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Mixed operating performance with Data business showing sustained momentum

Result Synopsis

Tata Communication (TCOM) reported mixed performance for the quarter. Both, the sequential revenue growth and EBITDA margin were slightly below estimates. It reported sequential revenue growth of 0.9% QoQ, led by increase in the revenue of Digital Platforms and Services by 2.3% QoQ. Voice revenue declined by 8.7% QoQ; while data revenue increased by 2.1% QoQ. There was sequential decline in EBITDA margin(down 115 bps QoQ) led by increase in employee cost. Net debt (as of 31st Mar 2023) decreased by Rs 5.6bn QoQ to Rs 57 bn.

Data portfolio grew by 10.3% YoY inline with expectation. We expect the voice business to continue to decline as per the industry trend; while Data segment would continue to drive the overall performance of the company. Private 5G related capex going ahead should also drive opportunities for the company. We expect EBITDA margin to stay in guided band of 23%-25% going ahead. We estimate revenue CAGR of 10.2% over FY23? 25E with average EBITDA margin of 24.3%. We maintain our ADD rating on the stock with revised target price of Rs 1,426/share based on EV/EBITDA of 8.5x on FY25E. The stock trades at EV/EBITDA of 8.7x/7.2x on FY24E/FY25E.

Result Highlights

? Reported revenue of Rs 45.7bn (up 0.9% QoQ, up 7.2% YoY). Voice gross revenue was down 8.7% QoQ (down 14.0% YoY), while data gross revenue grew by 2.1% QoQ (up 11.2% YoY).

? Total voice minutes declined to 2.5bn minutes in the quarter vs 2.8bn minutes in Q3FY23, inline with industry trend.

? EBITDA margin dipped by 115 bps QoQ to 22.6%, led by increase in employee cost (up 8.6% QoQ).

? Reported PAT declined 16.9% QoQ to Rs 3.3bn, on account of higher operating expense and increased finance cost for the quarter.

? Capex for the quarter was Rs 5.3bn vs Rs 5.0bn in Q4FY22 and Rs 3.9bn in Q3FY23. ? Net debt decreased by Rs 5.6bn QoQ to Rs 57bn, with net debt/ LTM EBITDA of 1.3x vs Net debt/ LTM EBITDA of 1.4x in Q3FY23.

? Declared a dividend of Rs 21/- per share.

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