Revenue/EBITDA grew 3%/5% QoQ (in line) led by the Data business; FCF generation healthy
- Consolidated revenue grew 2.8% QoQ to INR44.3b (in line), led by a 4.6% QoQ improvement in the Data segment (which constitutes 79% of revenue) after a soft growth in the last few quarters. Revenue from the Voice segment fell 6.6% QoQ, while the same from Others grew 1%.
- EBITDA increased by 4.9% QoQ to INR11.3b (in line) led by the Data segment EBITDA for the Data segment grew 3.9% QoQ (which constitutes 89% of total EBITDA). This increased consolidated EBITDA margin by 50bp QoQ to 25.5%.
- Adjusted PAT (adjusting for an exceptional item) fell 16% QoQ to INR4.6b (a 15% miss) due to DTA and high interest cost of INR978m v/s INR799m in 1QFY23.
- Committed capex grew 22% QoQ to INR4.2b in 2QFY23, led by a capex of INR500m in Digital Platform and Services (DPS). Cash capex for 2QFY23 stood at INR3.2m v/s INR3.3m in 1QFY23.
- FCF reduced sequentially to INR6.2b in 2Q from INR9.6b in 1QFY23, which was the highest in the last five years, yielding an annualized FCF yield of 7%. TCOM generated an FCF of INR21.8b in FY22, a yield of 6%.
- It reported a RoCE of 27.7% in 2QFY23 from 29.1%/26% in 1QFY23/FY22. Total capital employed grew INR73b in 2Q from INR67b in 1QFY23.
Key takeaways from the management interaction
- The management aims to achieve double-digit revenue growth and 23-25% EBITDA margin v/s 25.2% in 1HFY23.
- TCOM plan to improve its international revenue share is in sync with its long-term goals.
- It disposed of two land parcels and targets to maximize the value of its land bank by either leasing or selling the same.
- The improvement in the funnel, order book, and win rates continue, and will rise once supply-chain constraints abate.
Valuation and view
- Revenue from the Data segment (a major contributor to overall revenue) rose 4.6% QoQ v/s a muted growth over the last few quarters.
- We have marginally cut our consolidated EBITDA estimate to factor in an overall revenue/EBITDA growth of 9%/10% on the back of lower double-digit revenue growth in the Data segment (79% revenue mix) and soft performance in Voice and Others. Deal wins and a deal-to-revenue conversion will be key to TCOM achieving double-digit earnings growth.
- The continuous decrease in leverage should drive healthy PAT growth. Though the management’s guidance of a 20% increase in capex to USD300-325m can curb a potential improvement in FCF going forward, it can still garner a healthy (over 20%) RoCE and a high single-digit FCF yield.
- We maintain our Neutral rating with a TP of INR1,100 (assigned 8x/3x EBITDA to the Data/Voice business). A sustained improvement in earnings growth visibility will be key to a re-rating in valuations.