The Hindu Business Line : Limited gains for TTML from divesting tower arm

The move by Tata Teleservices (Maharashtra) Limited (TTML) to divest its entire stake in its tower subsidiary to Quippo-WTTIL, an independent tower company, may bring limited benefits to the former.

TTML would receive a cash inflow of Rs 900 crore from the deal, which it plans to use for retiring debt and for bidding in the 3G auction.

With a gross debt of Rs 3,447 crore, only about a fourth of its debt can be retired, if the entire cash proceeds were used for this purpose.

With expected 3G outflows, bidding for 2G spectrum (as and when the methodology is decided) as well as constant active infrastructure enhancements that the business requires, this sale might not be able to provide TTML with the war-chest it may need.

Higher valuation

TTML seems to have got a reasonably good deal with its 2,535 towers in Mumbai, rest of Maharashtra and Goa, pegged to an enterprise value of Rs 1,318 crore.

That gives a value of around Rs 52 lakh per tower site, which is much higher than the Rs 20-30 lakh that the tower sites usually command based, on whether they are roof-top or ground based. This higher valuation may be due to TTML's tower arm having a tenancy of over 2.15, much higher than most tower companies. This, in turn, may be attributable to the fact that TTML's CDMA division and Tata DoCoMo, the GSM service provider may have a slot each in these towers.

Post the sale, TTML would need to ‘lease' tower facilities from Quippo-WTTIL. This would mean a rental payment of about Rs 35,000-40,000 per tower per month, translating to about Rs 121.6 crore per year. The benefit accruing to TTML is converting passive infrastructure capex to opex.

The company, thanks to its GSM launch last year, manages to add robust number of subscribers on a monthly basis. But compared to 2008, its average revenue per user (ARPUs) has fallen by about 27 per cent to Rs 143 by December 2009. TTML is loss making at the net level. EBITDA margins for the nine months of the current fiscal stands at 25 per cent, lower than the 30 per cent of last year. This has been due to the ongoing tariff war denting realisations and incremental subscribers not contributing significantly to revenue growth.

The markets cheered the deal with TTML's shares ending up 4.7 per cent higher on Thursday.

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