MOSL: TATA COMMUNICATIONS (Buy)-Margin-led EBITDA growth to continue
​Tata Communications: Margin-led EBITDA growth to continue
(TCOM IN, Mkt Cap USD2.9b, CMP INR672, TP INR775, 15% Upside, Buy)
- EBITDA recovers from last quarter’s one-off impact: Core revenue increased 0.4% QoQ (-3.3% YoY) to INR43.1b (marginal beat). Core EBITDA rose 12.6% QoQ (-15.6% YoY) to INR5.6b (in-line). PAT of INR1b exceeded our estimate of INR624m; the company had recorded a loss of INR11b in 4QFY17. Data revenue was flat QoQ (+4.6% YoY) at INR27.8b (in-line). Data EBITDA increased 23% QoQ (-14.9% YoY) to INR4.7b (in-line), with the margin expanding 330bp QoQ (-390bp YoY) to 17%. Traditional EBITDA grew 18% QoQ to INR5.7b. Voice EBITDA fell 22.7%/19.1% QoQ/YoY to INR876m.
- Healthy order pipeline to drive earnings: According to management, the recent order wins from global clients led to 20% YoY growth in the order pipeline. Higher contribution from the Enterprise segment selling customized solutions should lead to steady EBITDA growth. We have factored in data EBITDA CAGR of 8% over FY17-19E, net of data center sale. Management guided for EBITDA breakeven in the Growth Service segment by end-FY17; however, new product launches should limit profitability. Subsequently, we cut core EBITDA by 2%/5% for FY18E/19E.
- Improving FCF to drive deleveraging After INR37.9b debt repayment in FY17, cumulative FCF of INR12.3b over FY18-19E should reduce debt further to INR65b, thereby lowering net debt to EBITDA to 2x. This should allow the company to reach ~15% RoIC over the next 2-3 years.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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