Release Date: January 22, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tata Communications Ltd (BOM:500483, Financial) reported a 2.9% year-on-year growth in consolidated revenues, reaching INR5,798 crores.
- EBITDA margins improved by 100 basis points quarter-on-quarter, reaching 20.4%.
- The company achieved a significant increase in free cash flow, reporting INR841 crores compared to a negative FCF of INR194 crores in Q2.
- Digital revenues grew by 10.2% year-on-year and 4.1% quarter-on-quarter, driven by strong performance in the collaboration and managed CPaaS portfolio.
- The order book and funnel remain robust, with a 50% year-on-year increase in large deal funnel additions, indicating strong future revenue potential.
Negative Points
- Core connectivity revenues experienced a slight decline of 0.9% quarter-on-quarter.
- The incubation services, specifically Fabric IoT, saw a decline of 20.9% quarter-on-quarter.
- The media portfolio witnessed a 2% year-on-year decline, despite a 6.7% increase quarter-on-quarter.
- Challenges in the SAARC region due to geopolitical factors have impacted collections.
- The company's net debt increased to INR10,468 crores, with a net debt-to-EBITDA ratio of 2.34x, partly due to ForEx impacts.
Q & A Highlights
Q: How is the demand environment affecting Tata Communications, especially with changes in the U.S. administration and IT services companies reporting increased discretionary spending?
A: Amur Lakshminarayanan, CEO, explained that Tata Communications operates in the digital infrastructure space, which is not directly impacted by the demand cycles of IT services companies. The company's order bookings have been robust, and while Q3 saw normal closure rates, the demand environment remains positive with a strong funnel and large deal opportunities.
Q: What is the progress towards Tata Communications' FY27 revenue target, and how does the company plan to achieve it?
A: The CEO stated that the FY27 revenue target is an ambition based on anticipated enterprise needs for network transformation. While macroeconomic conditions pose challenges, the company is confident in its strategic direction and investments in product development to drive growth.
Q: When can we expect the digital portfolio to achieve positive EBITDA margins, and what are the growth drivers?
A: CFO Kabir Shakir highlighted that each business within the digital portfolio has a target margin and a path to achieve it. Growth is the primary focus, with investments in product capabilities and market relevance being crucial. The company aims to reach its overall margin target of 23% to 25% in the medium term.
Q: What factors are contributing to the slower growth in the digital services segment, and what will drive future acceleration?
A: The CEO noted that while the Interaction Fabric has grown, the adoption of new channels and AI-based orchestration will drive future growth. The next-gen connectivity segment is seeing traction, but order conversion takes time due to the complexity of network transformations.
Q: How does Tata Communications plan to leverage the AI and cloud opportunities, and what is the expected timeline for traction in these areas?
A: The CEO mentioned that the AI cloud and Edge portfolio are in early stages, with GPU as a Service already available. Adoption will take time as enterprises experiment and learn. The company is investing in these areas to capture future growth opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
