Tata Communications' Q3FY19 results (Neutral) - Revenue uptick in growth services
Q3FY19 result highlights
Q3 operating performance above estimates: Adj. Cons. Revenue was up 2.7% qoq to Rs41.7bn (voice -8.2%; data +5.2% qoq in INR terms; IDFCe Rs 39.7 bn); Adj. Cons. EBIDTA was up 0.4 % QoQ , 3.2% YoY at Rs. 6.3 bn (IDFCe: Rs.6.1 bn) in Q3FY19 . Adj Cons. margins for Q3FY19 are at 15.1 % below our estimate of 15.5% Reported PAT stood at Rs1.7bn vs. Rs1mn in Q3FY18. Consolidated net debt was at USD 1,287 Mn - an increase of USD 36 Mn QoQ due to working capital gap as voice business is declining and acquisition of Teleena during the quarter.
Strong operating performance from Data Business: Gross revenue stood at Rs33.6bn, up 14% yoy and 8% qoq. Adjusted for rental revenues, growth was 14% yoy and 8% qoq, primarily driven by robust performance in the Growth Services portfolio. EBITDA, at Rs7.7bn, registered 35% growth yoy and 43% qoq. EBITDA margin stood at 23.1% vs. 19.5% in Q3FY19 and 17.5% in Q2FY19. The company maintained its guidance of EBITDA break-even in growth services in 4QFY19E. Transformation services had a strong quarter while payment services had a steady quarter with near-zero EBITDA.
Underlying fundamentals still remain weak for Voice business: Net revenues of Rs1.5bn was down 7% qoq and 9% yoy. ILD minutes were down 22% yoy, while NLD minutes were down 20% on a yoy basis. Blended Realization/minute increased 16% yoy. EBITDA, at Rs759mn, was up 3% yoy and down 18% on a sequential basis. EBITDA margin was 8% vs. 6.0% in Q3FY18 and 9.3% in Q2FY19. TCOM continues to prioritize quality of traffic over volumes even as the trend of pricing pressure in the segment continued.
Key positives: Growth in growth services.
Key negatives: Higher EBITDA loss in growth and innovation services
Impact on financials: EBITDA unchanged for FY19E/FY20E.
Valuations & view
TCOM reported better than expected revenue growth thought EBITDA came inline. Stability in the traditional segment margins & revenue uptick in growth services was the key positive.TCOM management commentary indicates strong growth potential; however, given the delay in achieving targets, we have estimated modest growth. Valuations aren’t expensive but fair considering modest growth. Maintain Neutral with unchanged target price of Rs570.
Tata Communications is a provider of communications. Co. delivers managed solutions to multi-national enterprises, service providers, service providers and Indian consumers. Co. offers international and national voice and data transmission services, selling and leasing of bandwidth on undersea cable systems, Internet dial up and broadband services, and other services comprised mainly of mobile global roaming and signaling services, transponder lease, data centers, telex and telegraph and television uplinking. Co. operates in the following three segments: Global Voice Solutions, Global Data and Managed Services and South African Operations.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.