Tata Communications has seen analyst upgrades after reporting Q3FY24 results.

The biggest factor is the visible signs of a turnaround in its new acquisition, Kaleyra.

The consolidated revenue grew 16 per cent Q-o-Q to Rs 5,630 crore led by 15 per cent Q-o-Q improvement in the data segment.

Adjusted for the 3 acquisitions, Switch, Kaleyra, and Oasis revenue of Rs 910 crore, the consolidated data revenue was flat Q-o-Q. In the last 4 quarters, data revenue reported a revenue growth of 2.5 per cent.

The consolidated operating profit grew 12 per cent Q-o-Q to Rs 1,130 crore led by Kaleyra, which turned the operating profit positive.


The beat is driven by the integration of Kaleyra’s operating profit, which is estimated at Rs 100 crore, operating profit versus the consensus expectation of Rs 2 crore operating profit loss.

Adjusted for three acquisitions, consolidated operating profit at Rs 1,020 crore was flat Q-o-Q and overall margins stood at 21.7 per cent (dropping 70 bps after adjustment) while data segment operating profit grew 2 per cent Q-o-Q.

The long-term company guidance is a 23-25 per cent margin.

The adjusted net profit after minority interest grew 4 per cent Q-o-Q to Rs 230 crore.

PAT before minority interest, but adjusted for Switch, Kaleyra, and Oasis losses of Rs 7.5 crore (vs Rs 38.6 crore loss in Q2), declined 9 per cent Q-o-Q to Rs 240 crore.

The Q3FY24 saw Rs 185 crore exceptional loss on the Supreme Court tax ruling in October.

The management attributed this performance to cost synergies.

Even after attributing some of Kaleyra’s strength to seasonal tailwinds operating profit estimates must be upgraded. Kaleyra delivered an estimated 15 per cent operating profit margin.

Kaleyra’s acquisition has also effectively increased net debt by $280 million to Rs 9,300 crore from the prior Rs 6,370 crore, with net debt/operating profit crossing the 2x mark in Q3FY24.

The management commentary is cautiously optimistic.

Digital portfolio revenue now comprises 45 per cent of data revenue versus the medium-term target of 50 per cent.

Kaleyra’s cost synergies have come faster than expected, while revenue synergies will come in time.

However, there has been some deceleration in the underlying business due to challenging macro conditions.

There is no change to the medium-term operating profit margin guidance of 23-25 per cent and operating profit losses for the switch are narrowing.

Data revenue, the key driver of revenue growth contributes 82 per cent of revenues and 85 per cent of consolidated operating profit.

It grew 16 per cent Q-o-Q at Rs 4,620 crore.

The Adjusted for Switch, Kaleyra and Oasis revenue, data revenue was flat Q-o-Q to Rs 3,840 crore.

Data operating profit was up 6 per cent Q-o-Q growth and margins came in at 20.5 per cent (up 1,160bps Q-o-Q).

Adjusted for Switch, Kaleyra and Oasis operating profit, data operating profit was up 2 per cent Q-o-Q to Rs 920 crore with margins at 23.9 per cent margin.

Within the data segment, the core connectivity segment (55 per cent contribution) was flat while DPS (now contributing 43 per cent of data revenue vs 36 per cent contribution in Q2) grew 36 per cent Q-o-Q.

The voice segment declined 1 per cent Q-o-Q to Rs 420 crore and operating profit declined 20 per cent Q-o-Q to Rs 50 crore leading to a contraction in the margin by 270 basis points Q-o-Q to 11.8 per cent.

The others segment grew 32 per cent Q-o-Q to Rs 590 crore led by the inclusion of a sub-segment TCR.

The RoCE declined to 21 per cent versus 23.3 per cent Q-o-Q (Q2FY24) and 28.4 per cent Y-o-Y (3QFY23) led by the recent acquisitions.

The margin compression due to acquisitions will have a short-term impact but long term it should lead to accelerated growth with revenue and operating profit CAGR of 15-16 per cent between FY23-FY26.

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