TATA COMMUNICATIONS LTD

Short Term Debt issue PR1+

Rating

CARE has assigned a ‘PR1+’ [PR One Plus] rating to the proposed short term debt
issue of Rs.500 crore of Tata Communications Limited (TCL). Instruments with this
rating would have strong capacity for timely payment of short-term debt obligations and
carry lowest credit risk. Within this category, instruments with relatively better credit
characteristics are assigned PR1+ rating.

The rating derives strength from the strong position of the company in wholesale data
communication segment, experienced management supported by strong promoter
group, good execution capabilities, increasing contribution of high margin businesses like
carrier and enterprise data and broadband internet to the total revenues, low gearing
levels and high level of liquid investments.

Impact of increasing competition in the Indian telecom sector, the performance of the
loss making subsidiaries and the quantum of corporate guarantees given on their behalf
are the key rating sensitivities.

Background

Tata Communications Ltd (TCL), a part of the $37.58 billion Tata Group, is the new
name of the erstwhile Videsh Sanchar Nigam Ltd. (VSNL) with effect from January 28,
2008. The company has history of more than 135 years. Tata group started in 1868 in
handling the international telecommunications needs of the country. In February 2002,
the Government of India, as per its disinvestment plan, sold 25% of their holding in the
company to the strategic partner. Consequently, the company was bought under the
administrative control of Tatas.

TCL’s portfolio includes transmission, IP, converged voice, mobility, managed network
connectivity, hosted data center, communications solutions and business transformation
services to global and Indian enterprises & service providers as well as broadband and
content services to Indian consumers. TCL serves its customers from its offices in 80
cities in 40 countries worldwide. The Company’s customer base includes approximately
1,500 global carriers, 450 mobile operators, 10,000 enterprises, 500,000 broadband and
internet subscribers and 300 Wi-Fi public hotspots.

Operations of the company

The Company, through itself and its operating subsidiaries, is primarily engaged in the
communications solutions business globally. The Company is a facilities based provider

CREDIT ANALYSIS & RESEARCH LIMITED

of a broad range of integrated communication services categorized by the following lines
of business: Wholesale Voice, Enterprise and Carrier Data and Others.
 Wholesale Voice Business – This comprises International Long Distance (ILD)
and National Long Distance (NLD). The Company owns and operates one of the
largest international networks with coverage to more than 240 countries and
territories, as well as maintaining over 415 direct and bilateral relationships with
leading international voice telecommunication providers. Traffic into and out of
India continues to represent a significant portion of the company’s wholesale voice
business and the company maintains market leadership in terms of the volume of
inbound termination of calls to India.
 Carrier and Enterprise Data Business – The Company is one of the world’s
largest providers of data services, primarily focusing on International Private
Leased Circuit (IPLC) services and IP Transit services. The Company supplies some
of the world’s largest international telecom companies with transmission backbone
services across the Atlantic, the Pacific, and into and out of India. As a Tier 1 ISP,
the Company also operates one of the largest IP networks in the world with points
of presence around the globe.
 Others- TCL also provides broadband connectivity, dial up internet connections,
wireless Internet and net facilities through cybercafés.

Major Developments in FY08-09

1) In August, 2008, the Arbitration Tribunal (Tribunal) of the International Chamber of
Commerce, Hague handed down a final award in the arbitration proceedings brought
by Reliance Globalcom Limited (Reliance), formerly known as ‘FLAG Telecom’, against
TCL relating to the Flag Europe Asia Cable System. The Tribunal directed TCL to pay
Rs. 95.60 crores (US$ 21.45 million) as final settlement against US$ 385 million
claimed by Reliance. The amount of Rs. 95.60 crores has been charged to P&L
account and has been disclosed as an exceptional item in FY09.
2) In terms of the agreements entered into between Tata Teleservices Ltd. (TTSL), Tata
Sons Ltd. (TSL) and NTT DoCoMo, Inc. of Japan, TSL gave an option to TCL to sell
3.65 crore equity shares in TTSL to NTT DoCoMo. Accordingly, TCL realised
Rs.424.22 crore on sale of these shares resulting in a profit of Rs 346.65 crore which
has been reflected as an exceptional item in the P&L account for the current year
FY09.

