Tata Communications Ltd. share price target

The data business continued to witness healthy traction with growth and traditional services driving the profitability. The sequential weakness in margin was due to negative EBITDA in transformation services due to oneoff transition cost and one-time client related issue aggregating to | 61 crore, during the quarter. The company remains confident of expanding the growth services portfolio, notwithstanding muted growth in its key part viz. Unified Communications. They attributed IZO platform as the key driver of the growth services traction, going ahead, as it has a humongous addressable market size of US$4 billion. We conservatively bake in 7.2%...

The data business has continued to surprise positively with traction in traditional services, (past operator's consolidation impact, aided by efficient churn management) & third consecutive quarter of growth services profitability. Overall GDS total order book (TCV sales) on TTM basis was stable at $1.4 billion. For Q2FY20, total order book (TCV sales) was at US$259.3 million. While traditional data business order book was at US$130.3 million, up 12.7% YoY, growth services were at US$129 million, up 35.9% YoY. We conservatively bake in 8.7% revenue CAGR in data...

performance in the second quarter, with revenue/EBITDA growth of 3%/1% QoQ (pre-IND-AS 116) exceeding our estimate. Data revenue/EBITDA increased 6%/3% QoQ, as Traditional segment (two thirds contribution to Data) grew strongly, while Growth segment improved off a low base. This 11 November 2019 was partly offset by an increase in EBITDA loss in Innovation segment and continued downtrend in Voice segment with 9% EBITDA decline. (2) Traditional deal pipeline has improved with a margin potential of 35-36%. (3) RJio is not a big threat for Enterprise business, and TCOM is confident of protecting and growing market share in the segment. Traditional and Growth offer stable EBITDA growth, but increased spends on new product launches and deal expenses in Innovation and Transformation continue taking away the gains. We value TCOM on an SOTP basis and cut our target multiple to 6x/2x on FY21E Data/Voice EBITDA, given its slow earnings growth, allocation of Traditional and Growth EBITDA to other segments and stance.

We now remove the land value of | 263/share from our target price and value the residual company (TCL) at an SOTP target price of | 260/share. We value GDS business at 5x FY21 EV/EBITDA while the voice business is...

Data business reported a robust performance during the quarter on the back of a strong performance in traditional as well as growth services. Traditional services, past the operator consolidation impact and aided by efficient churn management led profitability with margins of 36.2%. On growth services, the order book for the quarter grew 17% YoY, which provides revenue visibility for the segment. The overall order book remained stable at US$1.4 billion. However, on account of continued investment in innovation services, EBITDA margins are expected to be capped in the near term. We build in 70...

Traditional impresses but other segments subdued: Performance was steady in the first quarter of the year, with consol. EBITDA growth of 10% QoQ to INR7.6b (20% beat) on a pre-Ind-AS 116 basis (at INR8.3b on postInd-AS 116 basis). Traditional segment (part of Data) impressed, with sequential EBITDA growth of 15% and margin improvement of 490bp (36.2% v/s management guidance of ~30%). As a result, Data EBITDA grew 19% QoQ to INR6.7b. However, the quarter was also characterized by the dismal performances of the small but promising segments of Growth (EBITDA down 50% QoQ), Innovation (loss of INR1.4b) and Transformation (-24% QoQ)....

Re-spells guidance; Destination 21 seems uphill task The company spelt out its guidance on the data business indicating that it expects the traditional business to witness 2% YoY growth in FY20E, as the impact of operator consolidation seemed to have normalised. On the transformation and growth services, expected growth is ~18-20% for FY20E. On the margins front, the company expects traditional and growth business to clock 29-30% and 5-7%, respectively. Transformation services is expected to witness profitability uptick as execution picks up, with...

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...

Revenues came in at | 4269.5 crore vs. our estimate of | 4117 crore. Reported revenues included one-time revenue of | 91 crore, owing to new regulation on the access facilitation charges for cable landing stations. Data revenues (including one-time revenues) reported growth of 14.1% YoY to | 3325.9 crore (vs. our expectation of 10% YoY growth), with adjusted revenue growth a tad higher at ~11%. Continued weakness in voice revenues resulted in a decline of 23.3% YoY (in line with our estimate of 23.1%)...

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 31 January 2019 business offset consolidated revenue/EBITDA growth of 3%/flat QoQ to INR41.8b/INR6.3b. (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) TTSLs Enterprise business deal could fructify in 2-4 quarters, post conclusion of the Bharti-TTSL transaction. 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. We rollover estimates to FY21E, deriving a target price (SOTP-basis) of INR630 (prior INR670) ascribing 6x/3x on FY21E Data/Voice EBITDA and INR176 to the land bank (likely to be hived off in the ensuing quarters).