Company :Tata Communications: Best Buy Stocks: Long Term only 5-10+ years

Tata Communications:
CMP: 258.35
Market Cap: 7362.98Cr
Following are the Consolidated figures as per Annual Report March 2010
Sales: 11194Cr
Debt : 7308Cr
Reserves : 4249Cr
Profit Before Tax: -ve 681Cr
EPS -ve 20.97

http://www.tatacommunications.com/
Annual Report March 2010


Tata Communications is a leading global provider of a new world of communications. With a leadership position in emerging markets, Tata Communications leverages its advanced solutions capabilities and domain expertise across its global and pan-India network to deliver managed solutions to multi-national enterprises, service providers and Indian consumers.

The Tata Global Network includes one of the most advanced and largest submarine cable networks, a Tier-1 IP network, with connectivity to more than 200 countries across 400 PoPs, and nearly 1 million square feet of data center and colocation space worldwide.

Tata Communications' depth and breadth of reach in emerging markets includes leadership in Indian enterprise data services, leadership in global international voice, and strategic investments in operators in South Africa (Neotel), Sri Lanka (Tata Communications Lanka Limited), and Nepal (United Telecom Limited).
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Tata Communications looks to be in dumps with a profit before tax of -ve 681Cr but lets dig a little deeper..
- look at Cash Flows from Operations one of the most basic numbers indication actual company health..

Net Cash from Operating Activities: 1552.80Cr
Cash Flow from Investing Activities: -ve 2502.85Cr
Cash flow from Financing Activities: 257.37Cr
Cash & cash Equivalents at the beginning of the year: 863Cr
Cash and Cash Equivalents at the end of the year: 257.37Cr

Tata Communications has invested 2502.85Cr in investment activity (new asset creation)

- To fund this .. cash flow from operations ie.. 1552.80Cr has been used..
- In addition 257.37Cr has been generated from financing activities
- In addition the company had cash in hand of 863Cr ..
So money flowing into the company from these 3 sources (Operations, Financing and Cash in hand from last year) has been used for investment..

So the company is making money at the operating level .. it is just that the company has so many deductions that it can report losses which will help in reducing taxes paid to the govt ..

Another very important number is Current Assets, Current Liabilities and Net Current Assets numbers:
Current Assets: 6141.74Cr
Current Liabilities: 7528.89Cr
Net Current Assets: -ve1387.15Cr

There are different valuation parameters
1. Off the hook valuation parameter is : If the Enterprise Value is less than Net current Assets then the company is selling for less than the cash in the system.
2. A more Sophisticated parameter is: If the Net current Assets is -ve which means you have more liabilities than Assets at the end of the year.. it means the company is in a position of strength (domination) and hence it is able to hold payments to its creditors (increasing liabilities) and extract money in advance from its debtors (reducing Current Assets) this results in a free float which the company can then use..

So a -ve Current Assets scenario shows that Tata communications is generating 1387Cr from its operations just by delaying payment to creditors and accepting cash from debtors .. this is possible only for very large well established companies.. in a commanding position in their area..and will result in interest savings of 138Cr (assuming 10% interest rate on 1387Cr float ..)

For Example let us look at Hindustan Unilever Limited (HUL)
Consolidated Current Assets:  5539Cr
Consolidated Current Liabilities: 6816Cr
Net Current Assets: -ve 1276.73Cr

So even HUL has a Net Current Asset number which is negative indicating it has a strong domination over the market.. can hold its creditors for longer period and expect debtors to pay upfront resulting in cash flows from its operations of 1276Cr which on a yearly basis at 10% interest works out to 127Cr
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In addition to the excellent and tight financial operating model that Tata communication has there is another investment bonanza for investors:

When the Govt dis-invested its stake in VSNL to Tata's there was a clause which said Tata's are supposed to release free hold land which measures 773.13Acres 85 acres in Chennai and majority of the rest of the land is in Pune .. some is in Delhi, Mumbai and Calcutta (these are the cities where VSNL had operations before takeover by Tata's)

- Share holders are supposed to receive compensation for the land.
- Since govt holds 25% and also sold 25% to Tata's with the same clause .. the majority of the beneficiary is going to be the Govt.
- Since VSNL disinvestment to public was done before selling of stake to Tata's... Individual investors will also get compensated for the Land bank..
- Individuals who tendered their shares when Tata's took controlling stake will also receive compensation..

Ofcourse the Tata's do say that the major beneficiary of the Land deal is Govt (which is true as the Govt  will receive 50% stake in the 773Acres land company that needs to be carved out of Tata Communication..

However Individual investors will also benefit and for the shares that they own in Tata Communications they will receive equivalent rights to the Property company that needs to be carved out of VSNL/Tata Communications.

So Right now Tata Communications is Tata Communications (operations) + 773Acres and the property company carved out will have Zero Debt...
 Ofcourse Tata Communications will try to wriggle out and try and reduce the amount of actual property transfer but its a long drawn out(Legal)  affair.. as this clause for a separate property company was part of the initial contract.. Also as part of the clause..Tata Communications cannot issue additional equity until the 773 Acres property is carved out of Tata Communications..

So the high debt is because Tata's have no way to grow other than debt..and now Tata's donot have the much wriggle room as debt is already pretty high...

This Value equation is well known to the Institutions..and is visible in the fact that actual Public holding in Tata Communications is  less than 2% and Institutional investors, Govt and Tata's own 98% stake in Tata Communications..

Conclusions: Tata Communications is a well oiled cash generator which is available Very Very Cheap. It also has a 773Acres Property company attached as a free gift. Go and buy !! It is a true Deep Deep discount stock and a multi-bagger but has a gestation period which could run into 2yrs or more..(when the property company is carved out..)  An addition into Best Value Buy For sure!!