Release Date: October 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tata Communications Ltd (BOM:500483, Financial) reported a strong revenue growth of 18.4% year on year and 2.4% quarter on quarter, driven by its digital portfolio.
- Digital revenues saw a significant increase of 52.4% year on year and 3.6% quarter on quarter, indicating robust demand for digital services.
- The company's order book increased by over 25% year on year, with the international region registering the highest quarterly order booking in the last five years.
- Tata Communications Ltd (BOM:500483) is making progress in asset monetization, with plans to sell a land parcel in Ambattur, Chennai, to unlock shareholder value.
- The company continues to expand its fiber network infrastructure in India, particularly in Tier 1 and Tier 2 towns, to meet the growing demand from large enterprises.
Negative Points
- Core connectivity growth was muted at 3% year on year, which is a concern as it accounts for 54% of the company's data revenues.
- EBITDA margins were impacted by expenses related to Red Sea cable cuts, resulting in a decline of 0.6% quarter on quarter.
- Interest costs increased due to higher short-term borrowings and a change in the mix of INR borrowings, affecting profitability.
- The media business experienced a quarter-on-quarter decline of 14.2% due to the sports calendar and large one-offs in the previous quarter.
- Working capital increased significantly, driven by higher receivables and changes in deal structures, impacting cash flow.
Q & A Highlights
Q: Can you elaborate on the hyperscaler and OTT contracts, particularly the 10-year deal mentioned? What growth can this deal bring, and what additional investments are required?
A: The hyperscaler deal is part of ongoing efforts to build capacity for hyperscalers. These deals are not new, but demand has increased post-COVID. We don't disclose specific revenue impacts. Regarding Tier 2 and Tier 3 expansions, we've been increasing network capillarity steadily over the past four years, and this is included in our existing CapEx plans. - Amur Lakshminarayanan, CEO
Q: Is the impact of the Red Sea cable cut behind us, and can we expect 5-6% growth in core connectivity from Q3 onwards?
A: Yes, the cable cut issue is behind us. However, I won't comment on immediate growth projections for Q3. The demand side remains steady, and we continue to aim for low to mid-single-digit growth in core connectivity. - Amur Lakshminarayanan, CEO
Q: Regarding the digital business, growth seems to be below the 25% target. Is this due to demand issues or slow order book conversion?
A: Our targets are ambitious, and while macro conditions have posed challenges, our ambition remains. The order book has improved, and we are investing in our digital fabrics and sales footprint to drive growth. - Amur Lakshminarayanan, CEO
Q: Can you provide details on the land parcel sale in Ambattur and its impact on other income? Are there more land sales planned?
A: The Ambattur land sale is significant and requires shareholder approval. It's part of our strategy to monetize non-core assets. Other smaller parcels may be sold, but nothing large is expected in the next 12 months. The sale will reduce other income as the tenant will become the owner. - Kabir Shakir, CFO
Q: What are the drivers for the best international order book in five years, and are network transformation deals included?
A: The order book growth is across all fabrics, not just network transformation deals. Improved win rates and increased customer confidence are contributing factors. Our expanded sales efforts are starting to bear fruit, despite macro challenges. - Amur Lakshminarayanan, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
