Tata Communications LtdQ4 FY25Telecom - Services

Tata Communications Ltd

Q4 FY25 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

N/A

Order

Capex

Yes

1 of 4 growth signals are positive — mixed outlook.

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.

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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→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 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.

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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