Tata Tele-Docomo

INDUSTRY OVERVIEW IN INDIA

• India -2nd largest in telephone users

• Growth of over 14 million subscribers per month

• Number of telephone subscribers- 933 million

• 3rd largest internet user-base

• Second most populous country in the world good future prospects

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Series 1

Tata Communications-Company Overview• Leading global provider of a new world of

communications

• Tata Global Network

– largest submarine cable networks

– Tier-1 IP network

– connectivity to more than 200 countries

– nearly 1 million square feet of data centre and collocation space worldwide

– Tata Communications Lanka Limited

– Neo-tel(South Africa)

NTT Docomo- Company Overview• Japan's premier provider of leading-edge mobile

voice

• More than 55 million customers in Japan

• In 1999, Docomo launched i-mode - platform for mobile Internet services like e-mail, browsing, downloading

• In 2001, launched FOMA, world's first 3G commercial mobile service based on W-CDMA

• Also launched Osaifu-Keitai, a mobile wallet platform enabling quick, contact-less transactions for cash, credit, ID

• Uses the power of mobile communications to enable customers to enrich their lives

TATA TELECOM SERVICES

• TATA DOCOMO (1sec : 1paisa)

• 2008- NTT DOCOMO with 26% stake in Tata Docomo subsidiary of Tata teleservices

• In association with Virgin and T24

• Broad band – Tata photon

• NTT Docomo decided in April 2014 to sell their 26% stake due to losses

Deal Overview

• TTSL valued at- $10.38 billion

• Deal Worth- $2.7 billion

• NTT Docomo acquires 26% stake in TTSL

• 20% fresh issue of shares

• 6% existing- Tata Sons, Tata Steel, Tata Communication, TTML

– 12.12% stake in Tata Teleservices Maharashtra Ltd (TTML) for $112 million

– 1% in Tata Communications for $ 70 million

Deal Overview(continued)

• TTSL- unlisted company

– Long term capital gains tax at 20%

– Shares held for less than 1 year taxed at 10%

• Timeline

– November, 2008- Capital Alliance Agreement Announced

– March 2009- Transaction of 26% shares completed

• 3 DOCOMO Directors joined TTSL board

Synergy

• For NTT

– Global Expansion

– India- very big market

• For TTSL

– DOCOMO-strong market leader

– provide know-how to help the company develop its mobile

business

– development and delivery of value-added services, where

DOCOMO is a firmly established market leader

– Bring experience in serving customers with high speed

data offerings(3G)

– Expand to GSM based network

I-Banks/PE Involved

• TTSL- Lazard and Co

• NTT Docomo- JP Morgan

Deal Analysis

• Valuation of the company at over $8bn

• Docomo paid three times more for the 26% stakes.

• Expectations:

• NTT Docomo:

– Entering the showpiece segment of the fastest growing economy

– 3G service licensing in January, 2010

ROCENet Profit Margin ROE EPS OPM

Pre-acquisition 7.33 9.55 11.14 0.89 16.2

Post-acquisition 7.44 10.61 10.97 1.11 18.7

Change(%) 1.5 11.1 -1.53 24.72 15.43

Ration Analysis

• Income increases post acquisition• Slightly more debt than equity• EPSvery profitable for investors• Company profit margin is very fairly profitable

Positives and Negatives of Deal• Positives for TTSL:

– To curb Debt (22,000cr apart from interest rates)

– Revived operations that were shut in different services

– Harness 3G technology with Docomo technological expertise

• Strategy Failed:

– Failed to accumulate momentum: 6th largest operator by no. of subscribers.

– Cancellation of licenses in Feb, 2012: Tata Teleservices to go for two rounds of rights issues to sustain capital expenditure

– NTT Docomo looking for exit options.

Our Opinion

• Indian Market- dominated by GSM

• Deal a failure

– Market dominated by Bharti Airtel, Vodafone

– Margin-denting price war

– Japan and India- very different cultures

• Spent 6000 crore to buy 3G spectrum

– overburdened with debt 

– Little funds left to expand 3G

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