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MACR ASSIGNMENT

SAURABH AHUJA

ROLL NO.130

TATA COMMUNICATION-NTT DOCOMO

Tata Teleservices has sold a stake of 26% to Japans NTT DoCoMo. The deal value is $2.7 bn.

Tata Tele has 30 million CDMA subscribers and is rolling out its GSM services. Some say the

deal is over-valued and some say its not easy to put value on the fastest growing mobile market

in the world. India is the fastest growing market second only to China. It adds 10mn subscribers

every month. The current subscriber base stands at 300+million and is expected to be 700 million

in 2012. That is almost double to todays numbers.

The Road ahead

Great deal it may be, but it has its risks. One reason is that telecom deals have been controversial

in recent times. This goes back to late last year when the government sold pan-India licenses for

$333 million apiece, amid a welter of controversy.

Tata Sons continued to control the composition of Board of Directors up to March 25, 2013,

hence TTSL was considered as subsidiary of Tata Sons up to the period March 25, 2013. TTSL

is now classified as Associate Company of Tata Sons. While Tata Sons is considered as

promoter, NTT Docomo has significant influence in the functioning of the Tata Teleservices

In its step down subsidiary TTML or Tata Teleservices (Maharashtra), TTSL and Tata Sons hold

36.54% and 19.58% respectively, Tata Power holds 7.02% while NTT Docomo holds 11.76%.

Tata Sons/ TTSL and other Tata companies along with NTT Docomo are classified as promoters

of TTML

DoCoMo, in accordance with regulations of the Securities and Exchange Board of India, expects

to make an open offer to acquire up to 20 per cent of outstanding equity shares of Tata

Teleservices Maharashtra (TTML), a Tata telecommunication company, through a joint tender

offer along with Tata Sons. TTSL and TTML through the Tata Indicom brand, have increased

their combined share of the fast-growing Indian mobile market and their combined subscriber

base now stands at over 30 million.

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TTSL expects to leverage DoCoMos expertise in the development and delivery of value-added

services, where DoCoMo is a firmly established market leader.

Debt equity ratio on post acquisition debt is increasing which shows company debt is increasing

after merger. ROCE is constant it has not change much.Net profit margin increases by 11.10 as it

income increases in post acquisition as compared to pre acquisition. P/E highly increases in postacquisition from 0 to 12%. ROE is decreasing by 1.53% which shows that it slightly more debt

than equity. EPS is increasing drastically by 24.27% which is very profitable for investors.

Operating profit margin is increased by 15.43% which shows that company profit margin is very

fairly profitable.

The return of the target company Tata Communication has been very poor since the past 15 to 20

days before the acquisition but it almost got to break-even soon after the acquisition date. This

sustained for the next 8 to 10 days but again got back into negative returns zone due to poor

customer support to the newly entered Docomo brand in highly competitive communications

market in India.

he agreement also binds TTSL and Tata Sons to certain performance parameters and if these are

not met by March 31, 2014, NTT Docomo has the right to divest (Put Option) its entire stake in

TTSL. If Tata Sons is unable to find a buyer for this stake, then Tata Sons is obligated to acquire

NTTs stake at the higher of fair value or 50% of the subscription price. This is subject to FEMA

regulations. Further, the agreement says if Tata Sons fails to get a buyer and NTT Docomo sells

its entire stake in TTSL at a lower price, then Tata Sons is obliged to pay a compensation

representing the difference between the sale price and the agreed price.