Shares of Tata Teleservices (Maharashtra) Limited (TTML) have witnessed a phenomenal rally in the last one year even as the company continued to report losses for the past several years. The debt-laden Tata group company has surged 1,800% in one year and 8,700% in two years amid hopes of business turnaround much like Tata Elxsi or Tata Communications, which turned profitable after transformation in business model. TTML has been continuously receiving financial and managerial support from its parent, Tata Sons, which has infused about ₹46,595 crore between January 01, 2014, and June 30, 2019, into the business to fund the losses, debt repayments as well as capital expenditure.

The Tata Group telecom services stock has skyrocketed from the level of ₹11.80 on January 18, 2021, to ₹224.65 in intraday trade today, delivering 1,804% returns to its shareholders. An investment of ₹1 lakh in Tata Tele in the mid of January last year would have grown to around ₹19 lakh in just one year.

Despite strong returns, analysts have cautioned investors to be more vigilant while investing in such risky stocks. Weak capital structure, low debt coverage indicators, along with high losses incurred in the past remain key concerns for investors.

In the past two months, the stock price of TTML spiked 240% despite no major changes in its financial position or business outlook. The telco has a market capitalisation of ₹44,044 crore, more than that of its peer Tata group companies such as Tata Communications, Tata Elxsi, Tata Chemicals, Indian Hotels, Voltas, and Trent.

Stocks fall over 22% in 5 days on diluting stake to govt

In the last one week, TTML shares has tumbled as much as 22.6% after the company on January 11 approved the conversion of interest payable on its deferred adjusted gross revenue (AGR) dues into equity. The government is likely to hold a 9.5% stake in the company post-conversion of the interest amount into equity shares. At the end of September quarter of 2021, Tata group companies held a combined 74.36% holding in TTML. Apart from promoters, TTML is almost completely held by retail investors, who own 23.22% shareholding in the company.

In an exchange filing on January 11, the company stated that the net present value (NPV) of the interest due to the government was expected to be around ₹850 crore, subject to confirmation from the Department of Telecommunications (DoT). The Tata group firm further said that the average price of the company’s shares at the relevant date of August 14, 2021, as per the calculation method provided works out to be about ₹41.50 per share.

“In case of conversion, it will result in dilution of all the existing shareholders of the company, including the promoters. Following conversion, it is expected that the government will hold approx. 9.5% of the total outstanding shares of the company,” TTML said in a filing to the BSE.

On Tuesday, TTML share price opened lower for the fifth straight session and hit a lower circuit of 5% at ₹225.3 apiece on the BSE. The midcap stock was trading higher than its average historical valuations and also higher than 20-day, 50-day, 100-day, and 200-day moving averages.

TTML reports loss for 10 consecutive quarters

Tata Tele Business Services, formally known as Tata TeleServices, has consistently reported weak results during the last ten quarters. The Mumbai-based broadband, telecommunications and cloud service provider reported a net loss of ₹313.6 crore during the quarter ended September 2021, as compared to a loss of ₹341.1 crore in the year-ago period. The total income stood at ₹271.33 crore, up 4.6% from the prior-year period.

For the full year ended March 31, 2021, net loss nearly halved to about ₹1,996.7 crore from ₹3,714.1 crore in FY20. The total income was flat at ₹1,055 crore as compared to ₹1,088.3 crore in the previous fiscal.

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