Tata Comm eyes deals even as debt weighs

Written by MG Arun | Nikita Upadhyay | Nikita Upadhyay | Mumbai | Updated: Jun 25 2012, 06:37am hrs
Despite abandoning a bid for the UKs Cable & Wireless Worldwide, telecom and enterprise IT services provider Tata Communications is still eyeing acquisitions in the US and UK that can bring in large enterprise customers.

The company also plans to grow through joint ventures in Vietnam, Indonesia and the Philippines and is exploring the new markets in Russia and Latin America.

If an attractive acquisition were to give us credibility and brand, we will surely pursue, said Srinivasa Addepalli, senior vice-president, corporate strategy & communications, Tata Comm, that serves 1,600 operators and 50,000 enterprises globally. We will continue to build our brand organically, but an acquisition would help add new customers.

The company has faced criticism for taking on $1.5 billion debt borrowed to to lay undersea cables and buy South Africas Neotel.

I feel more acquisitions will not make sense for them as they already have a history of acquisitions which have not added much value to their top line, said an analyst with a domestic brokerage. It was actually good that the CWW deal did not go ahead. Looking at acquisitions in the same space will only burden their balance sheet further.

Tata Comm, which manages 10% of all international voice calls, widened its losses to R794.65 crore on revenues of R14,340.85 crore in FY12. Addepalli says some investments like Neotel have hurt, but they will deliver over the long term. On a consolidated basis, we have losses because of Neotel, but Neotel is growing rapidly and has turned Ebitda-positive. It will take a few years to reach full potential, he said.

Tata Comms home market in India is still small in enterprise services potential compared with the home markets of rivals like AT&T, Verizon, Orange, BT and Deutsche Telecom. So, it must create more home markets, which it has sought to do in South Africa. Again, acquiring large enterprise clients in the developed world is tough. Here, it will be compelled to look at buying established players, while keeping an eye on its debt load. In the global market with entrenched leaders, our brand and credibility is still young, says Addepalli. Since pure greenfield venture takes much time, it may be better to acquire companies that have infrastructure, people, systems and processes in place.

We will avoid moves that create huge short-term pressure on finances, he added.

Another analyst with a foreign brokerage said the current business environment can make acquisitions challenging. The company has clarity of reportage of its financials, and would be able to generate enough cash to service its interest costs and also capex requirements However, in this economy, retiring current debt would be difficult. It will have to seek debt refinancing.