Tata Communications (Q4 FY14)
Tata Comm reports better than expected revenue growth of 4.5% qoq, 18.6% yoy on robust voice, data growth
May 14, 2014 04:05 IST India Infoline News Service
tata CMP Rs286, Target Rs340, Upside 19.1%
Result table
Source: Company, India Infoline Research
Neotel write offs undo strong yoy EBIDTA performance
Tata Comm posted higher than expected 18.6% yoy rise in consolidated Q4 revenues driven by healthy growth in voice (+13.8% yoy), data and managed services (+19.8%) and Neotel (~+37% yoy). EBIDTA margin adjusted for actuarial impact of Canada pension fund (Rs306mn) and backdated Neotel revenues recognized post billing dispute resolution (Rs600mn), stood at 14.5%, up 340bps yoy, slightly below our forecast. QoQ adjusted margin declined ~190bps. Voice margins dipped further to 7.6% from 8.3% while data margin remained close to their guidance level of ~20%. Neotel EBIDTA rose ~11% qoq to ~Rs1.8bn.
Lower network costs and operating expenses led to YoY margin revival. Tcom recognized Rs1.5bn impairment in Neotel goodwill based on the ongoing exclusive discussion with Vodacom for entire stake sale in the company which offset to an extent the strong YoY EBIDTA performance.
New services continue to scale up
A portfolio of new services like CDN, enterprise and business video, mobile broadband etc posted gross US$ revenue growth of 27.4% yoy in FY14 while absolute EBIDTA loss also shrunk to US$22mn from US$32mn in FY13. The payment solutions subsidiary, TCPSL recorded a robust 38.3% revenue growth while EBIDTA loss declined to Rs907mn in FY14 from over Rs1.2bn in the previous year.
Segment results
Remain positive on growth and valuation; retain BUY
Tcom’s voice business remains cash cow (US$141mn in FY14, up 15.6% yoy) while data too seems to have turn a corner in terms of cash generation in FY14. Core business capex intensity is also trending lower to 8.8% from 10.4% in FY13. We revisit our estimates post FY14 results but retain our positive stance on the growth as well margin outlook especially on the data side. Tweak FY15/16 forecasts but retain BUY based on 9-12mth SOTP target of Rs340.
Financial summary
Source: Company, India Infoline Research
- Tata Comm reports better than expected revenue growth of 4.5% qoq, 18.6% yoy on robust voice, data growth
- Adjusted EBIDTA margin up 340bps yoy but marginally below our estimate
- Write down to the tune of Rs1.5bn in Neotel offsets robust YoY EBIDTA performance
- Key financial metrics like core capex intensity and leverage in the right direction; company guides for US$250-300mn capex in FY15
- Revisit our estimates post FY14 numbers but remain +ve on growth and valuation; retain BUY for SOTP target of Rs340
Result table
| (Rs m) | Q4 FY14 | Q3 FY14 | % qoq | % yoy | FY14 | % yoy |
| Net sales | 52,193 | 49,960 | 4.5 | 18.6 | 196,659 | 14.3 |
| Network costs | (28,497) | (26,921) | 5.9 | 13.1 | (107,457) | 9.9 |
| Other exp | (8,935) | (8,709) | 2.6 | 13.2 | (33,346) | 12.6 |
| Personnel costs | (6,924) | (6,168) | 12.3 | 14.5 | (24,976) | 3.6 |
| Operating profit | 7,838 | 8,162 | (4.0) | 61.1 | 30,880 | 49.9 |
| OPM (%) | 15.0 | 16.3 | (132) bps | 396 bps | 15.7 | 374 bps |
| Depreciation | (5,243) | (5,202) | 0.8 | 22.7 | (20,914) | 3.2 |
| Interest | (1,961) | (1,984) | (1.2) | 4.4 | (7,617) | (4.1) |
| Other income | 530 | 246 | 115.4 | 28.1 | 1,433 | (36.8) |
| PBT | 1,164 | 1,222 | (4.7) | - | 3,782 | - |
| Tax | (894) | (871) | 2.6 | (17.3) | (3,433) | 55.9 |
| Minority Int/Associates | (2) | 4 | - | 3 | - | |
| Adjusted PAT | 268 | 355 | (24.6) | - | 352 | - |
| Extra ordinary items | (1,500) | - | - | - | 662 | (36.4) |
| Reported PAT | (1,232) | 355 | - | 1,014 | - |
Neotel write offs undo strong yoy EBIDTA performance
Tata Comm posted higher than expected 18.6% yoy rise in consolidated Q4 revenues driven by healthy growth in voice (+13.8% yoy), data and managed services (+19.8%) and Neotel (~+37% yoy). EBIDTA margin adjusted for actuarial impact of Canada pension fund (Rs306mn) and backdated Neotel revenues recognized post billing dispute resolution (Rs600mn), stood at 14.5%, up 340bps yoy, slightly below our forecast. QoQ adjusted margin declined ~190bps. Voice margins dipped further to 7.6% from 8.3% while data margin remained close to their guidance level of ~20%. Neotel EBIDTA rose ~11% qoq to ~Rs1.8bn.
