Tata Communications concall analysis (Q2 FY25)

1. Financial Performance:

   • Revenue: ₹5,767.4 crore, up by 18.4% YoY.
   • Net Profit: ₹223.3 crore, up by 1.3% YoY.
   • EBITDA margin: 19.4% for Q2 FY25.
   • The company saw revenue growth driven by its data and digital portfolio, with data revenue increasing by 21% YoY.
   • Digital services revenue surged 52.4% YoY to ₹2,221 crore, accounting for 46% of data revenue.
   • Core connectivity grew by 3% YoY to ₹2,613 crore.

2. Cost and Profitability:

   • Interest costs were higher due to increased short-term borrowings and changes in borrowing mix.
   • There was a one-off tax payout of ₹113 crore during the quarter.
   • Net debt as of 30th September 2024 stood at ₹10,483 crore, with a net debt to EBITDA ratio of 2.37x.
   • Free cash flow for the quarter was negative at ₹194 crore, mainly due to higher working capital requirements.

3. Operational Highlights:

   • IoT fabrics segment saw a growth of 58% YoY.
   • Order book increased by 25% YoY, with the international segment having the highest order booking in the last five years.
   • Cloud and security revenue remained flat sequentially, but saw positive momentum within the BFSI segment.
   • Tata Communication Transformation Services (TCTS) saw a revenue decline of 26.4% YoY due to the termination of a loss-making contract. However, EBITDA improved by 36.3% QoQ.

4. Strategic Initiatives and Outlook:

   • The company is focusing on organic and inorganic growth opportunities and has an active M&A pipeline.
   • It is investing in AI-cloud services, which are in the early stages of development.
   • EBITDA margins are expected to remain stable at ~20% for the rest of the year

This performance overview and strategic direction show Tata Communications’ continuous efforts in leveraging digital and cloud services while navigating financial and operational challenges.