MOSL: TATA COMMUNICATIONS (Neutral)-Slowdown in earnings led by seasonally weak quarter
(TCOM IN, Mkt Cap USD1.8b, CMP INR453, TP INR490, 8% Upside, Neutral)
Transformation segment dragged profitability
** Earnings slowed down sequentially due to losses in the transformation segment (due to client-related one-offs), the decline in voice revenue, and seasonal weakness.
** We cut our revenue estimate by 1.6%/2.5% For FY20/21. Our EBITDA estimate is increased by 5%/7% to factor in the shift toward Ind-AS 116 accounting (note we have cut our estimates marginally on an LTL basis).
Revenue in line, EBITDA (pre-Ind-AS 116) misses estimate
** Consol. revenue was down 1% QoQ at INR42.3b (in-line), with voice revenue at INR8.1b (-7.4% QoQ) and data revenue at INR34.2b (flat QoQ).
** Consol. EBITDA declined 8.7% QoQ to INR7.6b. On a pre-Ind-AS 116 basis, EBITDA was down 9.5% QoQ at INR6.9b (11.5% miss), with the margin contracting 150bp QoQ to 16.4%.
** However, PAT increased to INR590m from INR540m last quarter due to move to a lower tax rate (25.17%). PAT after minority interest stood at INR534m (our estimate: INR236m) on a pre-Ind-AS 116 basis.
** Capex stood at INR4.9b v/s INR4.5b in 2QFY20.
** Data/voice EBITDA declined 5.6%/42% QoQ to INR6.5b/INR470m. The decline in data EBITDA can be attributed to the INR460m loss in the transformation segment.
** Traditional segment (contributed two thirds of data revenue) reported flat revenue (at INR21.5b) and EBITDA (at INR7.5b) on a pre-Ind-AS 116 basis. However, the EBITDA margin shrank 20bp QoQ to 34.5%.
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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