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* TCOM witnessed a healthy recovery in its data business with 4% QoQ growth in revenue (in line). This growth was primarily driven by a significant 7% QoQ increase in data usage. EBITDA declined 1% QoQ (5% miss) due to the significant impact on its voice business, while the data segment remained a key driver for the company’s overall positive performance. Data EBITDA grew 5% QoQ (6% adjusted for Switch Acquisition).

* We have revised down revenue/EBITDA CAGR by 3% to 11%/7% over FY23- 25E, due to weak voice business; however, we maintain our data EBITDA estimate. The next few quarters might present some challenges for earnings as there could be margin dilution. However, it is encouraging to note that the management is making growth-oriented opex investments. We reiterate our Neutral rating on the stock and would monitor its growth trajectory.

Data segment growth inches up; FCF yield declines

? Consolidated revenue grew 4% QoQ to INR47.7b (in line) in 1QFY24, led by 7% QoQ growth in data segment. Adjusted for Switch revenue of INR968m, revenue grew 2% QoQ and data revenue grew 4% QoQ.

* EBITDA declined 1% QoQ to INR10.2b (5% miss), with 120bp QoQ drop in margin to 21.5% (140bp miss). The decline was primarily due to a sharp 32% decrease in voice EBITDA. Adjusted for Switch loss of INR104m, EBITDA came in flat QoQ, while Data EBITDA saw a strong 6% QoQ growth.

* ‘Other income’ grew 3x QoQ to INR1.9b (2x beat), led by interest on income tax, which led to 46% QoQ growth in PBT to INR5b (9% beat). Adjusted for Switch loss of INR215.6m, PBT grew 52% QoQ to INR5.3b.

* Adj. PAT after minority increased 17% QoQ to INR3.8b (7% beat), aided by an increase in ‘other income’.

* Gross debt decreased 2% QoQ to INR74b and net debt increased 5% QoQ to INR60b. The net debt-to-EBITDA ratio stood at 1.5x vs. 1.4x in FY23.

* TCOM reported FCF of INR1.8b, down 70% QoQ (vs. INR25.4b in FY23) due to a 40% QoQ decline in OCF and an 8% QoQ increase in cash capex. FCF yields stood at 2% (on an annualized basis) for 1QFY24 vs. 7% for FY23.

* The company reported RoCE of 26.3% in 1QFY24 vs. 28.3% in FY23.

Key takeaways from the management interaction

* Margins may remain soft in the short term (1-2 years), below its 23-25% EBITDA margin guidance. This is primarily due to the recent acquisition and ongoing investments made by the company in pursuing growth opportunities.

* Strong pipeline with good product traction is likely to drive steady growth.

* Core connectivity expects to grow at low to mid-single digit. DPS will contribute 50% of the data business.

* The company continues to focus on healthier balance sheet with +25% ROCE. It may be diluted by some significant investments, but there is longterm room for growth.

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