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MOSL: TATA COMMUNICATIONS (Buy)-Growth intact but pushed ahead

Tata Communications: Growth intact but pushed ahead

(TCOM IN, Mkt Cap USD2b, CMP INR498, TP INR630, 27% Upside, Buy)

 

• Strong performance by data business: TCOM reported a strong set of numbers for 3QFY19, even excluding one-offs. Headline consolidated revenue/EBITDA grew 5%/34% QoQ to INR42.7b/INR8.4b, led by strong growth in the data business, partly offset by voice. Adjusting for one-offs, key growth levers - data revenue/EBITDA grew 5%/4%. Yet, weak voice business offset consolidated revenue/EBITDA growth of 3%/flat QoQ to INR41.8b/INR6.3b. Adjusted PAT stood at INR231m (our estimate of INR483m). For 9MFY19, revenue/EBITDA grew -3%/17% YoY.
• Concall highlights: (1) Traditional services' FY20 EBITDA margin to be in the range of 29-30%, (2) Growth services' deal pipeline grew 85% to USD619m, indicating robust growth going forward and turning EBITDA positive in 4QFY19, (3) TTSL's Enterprise business deal could fructify in 2-4 quarters, post conclusion of the Bharti-TTSL transaction.
• Modest outlook: Our FY19 estimates are revised up due to the steep increase in 3QFY19 EBITDA. We have marginally tweaked our FY20 EBITDA estimate; we expect 9%/11% consol. EBITDA/data EBITDA CAGR over FY19-21 on healthy order pipeline in Growth & Innovation (G&I) services, which is partly offset by higher investments in the G&I services segment and margin pressure in the traditional segment.