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
299.6 / 4.4
1169 / 206
-1/17/119
123
20 January 2021
3QFY21 Results Update | Sector: Telecom
CMP: INR1,051
TP: INR950 (-10% )
Neutral
Seasonality, slower deal conversions impact earnings
Tata Communications (TCOM)’s 3QFY21 revenue/EBITDA was a miss due to
lower-than-expected earnings reported in both the Data and Voice
segments – due to seasonality and slower deal conversions. However,
excluding a one-time cost benefit from 2QFY21, the EBITDA miss stands at
5.9% (v/s 9.5% on total EBITDA).
We reduce our revenue/EBITDA estimates for FY21 by 3%/4% and for FY22
by 7%/5% due to lower-than-expected earnings and slower deal
conversions.
Financials & Valuations (INR b)
FY20 FY21E FY22E
Y/E March
Sales
170.7 173.2 178.9
EBITDA
32.9 43.5 47.3
Adj. PAT
3.0 13.7 16.7
EBITDA Margin (%) 19.3 25.1 26.4
Adj. EPS (INR)
10.6 48.1 58.7
EPS Gr. (%)
-582.2 355.4 22.0
BV/Sh. (INR)
NM
0.6 59.3
Ratios
RoE (%)
NM
NM 196.0
RoCE (%)
NM 19.6 18.3
Payout (%)
NM 10.2
7.9
Valuations
EV/EBITDA (x)
11.3
8.3
7.2
P/E (x)
99.5 21.8 17.9
P/BV (x)
NM 1,743.5 17.7
Div. Yield (%)
0.4
0.4
0.4
Shareholding pattern (%)
As On
Dec-20 Sep-20 Dec-19
Promoter
75.0
75.0
75.0
DII
1.4
1.5
1.8
FII
17.7
17.6
17.7
Others
6.0
6.0
5.6
FII Includes depository receipts
Revenue/EBITDA miss of 5.6%/9.5%
Consolidated revenues fell 4.1% QoQ to INR42.2b (5.6% miss) on the back
of decline in the Voice and Data segments. The Voice segment’s revenue
stood at INR6.7b (11.2% down QoQ) and Data segment’s revenue was down
2.6% QoQ to INR35.5b. This was attributable to factors such as seasonality
and COVID-related weakness in deal conversions.
EBITDA declined 9.6% QoQ to INR10.5b (9.5% miss), weighed by 60%/7.4%
decline in Voice/Data to INR200m/INR10.3b. Subsequently, the EBITDA
margin shrank 150bp to 24.8%. Adjusted for a ~INR700m one-off benefit in
2QFY21 related to COVID and another one-time benefit, EBITDA declined
4% QoQ.
Other income declined 89% QoQ to INR82m. Subsequently, TCOM’s PAT
decreased 19.6% QoQ to INR3.1b; adjusted PAT (for exceptional items)
stood at INR3.2b – down 27% QoQ, indicating a 13% miss.
Capex stood at INR3.4b in 3QFY21 v/s INR3.2b in 2QFY21. Net debt fell by
INR6.6b QoQ to INR79.7b.
Data revenue / EBITDA declined 2.6%/7.4% QoQ to INR35.5b/INR10.3b
(contributing 98% to total EBITDA), with margins at 28.9%. Revenue was
lower due to a seasonally weak quarter and fewer deal conversions (COVID-
related). Adjusted for an INR430m one-off benefit in 2QFY21, EBITDA
declined 4% QoQ.
The Traditional segment (contributing ~two-thirds to data revenue) grew
0.7% QoQ to INR22.9b, led by growth in the Enterprise and OTT segments.
EBITDA fell 3.4% to INR9.8b and the EBITDA margin shrank 190bp QoQ to
42.9%.
The Growth segment posted 10.7%/16% revenue/EBITDA decline to
INR8.1b/INR1.3b due to seasonality and slower deal conversions (COVID-
related); the EBITDA margin shrank 100bp to 15.6%.
The Transformation segment saw QoQ revenue decline of 3.3% to INR3.2b;
it once again turned EBITDA-negative, with loss of INR90m (v/s EBITDA of
INR40m in 2QFY21). This segment’s revenue/profitability is impacted due to
lower transaction volumes, while transaction costs continue. The company
has deals in the order book, but the execution is taking longer as COVID
restrictions persist.
Aliasgar Shakir - Research Analyst
(Aliasgar.Shakir@motilaloswal.com)
Research Analyst: Suhel Shaikh
(Suhel.Ahmad@MotilalOswal.com) /
Anshul Aggarwal
(Anshul.Aggarwal@motilaloswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.