Tata Communication - Q4FY21 Result Update - YES Securities

Result Highlights

- Reported revenue of Rs 40.7bn (down 3.5% QoQ), which was below consensus estimate. The weak revenue performance was due to sharper degrowth in voice business (down 17% QoQ on gross basis) and unexpected slight decline in data business (down 1% QoQ)

- The decline in data revenue was due to longer deal conversion and execution cycle due to Covid19 and the moderation of UCC traffic.

- However, ongoing cost optimization helped it to report 15 bps increase in EBITDA margin to 24.9%.

- Strong cash flow generation has helped to reduce net debt by Rs 186 cr to Rs 7,786 crore at Net debt / LTM EBITDA of 1.8x compared to 2.8x in the same quarter last year.

- It has returned to sustained profitability as it posted profit of Rs 299 crore compared to loss of Rs 275 crore in Q4FY20

- The board also recommended final dividend of Rs 14/ share for the financial year ended March 31, 2021.

- While the revenue growth has remained elusive for many quarters, the company has delivered strong margin performance and it is expected that pick up in Growth Services will help to drive revenue growth going ahead

Our view: The revenue performance in the quarter was weak due to covid19 related factors that led to longer deal conversion and execution cycle. The company has returned to sustained improvement in profitability led by focus on cost optimization and that should continue to drive overall profit. Uptick in Growth services is expected to drive overall revenue growth going ahead. Moderation in capital expenditure and strong operating cashflow generation would continue to help in deleveraging of the balance sheet. The stock trades at EV/EBITDA of 7.7x on FY23 EBITDA. Initiate coverage on the stock with ADD rating.

CON-CALL HIGHLIGHTS

- The management expects revenue growth to pick up as the company should be able to convert strong deal pipeline going ahead. The deal pipeline remains robust but conversion has been delayed due to impact of covid19

- A significant amount of work has been done in augmenting the product portfolio. The cloud based solutions remain the key focus area of the company

- It expects to grow at industry rate in the cloud solutions business. The business performance has been robust in the case of security solutions.

- Working with clients to offer them managed cloud solutions, the demand for which is expected to rise at accelerated pace in the post covid19 world

- Expect decline in voice business to moderate going ahead.

- Cash flow generation to aid further deleveraging of balance sheet.

Shares of TATA COMMUNICATIONS LTD. was last trading in BSE at Rs.1100.05 as compared to the previous close of Rs. 1109.25. The total number of shares traded during the day was 22437 in over 1150 trades.

The stock hit an intraday high of Rs. 1124 and intraday low of 1081.05. The net turnover during the day was Rs. 24674068.

Source : Equity Bulls

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