Tata Teleservices' arm stock falls on telecom exit news

Tata group's telecom business has been continuously haemorrhaging due to rise in finance costs

The Tata group is looking at all options on its telecom business, including an exit, with Tata Teleservices’ losses touching a new high in financial year 2017 and no clarity on returning to profitability in the near future. The stock of BSE-listed Tata Teleservices (Maharashtra) fell by 5.2% on Friday on media reports that the telecom business would be shut down. Tata Teleservices (Maharashtra) is much smaller than the unlisted Tata Teleservices in terms of subscribers and revenue. 

The options on the telecom business include sale of spectrum, sale of circles or even a merger with a rival. But no concrete offer on merger is on table as yet, bankers said.

“At this point in time we are exploring all options,” said a Tata Sons spokesperson. 

Tata Teleservices has become a drag on Tata Sons' finances. It requires an investment of another Rs 12,000 crore in the next few years to repay debt and spectrum fees to the Indian government. Huge financial cost is making it difficult for the company to invest in new technologies.

For the fiscal ended March this year, Tata Teleservices’ net worth eroded by Rs 11,650 crore – highest in the Indian telecom sector — as rising finance costs led to higher losses. It announced a loss of Rs 4,617 crore for FY17, compared to a loss of Rs 2,409 crore in FY16.

The company’s turnover declined to Rs 9,666 crore in FY17 from Rs 10,708 crore in FY16. Bankers said the company’s debt worth Rs 28,766 crore would continue to haunt and its promoters would have to keep investing in its equity so that it can meet its liabilities.

Of all the companies in Tata group’s portfolio, the telecom business has been continuously haemorrhaging. Analysts warn that if Tata group is to exit the telecom business via fire sale or shut down, it would cost $4-5 billion to the group. This was in addition to a payout of $1.2 billion made to DoCoMo for the Japanese company's exit from India.

Analysts said Reliance Jio’s launch last year has made the survival of smaller players very difficult even as big players are consolidating their operations. Vodafone India, the country's number two telecom company in terms of revenues, and Idea Cellular have announced a plan to merge their operations in India. 

Bharti Airtel, India’s number one player, has merged smaller player, Telenor with itself. But all players barring Bharti Airtel are now making losses due to Jio’s free voice call offer.