TTML's tower deal: Good move

While the move is positive, considering the tower deals done in this space, TTML’s tower assets could have possibly fetched more.

Tata Teleservices Maharashtra’s (TTML) move to sell its 100-per cent stake in tower infrastructure subsidiary, 21st Century Infra Tele, to Quippo-WTTIL was given a thumbs up by the Street. The scrip gained 4.67 per cent to Rs 24.65 on Thursday. Since its parent, Tata Teleservices, already has a passive infrastructure (tower and related assets) joint venture with Quippo named Quippo-WTTIL, the move isn’t surprising. The valuations, however, appear to be a tad lower.

Consider this: TTML has 2,535 towers in Mumbai, Maharashtra and Goa circles, which it is selling for Rs 1,318 crore — Rs 52 lakh per tower — wherein each tower has an average 2.15 tenants. In mid-January 2010, GTL Infrastructure acquired 17,500 towers from Aircel for Rs 8,400 crore — Rs 48 lakh per tower — wherein each tower had just 1.2 tenants. Since the profitability of the tower infrastructure business is strongly influenced by the tenancy ratio, a higher ratio would typically attract better valuations, say analysts.

That apart, in January 2009, Tata Teleservices had merged its 13,000-tower infrastructure with Quippo to form an 18,000-tower infrastructure company (Quippo-WTTIL) with an enterprise value of Rs 13,000 crore — Rs 72.22 lakh per tower. Then also, market sentiments were far from good. The deal valuations, however, are not starkly different from the American Tower-Essar Telecom deal announced last month. The former acquired 4,450 towers for Rs 2,000 crore (Rs 45 lakh per tower; tenancy ratio of 1.8).

On the positive side, TTML’s coffers will be richer by Rs 900 crore, which it can use for improving its position in core voice and data business, or bid for 3G licence, which could cost over Rs 300-400 crore, given the prime circles it operates in.

Meanwhile, strong subscriber additions have helped TTML post a 4 per cent year-on-year growth in revenues to Rs 1,516 crore for nine months to December 2009. But, stiff competition and subscriber acquisition costs have seen margins fall sharply and net loss jump 82 per cent to Rs 123.6 crore.