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Tata Communications Q3 revenue grows, Ebitda margin disappoints

Tata Communication Ltd. reported mixed performance for the quarter. The sequential revenue growth was as per expectation; while Ebitda margin was below expectation. It reported sequential revenue growth of 2.2% QoQ, led by increase in the data revenue by 2.1% QoQ.

Voice revenue declined by 18.1% YoY, inline with trend. There was sequential decline in Ebitda margin (down 62 basis points QoQ) led by increase in network costs. Reported profit after tax decreased by 41.9% QoQ to Rs 2.2 billion, on account of lower other income for the quarter.

Net debt increased by Rs 9.6 bilion QoQ to Rs 69.6 billion. We expect the voice business to continue to decline as per the industry trend; while data segment, especially the digital segment would continue to drive the overall performance of Tata Communications.

Data core connectivity is expected to grow around mid single digit YoY. Private 5G related capex going ahead should also drive opportunities for the company. Ebitda margin will be under pressure in near term as it integrates Kaleyra, a communication platform as a service player.

We expect Ebitda margin to be around 20% for FY24. Net debt remains under control with strong operating cash flow generation.

We estimate revenue compound annual growth rate of 19.5% over FY23‐25E with average Ebitda margin of 20.7%.

We maintain our ‘Add’ rating on the stock with revised target price of Rs 1,939/share based on enterprise value/Ebitda of 11.0 times on FY25E. The stock trades at EV/Ebitda of 12.8 times/9.6 times on FY24E/FY25E. Bloomberg

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