Tata Comm results disappoint, but outlook rings postitive

But, Vinod Kumar adds, the company’s annual results posted a significant growth in revenues by 19% and growth of EBITDA by 46%.

He also says that Neotel has exceeded its target and turned EBITDA-positive in Q2 of last fiscal and stayed EBITDA-positive for the rest of the year.

Below is an edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.

Q: Can you explain the results posted this quarter? What is the reason for that bit of pressure on the bottom-line and how have the margins been for the quarter?

A: Allow me to bring your attention to the annual results where we had significant a growth of revenues by 19% and growth of EBITDA by 46%.

When you look at quarter results, at PBT and PAT, we had to account for an increase in  stake in our South African subsidiary Neotel to 61% and from an accounting standpoint we had to book the entire 100% on our books as compared to FY11, when our ownership in Neotel was at 43.16%.

And this has had an adverse impact on our profit because of the accounting treatment of about Rs 80 crore.

Further in Q4 this year, we had an actuated loss of Rs 100 crore in the Canadian pension funds which is a book loss that had to be taken into account and so this Rs 180 crore makes it appear that the quarter-on-quarter movement was detrimental.

However the underlying operating performance actually improved, from a revenue EBITDA and profitability perspective.

Q: What is the status of Neotel's results?

A: Yes, we had a very strong performance in terms of Neotel’s contribution to overall performance. Neotel grew in terms of revenues even after adjusting for ownership levels by 19% year-on-year.

Neotel will turn EBITDA positive for this year. We have been investing quite heavily in Neotel to build on-the-ground capability in South Africa and to build services to serve both enterprise and service-provider customers.

Neotel has exceeded its target and turned EBITDA-positive in Q2 of last fiscal and stayed EBITDA-positive for the rest of the year.

So, it was a turnaround year for Neotel in FY12 and we expect that Neotel’s momentum will carry it forward into the coming year also.

Q: How have margins performed in Q4 as well as for the full year?

A: Our non-Neotel EBITDA margins improved by 2% on a year-to-year basis. So it was a significant improvement in EBITDA both in the data and voice business.

Neotel, of course, swung from almost negative half-a-billion dollar rand in EBITDA in the prior year to turn positive in FY12. So across all lines of our business, we actually gained in margin percentages as well as margin quantum due to this.

Q: So, currently what is the net debt-to-equity ratio?

A: The debt that we have on our books is about USD 1.5 billion and in the last fiscal year we actually funded both our capex as well as all our investments based on internal cash accruals from the operations.

Q: Any near term plans to retire debt and what is the update with the VSNL land discussion with the government?

A: I don’t put a timeframe on it as such, but as you know from reports in the press, that the land issue seems to be moving within the government process. There is a Cabinet note under review and therefore we think that’s positive and we hope that it leads to a resolution of the land issue which will then free up options for us as far as funding is concerned.

Q: Any other funding options that you are looking at probably either bringing in a financial partner?

A: As I said at this point we will continue the trend of last year where we will be able to fund both our capex as well as any investments based on the cash that the business generates and towards the end of the year we will start looking at retiring some of our debt and therefore we are really focused on that.

In parallel, we hope that the land issue will move towards a resolution and that gives us even more flexibility as far as funding is concerned.

But for the business to stay on its course and maintain its momentum, we will be able fund capex and investments.

Q: You had officially given a communication to exchanges that you are looking at bidding for Cable & Wireless, but Tata Communications had eventually pulled out of the bid. What is the reason as it would have been a significant acquisition if at all it would have gone through?

A: The reason is very straightforward. You look at an acquisition and you ascribe a certain value to it.

We saw a good strategic fit for Cable & Wireless with what Tata Communication was doing to complement its organic growth. When we felt that the expectation from the shareholders of Cable & Wireless exceeded what we were willing to pay, we felt that it was time to stop discussions, move forward and not waste anyone’s time. And that’s precisely what happened.

So strategically, there was good industrial logic to it. We have a healthy relationship with Cable & Wireless, which helped us with having an open and transparent discussion, but when the expectation of value didn’t match, we decided to move on.