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Result Highlights

* Reported revenue of Rs 40.7bn (down 3.5% QoQ), which was below consensus estimate. The weak revenue performance was due to sharper degrowth in voice business (down 17% QoQ on gross basis) and unexpected slight decline in data business (down 1% QoQ)

* The decline in data revenue was due to longer deal conversion and execution cycle due to Covid19 and the moderation of UCC traffic.

* However, ongoing cost optimization helped it to report 15 bps increase in EBITDA margin to 24.9%.

* Strong cash flow generation has helped to reduce net debt by Rs 186 cr to Rs 7,786 crore at Net debt/ LTM EBITDA of 1.8x compared to 2.8x in the same quarter last year.

* It has returned to sustained profitability as it posted profit of Rs 299 crore compared to loss of Rs 275 crore in Q4FY20

* The board also recommended final dividend of Rs 14/ share for the financial year ended March 31, 2021.

* While the revenue growth has remained elusive for many quarters, the company has delivered strong margin performance and it is expected that pick up in Growth Services will help to drive revenue growth going ahead

Our view:  

The revenue performance in the quarter was weak due to covid19 related factors that led to longer deal conversion and execution cycle. The company has returned to sustained improvement in profitability led by focus on cost optimization and that should continue to drive overall profit. Uptick in Growth services is expected to drive overall revenue growth going ahead.

Moderation in capital expenditure and strong operating cashflow generation would continue to help in deleveraging of the balance sheet. The stock trades at EV/EBITDA of 7.7x on FY23 EBITDA. Initiate coverage on the stock with ADD rating.

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