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Revenue growth remains muted

Our view

Overall, revenue growth remains muted; while margin improvement was led by cost optimization and one‐off gains. We expect Data segment to continue to drive the overall performance of the company; whereas the voice segment is expected to decline in line with industry trend. 

 We expect revenue to grow at CAGR of 6.5% over FY22E‐ FY24E with average EBITDA margin of 25.8%. Trades at valuation of EV/EBITDA of 9.0x on FY24E EBITDA.  We maintain our current ADD rating on the stock with revised target price of Rs 1,522/share.

Result Highlights

* Reported revenue of Rs 41.7bn ( up 1.7% QoQ) led by gradual pickup in both Data and Voice segment with gradual opening of the economy. On YoY basis, revenue declined by 5.2% YoY due to decline in Voice business and moderation of collaboration traffic in Data business.

* Segment wise, Voice revenue( 15% of revenue) grew 2.9% QoQ, Data revenue( 75% of revenue) grew 1.2% QoQ, Others( 10% of revenue) comprising Rental and Payments grew 4.6% QoQ. Total voice minutes declined to 3.9bn minutes in Q1FY22 from 4.2bn minutes in Q1FY22. Payment solutions business has been hit hard by 2nd covid19 wave as number of transactions for Q2 was 56 compared to 64 in Q2FY21

* EBITDA increased by 12.9% QoQ to Rs 11.1bn led by 1)cost benefit from timing difference in hiring new employees; 2) Reversal of provision of doubtful debts. EBITDA margin increased by 270 bps QoQ to 26.7%.

* Net debt decreased by 2.4bn QoQ to Rs 77.6bn despite Rs 4bn dividend payout this quarter. Net debt/ LTM EBITDA was flat at 1.9x QoQ. Average cost of debt for the quarter was 2.87%.

Valuation

The stock trades at EV/EBITDA of 9.0x on FY24E EBITDA. While, it has been able to generate consistent EBITDA margin, the revenue growth has been muted for the company.  We rollover to FY24E estimates and value the stock at EV/EBITDA of 9.5x on FY24E EBITDA, arriving at target price of Rs 1,522/share.

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