Lower network costs and operating expenses led to YoY margin revival. Tcom recognized Rs1.5bn impairment in Neotel goodwill based on the ongoing exclusive discussion with Vodacom for entire stake sale in the company which offset to an extent the strong YoY EBIDTA performance.
New services continue to scale up
A portfolio of new services like CDN, enterprise and business video, mobile broadband etc posted gross US$ revenue growth of 27.4% yoy in FY14 while absolute EBIDTA loss also shrunk to US$22mn from US$32mn in FY13. The payment solutions subsidiary, TCPSL recorded a robust 38.3% revenue growth while EBIDTA loss declined to Rs907mn in FY14 from over Rs1.2bn in the previous year.
Segment results
| Revenues | Q4 FY14 | Q3 FY14 | % qoq | Q4 FY13 | % yoy | FY14 | % yoy |
| Global voice | 24,907 | 24,288 | 2.5 | 21,882 | 13.8 | 95,716 | 11.8 |
| Data & Managed scvs | 20,926 | 20,475 | 2.2 | 17,463 | 19.8 | 79,256 | 17.4 |
| South Africa ops | 6,355 | 5,183 | 22.6 | 4,641 | 36.9 | 21,631 | 14.7 |
| EBIT | Q4 FY14 | Q3 FY14 | % qoq | Q4 FY13 | % yoy | FY14 | % yoy |
| Global voice | 3,636 | 3,869 | (6.0) | 3,705 | (1.8) | 15,853 | 12.9 |
| Data & Managed scvs | 13,413 | 12,829 | 4.5 | 10,485 | 27.9 | 49,317 | 17.3 |
| South Africa ops | 1,347 | 1,456 | (7.5) | 217 | 519.9 | 4,356 | 746.1 |
Remain positive on growth and valuation; retain BUY
Tcom’s voice business remains cash cow (US$141mn in FY14, up 15.6% yoy) while data too seems to have turn a corner in terms of cash generation in FY14. Core business capex intensity is also trending lower to 8.8% from 10.4% in FY13. We revisit our estimates post FY14 results but retain our positive stance on the growth as well margin outlook especially on the data side. Tweak FY15/16 forecasts but retain BUY based on 9-12mth SOTP target of Rs340.
Financial summary
| Y/e 31 Mar (Rs m) | FY13 | FY14E | FY15E | FY16E |
| Revenues | 172,130 | 196,659 | 219,393 | 244,623 |
| yoy growth (%) | 21.3 | 14.3 | 11.6 | 11.5 |
| Operating profit | 20,597 | 30,880 | 33,786 | 37,917 |
| OPM (%) | 12.0 | 15.7 | 15.4 | 15.5 |
| PAT | (6,234) | 1,014 | 2,149 | 3,134 |
| Reported PAT | (6,234) | 1,014 | 2,149 | 3,134 |
| yoy growth (%) | (21.6) | - | 111.9 | 45.8 |
| EPS (Rs) | (21.9) | 3.6 | 7.5 | 11.0 |
| P/E (x) | - | - | - | - |
| P/BV (x) | 5.7 | 5.3 | 4.7 | 4.0 |
| EV/EBITDA (x) | 11.4 | 7.6 | 6.8 | 6.3 |
| ROE (%) | (39.3) | 2.4 | 13.2 | 16.5 |
| ROCE (%) | 1.5 | 6.4 | 7.4 | 8.5 |