Financial Results
During FY 09, the total income had increased mainly due to increase in revenue from
enterprise and carrier data division. The PBILDT for the same period has also shown an

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increase of about 32% as a result of this. However, there has been a drastic increase in
the interest cost during FY09 to Rs.144 crore from Rs.46.67 crore in FY08, mainly due to
the NCD issue of Rs.1,250 crore for expansion in network related services. Consequently
interest coverage has also fallen sharply. Depreciation had increased during the FY09 by
about 41% as compared to FY08 due to addition in fixed assets of Rs.1,640 crore during
the period. PAT for FY09 shows an increase of about 68% as compared to FY 08 due to
profits from sale of stake in TTSL of Rs.346.65 crore. The profitability margins have
therefore improved substantially. The overall gearing ratio has increased from 0.12x as
on March 31, 2008 to 0.34x as on March 31, 2009 due to issue of new NCDs in FY09,
however it is still comfortable.
Financial Results:

Y.E. / as on March 31, 2007 2008 2009

Working results (Rs. in crore)
Net Sales 4,042 3,283 3,749
Total Operating Income 4,116 3,302 3,760
PBILDT 1,010 648 856
Interest 2 47 144
Depreciation 391 301 425
PBT 718 452 714
PAT (after deferred tax) 474 306 516
Gross Cash Accruals 874 634 983
Financial Position (Rs. in crore)
Equity Share Capital 285 285 285
Networth 6,360 6,547 6,931
Total capital employed 6,629 7,409 9,259
Investment: 2,674 2,104 2,724
- in subsidiaries 714 714 1,129
- in mutual funds/FMP 926 349 632
- in joint venture/group companies 1,034 1,041 963
Key Ratios
Growth
Growth in Total Income (%) 7.89 (19.78) 13.87
Growth in PAT [after D.Tax] (%) 1.10 (35.32) 68.42
Profitability
PBILDT/Total Op income (%) 24.54 19.62 22.76
PAT/Total income (%) 11.65 9.06 13.73
ROCE (%) 11.19 7.10 10.36
Average cost of borrowing (%) 1.24 9.57 9.28
Solvency
Long Term Debt Equity ratio (times) 0.00 0.05 0.25
Overall gearing ratio (times) 0.04 0.13 0.34
Interest coverage (times) 336.39 7.43 2.99

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Y.E. / as on March 31, 2007 2008 2009
Term debt/Gross Cash accruals (years) 0.23 1.23 2.37
Liquidity
Current ratio 1.13 1.50 1.38
Quick ratio 1.13 1.50 1.38
Turnover
Average Collection Period (days) 75 111 115
Average Creditors (days) 101 137 187

Industry
The Indian domestic telecommunications network has grown rapidly since 2000. As of
March 2009, the Indian telephone system comprised 429.72 million telephones in service
consisting of 37.96 million of the fixed line subscribers and 391.76 million mobile
subscribers. The penetration of India’s domestic telephone network increased to 33.71
telephone subscribers per 100 inhabitants as of March 2009 from 14.4 per 100 in July
2006. Broadband connections have also continued to grow in 2009. At the end of March
2009, total Broadband connections in India touched 6.22 million as against 1.35 million
in March 2006. However, the growth in Broadband connections has been relatively low
due to limited availability of last mile access. The incumbent wire line operators
dominate the broadband market because they retain control over the fixed line copper
network, in the absence of local loop unbundling.
Subsequent to liberalization of ILD and NLD licenses in 2002, companies like Bharti
Airtel, Rcom etc. have aggressively expanded their presence in wholesale data transfer
segment. This has led to continuous pressure on tariffs, which have come down
significantly. At the same time, volumes have grown because of the heightened business
activities and rapid globalization of Indian companies.
Major risks associated with the industry are slowdown in economic activities at global
level, large capital expenditure associated with major infrastructure and significant
reduction in tariffs due to competitive environment.
August 2009

Disclaimer
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the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information
obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy,
adequacy or completeness of any information and is not responsible for any errors or omissions or for the results
obtained from the use of such information. Most entities whose bank facilities/Facilities are rated by CARE have
paid a credit rating fee, based on the amount and type of bank facilities/Facilities.

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