With stock outperforming the market by 33%, current valuation looks expensive.
Q417 Ebitda (adjusted for one-off expenses) at Rs 5 bn was below estimates, impacted by continued pressure on voice. Loss after tax at c`2 bn included exceptional charges, which included provision for contractual obligations related to the DoCoMo court order, impairment of goodwill related to voice network and staff optimisation. The stock is up 52% in the last 12 months, outperforming the market by 33%. We believe current valuation at 7.5x EV/Ebitda looks expensive; Maintain Sell.
Data: impacted by data centre sale
Reported data segment Ebitda at Rs 19 bn fell 2% q-o-q, 7% y-o-y and was impacted by completion of sale of data centre, demonetisation and access facilitation agreement. Reported Ebitda also included one-off expense including cable repairs. Normalised for it, segmental Ebitda grew 7% q-o-q, 8% y-o-y and margin stood at 21.1%.
Voice remains under pressure
Volume fell 5% q-o-q, 6% y-o-y. Pricing too remains under pressure. As a result, voice revenue declined 9% q-o-q, 23% y-o-y. Ebitda margin though bounced up by 220 bps to 7.3% from Q3 bottom. The segment is likely to remain under competitive pressure and management’s focus remains on FCF generation.
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TP and earnings adjustments
FY18-19e estimates now exclude Data Centre and Neotel (South African subsidiary) post completion of sale. SOTP TP is `610/share – (i) Core business `525/share; `455/share earlier. It remains at 6x EV/Ebitda but roll fwd to September-18e from March-18e. The value of its stake in Tata Tele and land value remain unchanged.