Tata Comm says core business turned PAT positive in Q3

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Tata Communications reported a net loss of Rs 153.06 crore for the quarter-ended December 31, 2011 as compared to a net loss of Rs 181.38 crore for the corresponding quarter last year.

Its total income, however, increased from Rs 3087.02 crore in the December quarter last year to Rs 3654.36 crore.

In an interview with CNBC-TV18, Srinivasa Addepalli, senior vice president-corporate strategy at Tata Communications, spoke about the company's third quarter results and the road ahead.

Below is an edited transcript of the interview. Also watch the accompanying video.

Q: Can you outline how the quarter has been in terms of the topline and the bottomline?

A: The consolidated gross revenues of Tata Communications grew 19% year-on-year (YoY) in Q3, to touch Rs 3,604 crore. The EBITDA grew 61% YoY to Rs 502 crore. In terms of the nine months to December, the topline crossed Rs 10,000 crore, about Rs 10,230 crore, and the EBITDA was nearly Rs 1,300 crore.

Q: Can you give us a sense of how the margins have been sequentially and how do you see them in the current quarter?

A: In terms of margins, let me break the business down into two parts. One is the core business, which includes our voice and date business and Neotel, which is our South African subsidiary. The core business margins for Q3 were at about 15.3% and it's a slight reduction from about 16% in the previous quarter. However, on a YoY basis, there has been improvement.

More importantly, on YTD basis, our core business has about 15% margins, which is a major improvement over 12% for the same nine months period last year. In terms of Neotel, last year it had EBITDA losses and it was our major goal to get to profitability at Neotel this year. In Q2, we did turn EBITDA positive and in Q3, we have continued that momentum and have slightly improved the EBITDA margins.

Coming back to the core business, the major goal for us for this year was to get to profitability at an overall level, at a PBT and PAT level, during the course of this year. We are very happy that in Q2, we turned PBT positive and now in Q3, we have also touched PAT positive. In fact, for the full year or YTD December, we are PAT and PBT positive.

Therefore, in terms of the two major profit goals that we had set for ourselves for this year, both have been achieved - core business turning positive at PBT level and Neotel turning positive at the EBITDA level.

Q: Last quarter you had indicated that you were considering gradually consolidating some of your businesses and even looking at cost cutting etc. Are there any specific subsidiaries or business verticals that you are looking at consolidating currently?

A: We have invested in creating a pretty strong asset base and also product capabilities and market presence across the world. We have created a foundation and a capability. Now, we need to leverage that, consolidate our efforts on the markets and products that we have already created. Try and grow revenues, and more importantly, profits from where we have already got to.

And that's reflected. If you take the core business in Q3, the revenues grew 11% but the EBITDA grew 35%, which shows that we have used the cost base that we have put in place to drive revenue growth without having to increase any more cost. In fact, we managed greater operating efficiencies out of the people and the assets.

The fact that we have turned profitable at PBT level reflects the same flow.

Q: What gets the street very excited is also what's happening to your surplus land of about 770 acres. Has there any progress or any communication from the government with respect to that surplus land demerger?

A: In terms of the land sale, the status is the same as we have reported in the past. At this time, we have no new updates or any progress that we are aware of or that we can share.

As I have said in the past, we believe that the government is taking the steps that are required for them to get the requisite approvals to then affect the demerger process. We remain keen to help make that happen whenever the government has its approvals.

Q: Have you got any communication from the government lately on this? What will be the procedure for this whole process to get over?

A: It's not necessarily a sale. It's probably more likely a demerger of the surplus land into a separate company. In terms of the steps, obviously the government has to get the approvals to make this happen both in terms of the demerger as well as some of the issues that are associated with the process of the demerger.

Once the government has all the required approvals, then it is for the Tata Communication board to consider a scheme of demerger and then go through the process of demerging those assets into the entity that's already been created.