IGI Logo

Wait continues for double digit revenue growth

* In the analyst meet, TCOM management reiterated its strategy regarding platform transformation with a focus on product innovation, new launches, higher customer wallet share and financial fitness to accelerate topline growth.

* The strategy of ‘deeper with fewer’ is working well in the India Enterprise segment, which has seen market share gains. New product launches, increasing feet on the street and joint GTM with TCS should help garner share gains in overseas markets too.

* Although the company has achieved its financial fitness targets in the last two years and now has a healthy balance sheet and strong cash-flows, it continues to be noncommittal on the timelines for achieving double-digit revenue growth in the Data segment.

* We have cut FY23-25E EBITDA by 3-8% due to the delay in revenue recovery and lower margins (closer to management’s guided range). We cut target multiple for Data segment to 8x (Jun’24E EBITDA) from 10.5x and arrive at a revised SOTP based TP of Rs1,155.

Key highlights:

Management reiterated its strategy with a focus on: 1) enabling borderless growth; 2) enhancing products and efficiency; 3) building agility; 4) boosting product innovation and customer experience; 5) managing risk. Its strategy of going ’deeper with fewer’ has led to the addition of 33 new customers in the million dollar club. The focus remains on ‘fit to grow’, under which TCOM aims to invest in innovation, infra and manpower capabilities and accelerate growth via M&A (if any). The company has maintained its mediumterm RoCE and EBITDAM guidance at 25-30% and 23-25%, respectively. Growth in the India Enterprise segment remains strong, with its market share among larger enterprises rising by 2% to 32.3% in FY22. In the international market, management is focused not only on upgrading products to address specific market needs but also on increasing reach. As the addressable market is very large, the international segment offers huge growth potential.

Outlook:

In the last two years, although the company has delivered on its financial fitness goals, revenue recovery has seen a delay. Management sounded positive about the improving funnel rate, potential deal conversions, new product launches and increased investments. However, it continued to be noncommittal regarding revenue growth guidance. Although management has reemphasized its double-digit medium-term topline growth guidance for the Data segment, there are no clear timelines. As we have highlighted in our past reports, double-digit revenue growth is essential for sustaining a re-rating. Amid these challenges, the stock saw a 30% correction after Q4FY22 results. We believe the stock will remain range-bound until TCOM is able to achieve sustainable double-digit revenue growth in the Data segment. The only positive is strong FCF generation despite higher capex spends.

Key Risks: 1) increased losses in incubation services; 2) inability to close large deals; 3) continued delays in revenue recovery; and 4) higher competitive intensity.

To Read Complete Report & Disclaimer Click Here

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354

Above views are of the author and not of the website kindly read disclaimer