FY14, when the Tata group pumped in Rs 2,500 crore through compulsorily convertible preference shares. In FY14, the company made a record loss of Rs 6,166 crore, with its net worth completely eroded.  The main cause for its financial trouble was high finance costs, which rose to Rs 2,640 crore in 2014-15 from Rs 2,512 crore the prior year.

For Tata Tele, retaining a stake in Viom also makes sense from a valuation perspective. Its own valuation was down to around Rs 11,000 crore or Rs 23.3 a share, early this year, showed a calculation when Tata Sons sought to buy back NTT Docomo’s 26.5 per cent stake in Tata Tele. Viom’s Rs 14,300-crore equity valuation was clearly on the upside. In a report on American Towers, US-based financial powerhouse Wells Fargo said the technology curve of Indian telecom companies was 10 years behind that of the US, with 90 per cent of subscribers on second-generation (2G)-based technology and fixed line penetration of less than five per cent.

“American Towers believes there is an increasingly favourable wireless regulatory environment in India, one that is more open to foreign investment, and has strong relationships with major wireless carriers in India. We look for more colour in American Towers' results for the third quarter,” a Wells Fargo analyst said in a report after the Viom acquisition.  

As more consumers move up the technology ladder, the demand for towers will increase, said an analyst with Bank of America Merrill Lynch.