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TCom reported broadly in-line revenue, but margin disappointed in Q4 due to lower margins for Kaleyra/Switch. Combined EBITDA of Kaleyra and Switch was down to Rs0.2bn in Q4 from Rs1.1bn in Q3, leading to consolidated margin declining 160bps QoQ to 18.6%. While funnel continues to be robust, order book has been flattish. Revenue likely to improve on investing in the platform and realizing synergies from acquisition. Margin to improve from FY25 due to: i) Reduction in M&A spend; ii) operating leverage benefit from investments; and iii) sharper focus on subsidiary profitability. Scale and synergies can help improve margin to 23.4% by FY26, from 18.6% in Q4FY24. Our TP reduces to Rs2,125/share (11x Mar-26E EBITDA) from Rs2,225 as we cut our FY25/FY26E margin by 43/10bps on margin miss. We retain our ADD rating on the stock

Robust funnel; order book flattish; investment and synergies to drive growth

Management remains confident about doubling of data revenues by FY27 (needs per year growth of >15%). While funnel continues to be robust, order book has been flattish for the past few quarters. Enterprise order book grew in double-digits this year, though order book from OTT, hyper-scalers, and service providers have been lumpy. Slow decisionmaking has hurt growth, though TCom is well-prepared to benefit from improvement in macros. It plans to improve revenue by investing in the platform and also realizing all cost synergies. Initiatives like: i) moving Kaleyra, DIGO, and InstaCC into one customer interaction suite; and ii) Switch and TCom’s media being led by one business leader, are likely to aid growth. The ROCE is expected to witness dilution over the next two quarters, on full impact of Kaleyra. Profitability may improve as TCom benefits from the synergies of its acquisitions, and as it begins realizing operating leverage from its organic investments. Improvement in ROCE will be followed by an improvement in margin.

Synergies and scale to drive margin improvement in FY25E; maintain ADD

Q4 EBITDA was impacted due to: i) full quarter impact of Kaleyra integration; ii) Q4 being a seasonally-weak quarter for Kaleyra after a strong Q3; iii) costs related to harmonization of policies in line with TCom; iv) provisioning of USD1mn related to oneoff legal expenses that may emerge from a large US-listed public company takeover. We see margin improving in FY25E as: i) spend on M&A, including due diligence and fees, that company incurred in FY24 will come off in FY25E; ii) operating leverage benefit from organic investments, as investments reduce; iii) sharper strategic focus on subsidiaries like TCTS and TCPSL to drive profitability. We see the share of digital revenue in data revenue, increasing to 51% in FY26E from 45% in Q4FY24. With synergy and operating leverage benefits, margin can recover to 23.4% by FY26E from 18.6% in Q4FY24. We expect revenue/EBITDA to register CAGR of 13%/22% over FY24-26E. We cut our FY25E/FY26E margin by 43/10bps on margin miss. Our TP reduces to Rs2,125/share (11x Mar-26E EBITDA) from Rs2,225 earlier. We retain our ADD rating on the stock.

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