Liability from Tata Docomo to be around Rs 1000 crore: Tata Comm

Ekta: Q1 revenue growth has declined by around 2.2 percent on a sequential basis which is largely driven by the decline in the voice business. What was the extent of pricing pressure in the quarter and do you see it easing?

A: I would like to say that our results, you have to peel our results to understand the strong performance that we have delivered. While the topline has declined both quarter-on-quarter (Q-o-Q) and year-on-year (Y-o-Y), but this is backed by very strong operating performance, so earnings before interest, taxes, depreciation and amortisation (EBITDA) at Rs 863 crore is up Q-o-Q 6.4 percent and Y-o-Y 18.3 percent. However, this growth in EBITDA is on the back of a stable performance that we have continued to see in our data services business although Y-o-Y, data EBITDA margins have significantly grown by 42 percent and we have also seen a 460 bps expansion in the margin.

If you look at voice, while there has been a decline in revenues and we are seeing structural headwinds in that segment. However, due to some of the productivity initiatives that we had undertaken last year, we are seeing improvement in the voice, EBITDA margins, both Q-o-Q as well as Y-o-Y.

Anuj: The voice margins are up Q-o-Q despite revenues being down. What was the reason for that?

A: As I mentioned, the improvement in voice margin is on the back of some of the productivity initiatives that we undertook last year, so they have borne fruit and that is why you see the uplift in the margins. Combined with that, we are also seeing stabilisation in volume. So both those two have resulted in uplift of our margins.

Ekta: Data revenue growth was at around 14 percent on a Y-o-Y basis with margins of around 23.6 percent. Do you think that is sustainable or is there scope to improve?

A: I would say these are pretty good sustainable margins and if you look at it Q-o-Q also, they have been stable. This is on the back of both traditional services as well as our growth services performing well. Traditional services have grown by 6 percent Y-o-Y. Our growth services have grown by 14 percent. We have seen significant margin expansion in the traditional services portfolio and that is on the back of some of the products that have done well for us. So, we would say that these kinds of margin levels are what could be expected in the future.

Anuj: The whole Tata Docomo arbitration is heating up. So, two part question - first, what will be the expected liability on Tata Communications and two, have you got a waiver from Tata Sons?

A: We have actually shared that our liability is going to be close to Rs 1,000 crore. Beyond that, I do not think I like to add anything.

Ekta: Is there a possibility of Tata Sons taking over the liability?

A: That is a question that you need to ask Tata Sons.

Ekta: So, there has been no communication from Tata Sons because of the Rs 1,000 crore is not insignificant for the company?

A: But we are working on deleveraging ourselves. We have taken some initiatives that are going to bear fruit during the course of next few quarters. So it is not a challenge that we cannot meet.

Anuj: What about deleveraging and the progress on balance sheet improvement?

A: Our net debt has remained flat Q-o-Q and we expect to pare down our debt as some of the deleveraging initiatives in terms of the stake sale of our data centre business and Neotel close out. So, we are confident that our net debt to EBITDA should be sub-3x.

Ekta: Can you share the timeline at least in terms of the closure of the data centre and the Neotel deals?

A: The data centre business has in two parts, India piece and the Singapore piece. India should close out during this quarter and Singapore next quarter.

Noetel we are targeting to close it before end of financial year.