Tata Communications - Q4FY21 Result Update - ICICI Securities

Reiterate GDS growth guidance despite dull Q4

Tata Communications' (TCom) Q4FY21 EBITDA (excl. real estate revenue) came in at Rs9.7bn, 1% below our estimates. But, Growth Service revenue decline of 9.8% YoY (net revenue dip of 16.7%) was disappointing. Company shared multiple factors which impacted revenue growth in FY21, but it has reiterated medium-term guidance of double digit GDS revenue growth, focus on winning large deals and capitalising, demand for network transformation and adoption of internet. It has mostly resolved its balance sheet and FCF issues, which now remain strong. We have cut our EBITDA estimates by 3-4% for FY22E/FY23E. Our target price has increased to Rs1,232 (from Rs1,110) on roll forward to FY23E. Maintain ADD, though we see valuations rerating, if the company delivers strong revenue growth.

- GDS net revenue grew 2.6% YoY but down 0.5% QoQ: We would hereon closely track net revenue (total revenue minus direct cost), which is more representative of the underlying performance for TCom (like AGR for mobile services). GDS net revenue grew slower at 2.6% YoY (down 0.5% QoQ) to Rs23.4bn due to 16.7% YoY (13% QoQ) decline in Growth Services (incl. Innovative services) to Rs3.7bn, which is disappointing. Traditional Services' net revenue grew steady at 5.7% YoY (+0.5% QoQ) to Rs18.8bn. GDS gross revenue dipped 1.8% YoY (down 1% QoQ) to Rs35bn. By customers, enterprise segment revenue has dipped 1.8% YoY (62% to GDS) and service providers' segment revenue also declined 1.8% YoY.

- GDS EBITDA dipped 4.9% QoQ due to losses in Growth Services: TCom has been working on realigning costs to changing business model, which has led to Traditional Services' EBITDA margin expanding to 42.6% (vs 37% in Q4FY20), but it slightly dipped sequentially. Growth Services' (incl. Innovative services) EBITDA came in at a loss of Rs428mn vs profit of Rs230mn in Q4FY20. Subsidiaries turned EBITDA profit of Rs264mn vs loss of Rs40mn in Q3FY21. GVS EBITDA came in at Rs358mn, down 22% YoY. TCom's reported EBITDA jumped 20% YoY (dipped 3.2% QoQ) to Rs9.7bn driven by GDS EBITDA growth of 22% YoY, down 4.9% QoQ to Rs9.3bn.

- Deleveraging on track: Capex is under control at Rs3.9bn (capex intensity: 9.7%). TCom has generated FCF (EBITDA minus capex) of Rs5.5bn in Q4FY21. Its net debt has dipped by Rs1.8bn (down 2.3% QoQ and 15% YoY) to Rs77.9bn, which is lower due to Rs3.8bn payment to DoT under protest towards AGR. Notably, tax rate may remain low due to accumulated losses in international business, which has turned PBT positive and further boosted FCF.

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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