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Growth recovers but weaker margins lead to 8% EBITDA miss

* Consolidated gross revenue was up ~4% QoQ (+6% YoY) to INR60b (in line). However, consolidated net revenue at INR33.3b was flat QoQ (+3% YoY), due to weaker gross margins in the digital portfolio.

* Data revenue at INR51b (in line) grew 10% YoY (+4% QoQ), driven by ~17% YoY (~6% QoQ) growth in the digital portfolio and ~3% QoQ and YoY growth in core-connectivity.

* Consolidated adjusted EBITDA declined 3% QoQ (+4% YoY) to INR 11.2b (~8% miss), driven by higher network costs (+8% QoQ), likely due to increased costs related to cable repairs.

* Consolidated adjusted EBITDA margin contracted 125bp QoQ (-35bp YoY) to 18.7% (175bp miss), driven by a weaker gross margin (lower net revenue) and rising contribution of lower-margin digital portfolio.

* Reported consol. PAT including discontinued operations came in at INR10.4b, driven by gains on the sale of land to STT Telemedia (INR6.6b). Further, TCOM booked gains of ~INR3.1b on the completion of the sale of TCPSL (ATM business). Adjusted for the same, PAT on a like-for-like basis was lower than our estimate on account of lower EBITDA.

* Net debt moderated to INR94b (vs. INR105b QoQ) following the receipt of proceeds from the sale of land and TCPSL.

* Committed capex moderated to ~INR6 in 4Q (vs. INR7.5b in 3Q), while cash capex was up ~50% QoQ to INR7.4b.

* Reported RoCE (annualized) declined further to 15.9% vs 16% in 3Q.

Segmental details: 4Q data revenue up ~10% YoY, driven by ~17% YoY growth in the digital portfolio

Data segment:

* Gross revenue at INR51b (+4% QoQ, +10% YoY) came broadly in line with our estimates.

* Core-connectivity revenue grew 3% QoQ to INR26.6b (+3% YoY) on account of a modest recovery in the Enterprise business (+4% QoQ, +6% YoY).

* Digital portfolio revenue was up 6% QoQ (+17% YoY) to INR24.4b (~2% beat), driven by higher growth in Cloud (+29% YoY, 9% beat), Incubation (+50% YoY, 14% beat), and Media (+14% YoY, 12% beat). Next-gen connectivity grew 24% YoY (+4% QoQ, in line), while Collaboration and CPaaS grew 9% YoY (4% miss).

* However, net revenue at INR29.1b grew at a modest 2% YoY (-1% QoQ), as net revenue from the digital portfolio declined ~5% QoQ and increased by a modest ~2% YoY.

* Data EBITDA at INR8.9b (-5% QoQ, +4% YoY) was ~8% below our estimate. EBITDA margin contracted 170bp QoQ (-90bp YoY, 170bp miss), driven by lower gross margin and the rising share of lower-margin digital portfolio in the data mix.

Voice: Voice revenue at INR3.7b declined ~9% QoQ (and -13% YoY, 7% miss). Voice EBITDA declined 9% QoQ (flat YoY) to INR440m (7% miss), as margin remained stable QoQ at 11.8% (in line).

Others:

* The Campaign Registry (TCR) revenue was up by a further ~6% QoQ to INR1.8b (3% miss), while EBITDA declined ~2% QoQ to INR1.3b (11% miss), as margins contracted to ~73% (vs. 78% QoQ).

* TCTSL revenue was up ~15% QoQ (-20% YoY on the exit of an unprofitable contract), while EBITDA saw a sharper increase of ~62% QoQ to ~INR350m, as margin expanded ~340bp QoQ.

FY25 performance:

* Consolidated gross revenue rose 11% YoY to INR231b, driven by growth in the digital portfolio and also boost from the full-year consolidation of Switch and Kaleyra (consolidated from Oct’23).

* Data revenue was up ~14% YoY, driven by:

* 29% YoY growth in the digital portfolio, supported by 12-13% YoY growth in the Cloud and Next-gen connectivity and full-year consolidation of Kaleyra.

* Core-connectivity grew by a modest ~2.8% YoY, impacted by cable cuts in the Red Sea.

* Consolidated EBITDA was up ~6% YoY to INR45.7b, as margin contracted further ~100bp YoY to 19.8% due to an adverse mix and impact from loss-making acquisitions.

* Data EBITDA at INR36.5b declined ~3% YoY as margins contracted further ~320bp YoY to 18.7%

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