Tata Communications:

Emerging Markets Growth Strategy

Presented by : Group 7
Kriti Chanduka F012
Smruti Ranjan Dora F016
Ishan Mittal F036
Deepankar Mukherjee F037
Siddhartha F039
Arjun Narang F041
Akash Pandey F044
Shobhit Pandey F045
Kriti Talwar F064

Does TCL need a second home market

In line with their strategy of targeting large MNCs for their global
connectivity and services requirements
TCL would be very small player in global B2B communications owing
to relatively small size of the Indian enterprise telecom market
Low Operating Margin which is linked to scale of business
TCL presence in Global market(Outside India) was very limited
compared to presence of major telecom players

How does new geography add value?

Using ADDING Value Scorecard:
Adding Volume or Growth:
Through its merger, TCL revenue increased by 13% with an
operation margin of 12.6%
Also it will help in targeting the untapped international connectivity
market
Decreasing Cost:
Since operating margin is correlated to scale of business due to high
fixed cost; Merger will provide large scale of business will result in
higher profitability
Also EBITDA might increase by 13.5 % and higher savings due to cost
synergies
Differentiating:
TCL major competitors were developed markets players and hence it
sought to position as go-to provider of services when large corporate

Suitability of Russia as a home market

Strained relations with US and EU
Political Russias entry into WTO

Economic

Social

Russias GDP expected to grow at 4%

Telecom market expected to grow at 5.5%

Increasing mean age of population

Public activism increasing with more social media activity


Technological
Technological

Legal
Legal

Heavy investment in energy and defense sector

Plan on investment in LTE technology
Regulated FDI
Weak property rights for private players

Growing environmental agenda and community awareness

Environmental Pressure from world forum to reduce impact on environment
Environmental

Ease of doing business

Brazil - 126
India - 132
Indonesia - 129

Russia - 120
South Africa - 35

Various entry options in Russia

Organic
Given that spectrum was scarce, getting licenses for the spectrum
might pose an administrative challenge
Problem in Customer facing functions as language and Cultural
Barriers are there as Indian and Russia have huge difference in
Language and Cultural
High Fixed Cost involved in setting up and Maintenance of Network
Information asymmetry will result in Institutional void and give local
players a competitive advantage over TCL
Difficulty in acquiring customers because of lack of Brand awareness

Various entry options in Russia

Using Acquire or Ally Framework: Strategy: Acquisition
Type of Synergy: Reciprocal
TCL and Pascal will generate reciprocal synergies by working closely
together and executing tasks through knowledge sharing process and
use each other product capabilities
Nature of Resources: Medium
Synergies created by combination of hard resources like wireless
network using LTE technology, spectrum, TCL product capabilities for
managed services and soft resources like people of Pascal
Degree of Uncertainty: Medium
Pascal followed successful, state-of-art wireless technology strategy
similar to TCL apart from LTE technology as TCL has no experience in
this technology

Pascal as entry vehicle into Russia

Strength

Weakness

Leading provider of broadband wireless

services

No international connectivity or voice

service

Strong base of enterprise customers

Wireless equipment would be requiring

upgrade in a few years

Access to scarce 5GHz spectrum

No experience in LTE technology

Better network with interoperability for

WiMax

Rolling out LTE would require heavy capital

investment

Has positive EBITDA and assets

Top management team well experienced

alongwith better IT systems

Valuation of Pascal for TCL

Net Sales (A)

FY12
85.3

FY13
102.4

FY14
120.8

FY15
137.7

FY16
154.2

FY17
166.6

EBIT (B)

15.4

24.2

32.4

40.9

48.3

Tax @30% (C)

3.542

5.566

8.424

10.634

12.558

Depreciation (D)

12.3

14.5

15.8

17.7

18.3

Cash flow before WC (E=B-C+D)

Working Capital

24.158
5.12

33.134
6.04

39.776
6.885

47.966
7.71

54.042
8.33

Change in WC (F)

0.855

0.92

0.845

0.825

0.62

Capital Expenditure (G)

18.4

18.1

19.3

20

20

4.265

as % of sales

Debt

Free Cash Flow to Equity (E-F-G)

4.903

14.114

19.631

27.141

33.422

DF @11%

0.9009009

0.8116224

0.7311914

0.658731

0.5934513

Discounted Cash Flow

4.4171171

11.455239

14.354018

17.878617

19.83433

Challenges and Risks in acquiring Pascal

Entirely
Entirely new
new market
market
for
for TCL
TCL

Need
Need of
of local
local
customization
customization and
and
language
language translation
translation

No
No great
great scope
scope of
of
Russia
as
a
Russia as a
connectivity
connectivity point
point

High
High cost
cost of
of capital
capital
of
at
least15.5%
of at least15.5%

Maintaining
Maintaining high
high
capacity
utilization
capacity utilization
on
on expansion
expansion in
in
smaller
cities
smaller cities

Unclear
Unclear data
data for
for
valuation
of
Pascal
valuation of Pascal

Technology
Technology changes
changes
would
require
would require
further
further capital
capital
expenditure
expenditure of
of US$
US$
4-5
million
4-5 million

No
No experience
experience of
of
using
LTE
technology
using LTE technology
for
for enterprise
enterprise
customers
customers

Thank
You!!