Too early to assess Trump effect but a trade war is unlikely, says Tata Comm CEO

Tata Communications MD and CEO AS Lakshminarayanan.

Tata Communications is bringing in external investors to its Software as a Service (SaaS)  subsidiary, NetFoundry, to further grow its business as part of its ongoing strategic evaluation of assets, with a focus on AI.

The company is also reviewing its international subsidiaries to simplify structure to prepare for future acquisitions, managing director and chief executive officer AS Lakshminarayanan has said. 

In an interview to Moneycontrol, Tata Communications’ CEO says he doesn’t expect business sentiment to change despite the flurry of orders issued by Donald Trump on his first two days in office. It is too early to assess and the company will wait and watch, he says. Edited excerpts of the interview:

What is the update on review of businesses following the divestment of the payment solution business?

We recognise the potential that Netfoundry holds and are committed to setting it on a path to long-term success. To achieve this, we are seeking the right strategic investor(s) who can bring the necessary skills and expertise to unlock the business’s full potential and drive sustained growth.

Netfoundry was developed under Tata Communications’ Shape The Future Programme in 2017. In 2019, after achieving $1 million annual recurring revenue (ARR), it spun off into an independent subsidiary under Tata Communications.

How is the restructuring of international subsidiaries shaping up?

The board has approved a proposal to invest Rs 770 crore in Tata Communications (Netherlands) BV. However, this is not materially significant to business operations.

We have been reviewing all our international subsidiaries. Following the acquisition of Kaleyra, we now have additional subsidiaries. Previously, we set up an entity in Switzerland to relocate from Bermuda. Similarly, the restructuring in The Netherlands simplifies our subsidiary structure, making it easier for future acquisitions. This move is more about preparation and simplification than any immediate business impact.

Tata Communications and nine others have been shortlisted for the final bidding process to procure 10,000 GPUs under the IndiaAI Mission. Can you comment on this?

MeitY (the ministry of electronics and information technology) issued an RFP and the government aims to support startups through this initiative. We are pleased to have reached this stage and look forward to seeing how it translates into business opportunities.

While there are subsequent stages to go through, we are satisfied with the progress so far.

How will the US government’s import curbs on AI compute and GPU exports affect Tata Communications' participation in the tender and its partnership with NVIDIA?

That was an interim rule. We have gone through the consultation process and are waiting to see how it develops under the new administration. The limits outlined in the rule are quite high, and span three years, so we don’t foresee any immediate impact. We’ll continue to monitor developments closely.

From an Indian perspective, how do you see AI adoption evolving?

AI will play a critical role but we are still in the early stages globally. Enterprises, including those in India, are experimenting rather than deploying at scale. This is an evolving story and we are watching closely to understand how enterprises adopt these capabilities in the market.

In the previous quarter the company announced NVIDIA-accelerated AI infrastructure. How is it progressing?

As promised, we launched GPU-as-a-Service in January. Several customers are already in discussions with us. The AI studio platform, which will enhance the usability and security of these capabilities, is progressing well and will launch later this quarter.

Has sourcing GPUs been seamless or are there delays due to high demand?

The GPU-as-a-Service offering was launched only a week ago. Before this, we were focussed on engineering and setting up the data centre with NVIDIA. Everything is on track.

What types of customers are you targeting for GPU-as-a-Service?

We are engaging with a mix of startups and enterprises, including manufacturers and financial institutions. Many are in the early stages of discussions, focusing on defining their use cases and determining the capabilities they need from our cloud platform and AI studio. Additionally, we are working with startups looking to build or train AI models.

Have you observed any new trends in the order book or market performance this quarter?

International markets like the UK, APAC, Americas, and Central Europe have shown strong growth this quarter. While the year's first two quarters saw record-breaking order bookings, this quarter has been more typical. Some order bookings were delayed and rolled over into the next quarter.

What are your expectations from the new Trump administration?

He's announced a series of things. We don't see any immediate impact but it's too early to call out either way. The business sentiments are not going to change too much. If anything, the business sentiments are positive, so that should help us.

We don't have similar issues as service issues — industries of visas and other things. So, we are more into the digital infrastructure space, so we don't see much of a problem there. So, we'll again take a wait-and-watch approach and more business-as-usual approach instead of trying to react to anything they say now or based on any expectations they might have. 

Do you anticipate a trade war under the new administration?

It's too early because one of the people said that wearing your seat belt and getting ready is the answer. From a geopolitical (point of view) you know, is that going to be a trade war? Is it going to be an issue? You know, these are too early to call out. Yes, they have made some statements. What implications it might have, we don't know.

So, we hope that it doesn't escalate into a trade war, which we think it will not. Maybe these are some of the negotiating tactics that they are using, which they had used in their first term.  Also, the broad expectation is that they are quite business friendly. They're not going to do anything that is going to hurt the businesses, even though the call is for ‘America first’. Everybody understands the importance of trade. 

How do you see the December quarter performance? What led to growth in profit this quarter?

The EBITDA margin has improved. As I mentioned, we have been working on improving the trajectory across all our businesses, particularly the digital ones. All our businesses are aligned with our ambition to reach 23 percent EBITDA margins. This quarter has seen an all-around performance across our portfolios.

Regarding the core connectivity business, growth has been muted. Typically, core connectivity significantly contributes to our EBITDA margin, so achieving our targets despite this is commendable.

Overall, it has been a strong digital growth quarter for us, with margins and cash flow returning on track.

What do you think of the draft DPDP rules?

We are pleased to see these rules being introduced. The revised draft addressed many of the earlier concerns. We have no significant objections or issues with the framework at this stage.