TSC Ratings Update: Buy Turkcell

Turkcell also made a strategic acquisition. Recently, the company acquired 80% stake in Belarusian Telecommunications Network (BeST) for $500 million, to gain access to the higher growth potential market of Ukraine and the Commonwealth of Independent States (CIS). The company is also in talks to buy a 51% stake in Datacom Solutions Pvt. Ltd..

There are a few risks to our buy rating. Although the company reported significant growth in revenue, it faces challenges from deteriorating margins and rising debt. Additionally, slowdown in the Turkish GSM market and political turmoil in Turkey may negatively impact the company's financials in the upcoming quarters.

Tuckcell lletisim Hizmetleri AS's third-quarter revenue grew 19.6% to $2.06 billion from $1.72 billion in third quarter 2007. The reported revenue growth was supported by a 4.3% subscriber growth, 7.5% appreciation of Turkish Lira (TRY) against the U.S. dollar, and the partial impact of a 31.6% increase in usage combined with upward price adjustments.

Looking at its international operations, revenue from the Fintur's operations -- in which TKC holds 41.5% stake -- rose 21.7% to $500 million from $411 million, attributable to 25.3% increase in the total number of subscribers to 12.4 million from 9.9 million a year ago. Revenue from the Astelit operations, which includes Tuckcell's 55% stake, grew 68.2% to $127.8 million from $76 million, fueled by a 40.8% increase in subscriber base, and 20.7% rise in Average Revenue per User (ARPU).

Looking at the metrics, total subscriber base increased to 36.3 million from 34.80 million. Number of postpaid subscribers rose 14.3% to 7.2 million from 6.3 million, while prepaid subscribers inched up to 29.1 million from 28.5 million. Blended ARPU rose 13.1% to $17.30 from $15.30. Postpaid ARPU grew 6.1% to $41.90, while prepaid ARPU improved 12.0% to $11.20 from $10. Blended MOU (Average Monthly Minutes of usage per subscriber) grew 31.6% to 109.2 from 83 a year ago. Finally, the churn rate increased to 6.2% from 5.7% a year ago.