Any current/future new fundraising through debt or equity?

The company assumed the net debt of Kaleyra as part of the acquisition, which impacted the interest cost. Kaleyra bond holders exercised a change of control clause leading to USD 200 Mn bond repayment, currently covered by short-term facilities. The company plans to refinance this with medium to long-term instruments potentially at lower cost. Interest costs reflect increased Fed rates and partial exposure to variable rates due to hedging policy. The company’s ambition is to operate under 2X net debt to EBITDA and reduce debt faster than EBITDA and ROCE improvement. There is no explicit mentio

Any current/future capex/capital investment/strategic investment?

Cash capex for the quarter stood at INR 630 crore, with a ramp-up attributed to payments for capex projects committed in the prior year. There is a catch-up happening as approved capex was higher last year but actual cash capex was lower due to delayed deliveries and better payment terms. The company is investing in building long-term capabilities to strengthen their CommTech positioning. Investments include enhancing AI capabilities, cloud computing power, and digital infrastructure like IZO™ cloud. Strategic investments are made in integration of acquisitions like Kaleyra, focusing on produc

Future growth expectations in sales/revenue/volumes?

Overall macro environment in the U.S. is improving, with green shoots visible in client conversations indicating potential for higher tech spends in CY24. Despite tepid overall macro conditions, a healthy funnel is developing with increased participation levels and customer relevance. International growth is robust in certain markets, with some regions delivering double-digit growth (around 20%). Order booking showed improvement in H1 compared to muted growth in H2 of last year; decision-making remains slow but funnel participation is increasing. Digital portfolio underlying revenue growth YTD

Future growth expectations in earnings/operating earnings/profits/EPS?

Tata Communications expects to continue profitable growth driven by both organic and inorganic investments. Kaleyra has turned EBITDA positive ahead of expectations, with a target to achieve double-digit margins within 18-24 months. Switch is progressing towards EBITDA breakeven, with narrowed losses and plans to accelerate cost and revenue synergies. Underlying digital revenues showed healthy growth (6.6% Y-o-Y), with YTD digital portfolio up 18.3%. The company aims to sustain EBITDA margins in the 23-25% range medium-term. Growth in international markets is strong in certain regions, with do

Current/ Expected Orderbook/ Pending Orders?

Order booking in H1 FY24 was good but slowed down in H2 FY23, leading to a slowing revenue growth. The funnel for new opportunities looks healthy with increasing participation levels and expanding footprint, especially internationally. Conversion of opportunities is taking longer than normal due to slower customer decision-making amid tepid macro conditions. Some opportunities are shelved when customers delay decisions too long, causing the funnel to be refreshed regularly. Certain international markets are performing well, delivering double-digit growth, while others are yet to show momentum.

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Tata Communications LtdQ4 FY24Telecom - Services

Tata Communications Ltd Q4 FY24 Earnings Call Analysis

Revenue, margin, capex, fundraise and order book outlook from management commentary.

Price: ₹1,817P/E: 43.5Market Cap: ₹47.9K CrSector: Telecom - Services

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

N/A

Order

Capex

Yes

1 of 4 growth signals are positive — mixed outlook.

Full analysis

Revenue guidance

Category 3

→Overall macro environment in the U.S. is improving, with green shoots visible in client conversations indicating potential for higher tech spends in CY24.
→Despite tepid overall macro conditions, a healthy funnel is developing with increased participation levels and customer relevance.
→International growth is robust in certain markets, with some regions delivering double-digit growth (around 20%).
→Order booking showed improvement in H1 compared to muted growth in H2 of last year; decision-making remains slow but funnel participation is increasing.
→Digital portfolio underlying revenue growth YTD is at 18.3%, with strong momentum in Next Gen services and Collaboration portfolios.
→Kaleyra business is progressing towards EBITDA breakeven with medium-term targets of double-digit margins.
→Sales and marketing efforts will be doubled down to capitalize on expanding opportunities, especially internationally where footprint is currently small.
→Company remains optimistic about growth trajectory once macro conditions improve.

Margin guidance

Category 3

→Tata Communications expects to continue profitable growth driven by both organic and inorganic investments.
→Kaleyra has turned EBITDA positive ahead of expectations, with a target to achieve double-digit margins within 18-24 months.
→Switch is progressing towards EBITDA breakeven, with narrowed losses and plans to accelerate cost and revenue synergies.
→Underlying digital revenues showed healthy growth (6.6% Y-o-Y), with YTD digital portfolio up 18.3%.
→The company aims to sustain EBITDA margins in the 23-25% range medium-term.
→Growth in international markets is strong in certain regions, with double-digit growth in some geographies.
→Macro conditions remain tepid, with slower order-book conversions and longer decision-making cycles but increasing funnel and customer participation.
→The management expects to double down on marketing and sales efforts and increase footprint to capitalize as the environment improves.
→Overall future earnings growth is seen as sustainable but contingent on macro improvements and execution of strategic initiatives.

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Fundraise plans

→The company assumed the net debt of Kaleyra as part of the acquisition, which impacted the interest cost.
→Kaleyra bond holders exercised a change of control clause leading to USD 200 Mn bond repayment, currently covered by short-term facilities.
→The company plans to refinance this with medium to long-term instruments potentially at lower cost.
→Interest costs reflect increased Fed rates and partial exposure to variable rates due to hedging policy.
→The company’s ambition is to operate under 2X net debt to EBITDA and reduce debt faster than EBITDA and ROCE improvement.
→There is no explicit mention of immediate new fundraising through debt or equity.
→Future refinancing and financing requirements are dynamic and will be addressed based on cash flows and investment plans.

Order book

→Order booking in H1 FY24 was good but slowed down in H2 FY23, leading to a slowing revenue growth.
→The funnel for new opportunities looks healthy with increasing participation levels and expanding footprint, especially internationally.
→Conversion of opportunities is taking longer than normal due to slower customer decision-making amid tepid macro conditions.
→Some opportunities are shelved when customers delay decisions too long, causing the funnel to be refreshed regularly.
→Certain international markets are performing well, delivering double-digit growth, while others are yet to show momentum.
→The company is well-positioned to capitalize more as macro conditions improve.
→Overall, the order book shows improvement, yet growth uncertainty remains due to the macro environment and delayed decisions.

Capex plans

Yes

→Cash capex for the quarter stood at INR 630 crore, with a ramp-up attributed to payments for capex projects committed in the prior year.
→There is a catch-up happening as approved capex was higher last year but actual cash capex was lower due to delayed deliveries and better payment terms.
→The company is investing in building long-term capabilities to strengthen their CommTech positioning.
→Investments include enhancing AI capabilities, cloud computing power, and digital infrastructure like IZO™ cloud.
→Strategic investments are made in integration of acquisitions like Kaleyra, focusing on product, infrastructure, and platform integration.
→The company is selective and evaluates ROI before expanding business into new geographies or scaling investments.
→Overall, there is a balance between making investments and maintaining profitability, with a strategic focus on growth areas like digital services, media, and IoT segments.

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