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Heightened competitive intensity and erosion of pricing power post the launch of services by Reliance Jio Infocomm is likely to put further pressure on Tata Teleservices Maharasthra Limited’s (TTML) revenue and profitability, rating agency ICRA said on Tuesday.
In such a scenario, the debt coverage metrics of TTML the company are unlikely to report significant improvement in the medium term, the agency said.
ICRA said that TTML’s subscriber addition and growth in revenues have been limited, have lagged the industry and the company has reported fluctuating revenue market share (RMS) in past few quarters.
The agency has revised the long term rating to ICRA A minus from ICRA A for the Rs 359.0 crore (earlier Rs. 490 crore) term loans, Rs. 465 crore Long-Term Fund Based/Non-Fund Based Limits, and Rs. 188 crore (earlier Rs. 57 crore) unallocated limits of TTML. It said that the outlook on the long-term rating has been reaffirmed at negative.
The rating action factors in the continuing weak operational and financial performance of the company marked by year-on-year decline in revenues over the last three quarters, consistent pressures on profitability and strained debt coverage indicators.
TTML’s second quarter performance was further impacted by higher amortisation expense and finance cost owing to capitalization of spectrum acquired in March 2015 auctions. Against this, the company’s debt level has registered a marginal increase in debt (excluding deferred spectrum liabilities) from Rs. 8,803 crore as on March 31, 2016 to Rs. 8,929 crore as on September 30, 2016.
Moreover, given the insufficiency of cash flow generation to meet the scheduled repayment obligations, reliance on rollover/refinancing of maturing debt remains high for the company. “This apart, the company remains vulnerable to foreign exchange fluctuation risk given that a sizeable proportion of debt is denominated in foreign currency,” the agency said.
The rating however continues to factor in the support available to TTML from its strong parentage as is evident from the funds infusion of around Rs. 2000 crore in October 2016 to fund the spectrum payout, the agency said.
According to the agency, the renewal of spectrum in the recent auctions has removed the business continuity risks for the company. The rating also factors in TTML’s operational linkage with TTSL and cost synergies from synchronization of operations of both the companies. Further the company has eased the repayment burden in the near term by refinancing part of its short term borrowings in H1FY2017 and continues to make efforts to align its debt repayment commitments with its cash flows.
TTML has initiated efforts to improve its operational efficiency and is also trying to reduce its loss making subscribers to improve its average ARPU. It is also redrawing its business plan while looking at various options including launch of 4G services, additional funds infusion, sale of non-core assets, monetisation of excess spectrum and exiting certain circles/business segments, the agency said.
TTML currently offers fixed line services, mobile services (CDMA and GSM) and broadband services across two major circles namely Mumbai Metro and Rest of Maharashtra (including Goa). It also offers 3G services in Rest of Maharashtra (including Goa) circle.
TTML has around 10.3 million subscribers (including wireline subscribers) as on June 30, 2016.
Reliance Jio launch, competitive intensity to put pressure on TTML’s revenue and profitability: ICRA - ET Telecom
In such a scenario, the debt coverage metrics of TTML the company are unlikely to report significant improvement in the medium term, the agency said.
ICRA said that TTML’s subscriber addition and growth in revenues have been limited, have lagged the industry and the company has reported fluctuating revenue market share (RMS) in past few quarters.
The agency has revised the long term rating to ICRA A minus from ICRA A for the Rs 359.0 crore (earlier Rs. 490 crore) term loans, Rs. 465 crore Long-Term Fund Based/Non-Fund Based Limits, and Rs. 188 crore (earlier Rs. 57 crore) unallocated limits of TTML. It said that the outlook on the long-term rating has been reaffirmed at negative.
The rating action factors in the continuing weak operational and financial performance of the company marked by year-on-year decline in revenues over the last three quarters, consistent pressures on profitability and strained debt coverage indicators.
TTML’s second quarter performance was further impacted by higher amortisation expense and finance cost owing to capitalization of spectrum acquired in March 2015 auctions. Against this, the company’s debt level has registered a marginal increase in debt (excluding deferred spectrum liabilities) from Rs. 8,803 crore as on March 31, 2016 to Rs. 8,929 crore as on September 30, 2016.
Moreover, given the insufficiency of cash flow generation to meet the scheduled repayment obligations, reliance on rollover/refinancing of maturing debt remains high for the company. “This apart, the company remains vulnerable to foreign exchange fluctuation risk given that a sizeable proportion of debt is denominated in foreign currency,” the agency said.
The rating however continues to factor in the support available to TTML from its strong parentage as is evident from the funds infusion of around Rs. 2000 crore in October 2016 to fund the spectrum payout, the agency said.
According to the agency, the renewal of spectrum in the recent auctions has removed the business continuity risks for the company. The rating also factors in TTML’s operational linkage with TTSL and cost synergies from synchronization of operations of both the companies. Further the company has eased the repayment burden in the near term by refinancing part of its short term borrowings in H1FY2017 and continues to make efforts to align its debt repayment commitments with its cash flows.
TTML has initiated efforts to improve its operational efficiency and is also trying to reduce its loss making subscribers to improve its average ARPU. It is also redrawing its business plan while looking at various options including launch of 4G services, additional funds infusion, sale of non-core assets, monetisation of excess spectrum and exiting certain circles/business segments, the agency said.
TTML currently offers fixed line services, mobile services (CDMA and GSM) and broadband services across two major circles namely Mumbai Metro and Rest of Maharashtra (including Goa). It also offers 3G services in Rest of Maharashtra (including Goa) circle.
TTML has around 10.3 million subscribers (including wireline subscribers) as on June 30, 2016.
Reliance Jio launch, competitive intensity to put pressure on TTML’s revenue and profitability: ICRA - ET Telecom
