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Tata Telecom Limited is a joint venture between Lucent Technologies (USA) and the house of Tatas. In 2000, Lucent's stake moved to Avaya Inc, an entity formed by the restructuring of Lucent.

In April 2001, the company hived off its telephone division, Tatafone to IteL Industries Pvt Ltd, a fully owned entity of Tata Industries Ltd for a consideration of Rs185mn. Consequently, the loss making division has been hived off and only the profit making and relatively faster growing division has been left behind.

Post the Tatafone hive off, the company is focussed only on the Business Communications, in which it is a leader. Tata Telecom also recently introduced a multi-service networking infrastructure (MSNI) solutions including 10 gigabit Ethernet technology and wireless technology for India. The 10 gigabit Ethernet networks, a protocol which allows highband width connectivity, are designed to help enterprises optimize their business by expanding infrastructure bandwidth. The core of this technology has come from its partner, Avaya.

Tata Telecom is also the market leader in the fast growing call center solutions business and has a steadily growing PABX business. Its portfolio consists of Cajuna Data Switches (CDS) for data networking market which are widely used for Ethernet and ATM protocol. The company has tele-conferencing products called view stations and is planning to launch wide area network (WAN) products shortly. Recently, the company tied up with NICE Systems, to provide Customer Experience Management (CEM) solutions in India. NICE is a worldwide leader of multimedia digital recording solutions, applications and related professional services for business interaction management.

Given the demand for IT enabled services, we expect the company to do well in future.

In the past, the financial performance of the company was negatively impacted by the losses of the Tatafone division. In April 2001, the loss making unit was hived off. Since then, the fortunes of the company has changed dramatically. Tata Telecom reported excellent performance during Q2 FY02, when its net profit shot up to Rs31mn, against Rs2.4mn for the corresponding period in FY 01. This continued even in Q3 FY02 when PAT rose 88% yoy and 16% qoq. This was achieved on back of strong sales growth. We expect this fine financial performance to continue and the company to record a sales of Rs2.5bn. PAT is expected to be about Rs9.2mn FY02 and Rs12.1mn in FY03.

The stock is trading at 13.2 times FY02 and 10.3 times FY03 earnings. Given the parentage (Technology leader MNC) and the house of Tatas, and earnings growth of over 30%, we expect the stock to get re rated upwards. Multiple expansion might get an additional boost because this stock is a very good proxy for the growing IT enabled services industry in India. Most investors are not able to participate in the emerging sector because of absence of listed stocks. We are confident that this is very good bet.

TTL has recorded smart rally in the last few days. The scrip spurted by Rs12 (16%) in the four consecutive days. Trading pattern for the last 2 days has been erratic. The stock almost breached the psychological floor of Rs80 only to recover sharply. Even Q3 results are in line with our expectations.

Paisa Team

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