Add Tata Communication Ltd for target Rs 1,990 - Yes Securities Ltd
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Mixed operating performance with Digital Segment driving growth momentum
Result Synopsis
Tata Communication (TCOM) reported inline performance for the quarter. The sequentialrevenue growth was as per expectation; while EBITDA margin was slightly above expectation. It reported sequential revenue growth of 15.6% QoQ, led by increase in the Data revenue by 15.6% QoQ. Voice revenue declined by 24.4% YoY, inline with trend. There was sequential decline in EBITDA margin (down 70 bps QoQ) led by increase in Network costs. Reported PAT decreased by 79.6% QoQ to Rs 453mn, on account of extraordinary expenses for the quarter. Net debt increased by Rs 23.5bn QoQ to Rs 93.1 bn.
We expect the voice business to continue to decline as per the industry trend; while Data segment, especially the Digital segment would continue to drive the overall performance of the company. Data core connectivity is expected to grow around mid single digit YoY. Private 5G related capex going ahead should also drive opportunities for the company. EBITDA margin will be under pressure in near term as it integrates Kaleyra, a CPaaS player. We expect EBITDA margin to be around 20% for FY24. Net debt remains under control with strong operating cash flow generation. We estimate revenue CAGR of 17.5% over FY23?26E with average EBITDA margin of 25.3%. We maintain our ADD rating on the stock with revised target price of Rs 1,990/share based on EV/EBITDA of 6.5x on FY26E. The stock trades at EV/EBITDA of 7.3x/5.8x on FY25E/FY26E.
Result Highlights
? Reported revenue of Rs 56.3bn (up 15.6% QoQ, up 24.4% YoY). Voice gross revenue was down 1.4% QoQ (down 16.4% YoY), while data gross revenue grew by 15.6% QoQ (up 28.5% YoY).
? EBITDA margin dipped by 70 bps QoQ to 20.1%, led by increase in network costs (up 26.6% QoQ).
? Reported PAT decreased by 79.6% QoQ to Rs 453mn, on account of one of the extraordinary expenses.
? Cash Capex for the quarter was Rs 6.3bn vs Rs 5.9bn in Q2FY24.
? Net debt increased to Rs 93.1bn (Rs 69.6bn in Q2FY24), with net debt/ LTM EBITDA of 2.2x vs Net debt/ LTM EBITDA of 1.7x in Q2FY24.
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