Tata Communications Q3 Results Review - Focus On Growth To Dilute Near-Term Earnings: Motilal Oswal

Motilal Oswal Report

Tata Communications Ltd. consolidated revenue grew 2.1% QoQ to Rs 45.3b (inline), led by 3% QoQ growth in the data segment. Voice segment revenue declined 4% QoQ, while other revenue grew 4% QoQ.

The tailwind from Indian rupee depreciation of 3% QoQ supported revenue growth.

Tata Communications' Ebitda declined 5% QoQ to Rs 10.8 billion (5% miss), affected by a 6% QoQ decline in data segment Ebitda. As a result, consolidated Ebitda margin declined 170 bps QoQ to 23.8% (100 bps miss), in line with the management’s guidance of the 23-25% margin range.

Interest costs jumped 26% QoQ due to an increase in the borrowing cost amid rate hikes globally. Accordingly, adjusted profit after tax fell 14% QoQ to Rs 4 billion (inline).

Committed capex decreased 7% QoQ to Rs 3.9 billion in Q3 FY23 from Rs 4.2 billion in Q2 FY23. Net debt/gross debt declined marginally by Rs 1.3 billion/Rs 0.9 billion to Rs 63 billion/Rs 77 billion.

Free cash flow declined by 45% QoQ to Rs 3.5 billion from Rs 6.2 billion in Q2 FY23, led by an 18% QoQ decline in cash flow from operation due to working capital changes. However, nine months-FY23 free cash flow yields stood at 7% (annualised) versus 6% in FY22.

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