Tata Communications
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
TCOM IN
285
262.6 / 3.4
937 / 206
4/121/155
104
19 October 2020
2QFY21 Results Update | Sector: Telecom
CMP: INR 921
TP: INR900 (-2% )
Neutral
Sharp data margin improvement drives EBITDA growth
Tata Communications’ (TCOM) 2QFY21 revenues were flat (in-line) despite
the expectation of increasing data usage due to work from home (WFH).
EBITDA jumped 11% QoQ (12% beat), led by sharp data margin
improvement, which can be partly attributed to cost cutting initiatives and
some portion to one-time COVID-19 cost benefit.
We have increased our FY21/FY22E EBITDA estimates by 9%/10% due to
better-than-expected EBITDA, driven by the cost initiatives. We have built
in 23% EBITDA CAGR over FY20-22E with 106% growth for 2HFY21.
Financials & Valuations (INR b)
Y/E March
FY20 FY21E FY22E
Sales
170.7 178.3 191.5
EBITDA
32.9 45.2 50.0
Adj. PAT
3.0 14.6 18.8
EBITDA Margin(%)
19.3 25.4 26.1
Adj. EPS (INR)
10.6 51.2 66.0
EPS Gr. (%)
-582.2 384.7 28.8
BV/Sh. (INR)
NM
4.1 70.0
Ratios
RoE (%)
NM NM 177.9
RoCE (%)
NM 19.6 18.7
Payout (%)
NM
9.5
7.1
Valuations
EV/EBITDA (x)
7.3
5.0
4.1
P/E (x)
55.8 11.5
8.9
P/BV (x)
NM 144.0
8.4
Div. Yield (%)
0.7
0.7
0.7
FCF Yield (%)
4.6
7.8 13.1
Shareholding pattern (%)
As On
Sep-20 Jun-20
Promoter
75.0
75.0
DII
1.5
1.8
FII
17.6
17.2
Others
6.0
6.0
FII Includes depository receipts
Revenues flat QoQ at INR44b (in-line); EBITDA up 11% (12% beat)
Sep-19
75.0
1.7
18.2
5.1
Consolidated revenues were flat QoQ at INR44b (in-line). Voice segment
revenue stood at INR7.6b (5% down QoQ) while Data segment revenue was
up a mere 1% QoQ to INR36.4b, despite the narrative of COVID-19 driving
data consumption.
Yet, EBITDA grew 11% QoQ to INR11.6b (12% beat) due to sharp 14%
growth in Data EBITDA QoQ, which can be attributed to cost initiatives and
continuation of COVID-related SG&A cost reduction along with some costs
being pushed to 2HFY21. Adjusting EBITDA for ~INR700m cost, which will be
reversed over the next couple of quarters, sustainable EBITDA growth
stands at ~4%.
PAT grew 49% QoQ to INR3.8b, whereas adjusted PAT (for exceptional
items) stood at INR4.4b, up 63% QoQ (63% beat) on strong EBITDA growth
and 4x jump in other income.
Capex for 2QFY21 moderated to INR3.2b (v/s INR3.7b in 1QFY21). 1HFY21
capex stands at INR6.9b (v/s 1HFY20 capex of INR7.6b). Net Debt reduced
by INR3.8b QoQ to INR86b.
Data revenue was flat QoQ to INR36b, while Data EBITDA jumped 14% QoQ
to INR11b (contributing 96% of total EBITDA) with margin at 30.4%.
Revenue was impacted by slower deal conversion due to COVID-19, forex
and moderation in growth services, while EBITDA gained due to cost
efficiencies. Adjusting for INR700m one-time cost benefits, sustainable data
EBITDA growth was 6% QoQ.
Traditional segment (contributing ~two-thirds of Data revenue)
revenue/EBITDA grew 2%/8% QoQ to INR23b/INR10.2b with 250bp margin
expansion. While Growth segment saw 2% revenue decline due to
moderation in enterprise voice traffic, EBITDA surged 30% to INR1.5b with
420bp margin expansion. Video connect business/Security services/hosting
business grew 74%/45%/11% QoQ.
Transformation segment saw flat QoQ revenue of INR3.3b, however, it
turned EBITDA positive to INR40m (v/s EBITDA loss of INR30m in 1QFY21)
due to termination of an onerous contract.
Research Analyst: Aliasgar Shakir
(Aliasgar.Shakir@motilaloswal.com);
Suhel Shaikh
(Suhel.Ahmad@MotilalOswal.com) /
Anshul Aggarwal
(Anshul.Aggarwal@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal
October
research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
19
Oswal
2020
1