MOSL: TATA COMMUNICATIONS (Downgrade to Neutral)-Subdued quarter, despite Growth segment turning EBITDA positive
Tata Communications: Subdued quarter, despite Growth segment turning EBITDA positive
(TCOM IN, Mkt Cap USD2.3b, CMP INR554, TP INR600, 8% Upside, Downgrade to Neutral)
- Disappointing quarter: After witnessing healthy growth in the data business for two consecutive quarters (2Q and 3Q), momentum weakened considerably for TCOM in 4QFY19. Headline data EBITDA declined 23% QoQ to INR5.9b, mainly due to higher 3Q base (including one-offs). However, adj. for 3Q/4Q one-offs of INR2.1b/INR0.2b, data EBITDA inched up marginally by 1% QoQ. This was due to benefits of Growth Services that turned EBITDA positive, being largely offset by (a) higher investments in the innovation segment, and (b) ~70% QoQ decline in Transformation/Payment business EBITDA. Headline consol. revenue/EBITDA stood flat/-19% QoQ at INR42.4b/INR6.9b, while adj. consol. revenue/EBITDA grew 1%/4% QoQ (2%/3% miss). Adj. for (INR1.7b) impairment losses from associates, net loss stood at INR271m (v/s INR231m profit in 3QFY19; est. of INR737m). For FY19, consol. revenue/EBITDA grew -1%/14% YoY.
- Concall highlights: (1) Traditional services' FY20 EBITDA margin should be in the range of 29-30%, while that of Growth Services' should reach 5-7%. (2) Innovation Services portfolio's EBITDA losses should remain at current level in FY20 and turn EBITDA profitable in FY22. (3) Expect FY20 capex to be in the range of USD225-230m.
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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