Recommendation from Telecommunications Services Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

SUYOG TELEMATICS : MAKING PROFITABLE CONNECTIONS

HERE IS WHY
✓ Increasing demand for fibre-connectivity towers
✓ Expanding presence across
✓ India Key player in telecom infrastructure sector

India is the world’s second-largest telecommunications market. As of July 2024, the telecom industry stood at a subscriber base of 1.10 billion, including both wireless and wire line subscribers. The average monthly data consumption per wireless data subscriber also increased to 17.36 GB in March 2023 from 61.66 MB in March 2014. The gross revenue of the telecom sector stood at ₹2.4 lakh crore in FY24.

India is expected to have 850 million smart phone users by 2026, representing about 55 per cent of the total population. By 2025, India will need around 22 million skilled workers in 5G-centric technologies such as the Internet of Things (IoT), artificial intelligence (AI), robotics and cloud computing. To make India 5G-ready, there is a push for fibre-based telecom towers. Keeping in mind the growth of the telecom sector, our recommendation is Suyog Telematics Limited. Incorporated in 1995, Suyog Telematics is a service provider of telecommunication products and services.

The company builds, owns and operates passive infrastructure assets like telecom towers, optical fibre cable (OFC) systems and related assets, and provides them on a shared basis to wireless and other communications service providers. These customers use the space on the company’s telecommunication towers to install active communication-related equipment to operate their wireless communications networks. In Q1FY25, on a standalone basis, the company’s revenue increased by 18.87 per cent YoY to ₹45.99 crore as compared to ₹38.69 crore from the previous year’s same quarter.

On a sequential basis, the revenue increase by 1.39 per cent. The PBIDT excluding other income increased by 21.40 per cent to ₹32.84 crore YoY as compared to ₹27.05 crore from the previous year’s same quarter, while sequentially increasing by 15.21 per cent. The profit after tax stood at ₹16.89 crore compared to ₹12.24 crore, a YoY increase of 37.99 per cent, while sequentially increasing by 7.44 per cent from ₹15.72 crore. The company is present in 15 key telecom circles across 26 states with 4,350+ towers, 5,100+ tenancies including 3,800+ small cell tenancies and 900 government site tenancies.

It has 5,000+ km of laid fibre network. Up to 49.5 per cent of the company’s revenue comes from Airtel, 26.9 per cent from VI and 23.2 per cent from Jio. The company is focusing on high-power small cell infrastructure to make urban cities 5G-ready. Its anticipated revenue growth is driven by the addition of 4,500 new sites in FY25. From 4,500 new sites, 3,000 are from Vi and BSNL and 500 from MTNL Mumbai circle, all scheduled for FY25. The rest 1,000 are small cell tower sites which have a tentative plan till FY26.

The company has planned capital expenditure of ₹450 – 475 crore for FY25 and ₹300 – 400 crore for FY26. Positioned as a key player in the telecom infrastructure sector with a strong emphasis on small cell technology, the company plans to double tenancies to approximately 10,000 by the end of FY25. Its long-term strategy includes aggressive expansion in the rural markets. Suyog Telematics is currently trading at a PE of 25.1 times as against the industry PE of 40.4 times. In the last three years it has delivered average ROE of 23.5 per cent and ROCE of 23 per cent. Taking into account the company’s business and growth potential, we recommend BUY.