GTL-a value pick despite everything?

         

• The group is present across the entire telecom value chain except VAS. But the risk of 'tunneling' revenues/profits/cash flows outside listed subsidiaries exists. As mentioned in their global group presentation, the promoters are also in businesses like tower manufacturing, active infrastructure provision, which may be sold to the listed companies at non arms length. Investors will have to rely on the auditors/tax authorities to ensure that this does not happen.

•  The GTL Aircel deal signed below promised a Rs 2750Cr/year revenue potential. Of that, Rs 1250Crore was deployment related, which is contingent on network expansion, which is muted across all operators. But assuming that even 40% of the other revenue materializes @ 25% EBITDA, we are looking at  a gross profit boost of Rs 270Cr per annum, which even post 20%tax, will boost bottom line by Rs 216Crore.

• GTL Infrastructure has a Mcap of Rs 1465Crores(as per closing prices on  11 Jul 2011), with Rs 5040 Crore debt. While GTL has a mcap of Rs 878Crores, with own debt of just 2374 crores, with much better earnings quality/stability. But, unless the unwary investor realizes that GTL guarantees the debt of its 'associates'-GTL Infra, GPAL & GNRL(latter 2 alone add up Rs 750Crores), he will be suckered into thinking GTL is safe, till the lenders have a margin call. I have blogged upon this in my other post here(http://thescambuster.blogspot.com/2011/07/gtl-group-corporate-governance-sham.html)

• The reason I would consider investing in GTL Infrastructure is that  the company is the towers business. Even at Rs 30lakh/tower(not unreasonable assuming that the Aircel Deal closed at Rs 48 lakh/tower), GTLs 33000 odd towers would be valued at almost Rs 10,000Crores EV. This is nearly double its existing debt, and leaves ample amount on the table. 
• GTL has a decent earnings visibility, and Aircel deal is promising but is burdened by debt, intercompany transactions and guarantees. 

Conclusion:- If there is any movement in the corporate governance and structure of the group, I would consider GTL(both companies). It is a pity to see value destruction but since the tunneling/group company risk is too high here, only rumours/concrete restructuring actions will see any movement. Perhaps, it may bounce back like how SKS(post MFI bill) and Money Matters(don't know why).