Add Tata Communication Ltd For Target Rs.1,316 - Yes Securities
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Mixed operating performance in the quarter
Our view and valuation
Overall, it reported mixed financial performance for the quarter. While, revenue growth was in line, the dip in EBITDA margin was below expectation. The revenue growth continues to be muted for the company. It continues to invest in its product portfolio as per the requirements of the market. We expect Data segment to continue to drive the overall performance of the company but has been facing short term challenges; whereas the voice segment is expected to decline in line with industry trend. We expect increase in employee cost and other expenses going ahead, which can put some near term pressure on EBITDA margin. The reduction of debt is in the right direction, being led by robust operating cashflow. We expect revenue growth of 10.5% CAGR over FY22‐24E with average EBITDA margin of 25.4%
We maintain ADD Rating on the stock with revised target price of Rs 1316, valuing it at EV/EBITDA of 8.5x on FY24E. We have cut down our target valuation EV/EBITDA multiple from 9.5x to 8.5x. Trades at EV/ EBITDA of 8.3x on FY24E.
Result Highlights
* Reported revenue of Rs 42,630 mn( up 1.9% QoQ, up 4.7% YoY). In terms of segments, Data revenue grew by 2.1% QoQ, Others( Rental and Transformation) grew by 6.8% QoQ, while voice revenue continued to decline( down 3.1% QoQ).
* Voice continues to lose its share in revenue mix and now contributes 12.6% to revenue, while Data contributes 77.4% to revenue. Others segment contribute 10% to revenue.
* In Others segment, Transformation Services continues to remain impacted due to slower than expected growth in international business.
* In Payment solutions, business continues to remain impacted due to Covid19 as average daily transactions for FY22 were 57 as compared to 68 in FY21
* EBITDA margin declined by 135 bps QoQ to 24.5% on higher employee cost ( up 4.7% QoQ), and higher other expenses( up 8.4% QoQ)
* Capex was at Rs 4.3bn compared to 4bn in Q3FY22, in line with estimates.
* Net debt was down Rs 4.4 bn QoQ to Rs 67.4bn; with net debt/ LTM EBITDA coming down to 1.6x from 1.7x in Q3FY22.
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