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Aiming to be a CommTech player

Aspires to double revenue in the next four years We attended Tata Communications (TCOM)’s analyst meet where the management shared its ‘product-to-platform’ GTM strategy by leveraging capabilities for accelerated growth. The key highlight of the event was an ambitious revenue target. The company aspires to double its revenue in the next four years. Please find below the key takeaways:

* Upping the ante, management stated its ambition to double data revenue to INR280b over FY23-27E (at 19% CAGR) v/s previous guidance of double-digit growth.

* This will require higher capex and opex. Management provided USD300m capex guidance in FY24E. This should increase with 10-12% capex-to-sales range beyond FY24E.

* Further, EBITDA margin guidance is maintained at 23-25% v/s 24.2% in FY23; however, TCOM indicated that the recent acquisition of The Switch Enterprise may moderate margin below the guidance range in FY24E.

* Management maintained that it will continue to focus on balance sheet discipline with >25% ROCE and <2x Net debt to EBITDA.

* We have factored in revenue/EBITDA CAGR of 12%/10% over FY23-25E v/s 1%/10% over FY20-23 as many of the growth categories still remain in their early stages with longer gestation period. Maintain Neutral.

Building on the growth momentum

Management stated its ambition to double data revenue by FY27, implying 19% CAGR v/s single-digit growth over the last five years. This will be led by the digital portfolio (offering connected infrastructure, communication & collaboration and media services) that contributes 32% to the revenue at present and is likely to reach 50% (at 33% CAGR) by FY27, while the core services offering – commoditized connectivity solutions – should post 10% CAGR. TCOM hinted that it will search for inorganic opportunities and target to increase the share of million dollar accounts to 50% from 35% presently. Further, it expects to reap benefits from its recent investments in the international market. We believe the digital portfolio is still in its nascent stage and large enterprises prefer specialists over aggregators like TCOM.

Strengthening capabilities to drive growth

TCOM perceives itself as a CommTech player having a deep global connectivity. The company uses this to drive digital transformation of enterprises. Its key moat remains its network strength as it owns the subsea network with extensive coverage, providing connectivity to 190+ countries and connecting one-third of the internet routes directly. It plans to leverage its digital platform capabilities by offering connected infrastructure services and communication & collaboration services that have a strong customer pull. TCOM believes it has a right to win.

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