Tata Communications open to acquire more companies to drive digital business growth: CFO

Tata Communications

Tata Communications is open to acquiring more companies to build capabilities and bolster its already growing digital business portfolio, a senior executive said, adding that the balance sheet is strong enough to allow inorganic growth.

"I have a roadmap and am aware of my gaps. So, we know how organically we will build those capabilities and some of the capabilities we will then acquire. It's not because we can't build it. But then there's a time factor involved in it. So, we are open to buying," Kabir Ahmed Shakir, Chief Financial Officer of Tata Communications, told Moneycontrol.

The digital connectivity solutions provider has been on an acquisition spree in the last few years and has acquired Oasis, The Switch, and Kaleyra. The company said that these acquisitions have created new avenues for growth.

"...three or four years ago, we didn't have the balance sheet strength to dream that way. So, we cleaned up our balance sheet, took the cobwebs off, and became fit and lean to go and pursue M&A ambitions. For instance, the entire acquisition of the Switch was funded by internal accruals," he added.

The company's profit for the quarter that ended December 2023 fell by 88 percent to Rs 45.1 crore compared to the year before due to its provision for the impact of the Supreme Court judgment on treating licence fee paid to the government as a capital expenditure instead of revenue expenditure for calculating taxes.

"Even though we are not a party to the judgment but just being prudent, we took that charge in our books," Shakir said.

The company has assessed and recorded a provision of Rs 185.52 crore towards interest, which has been disclosed as an exceptional item, and a provision of Rs 21.09 crore towards tax (net) due to a change in the effective tax rate on account of the adoption of the new tax regime.

In a regulatory filing, Tata Communications reported a 24.4 percent year-on-year growth in revenue of Rs 5,633 crore. For the reporting period, EBITDA (earnings before interest, taxes, depreciation, and amortization) also grew 5.3 percent on-year. PAT declined 88.6 percent to Rs 45 crore against Rs 394 crore last year.

For the reporting period, its data revenue grew 28.5 percent YoY to Rs 4,618 crore, while digital portfolio revenue surged 78.2 percent and India enterprise revenue 10.4 percent.

While half of its business comes from the Indian market, Tata Communications aims to grow in markets like the US, Europe, and the APAC region.

Shakir said that the company aims to make the US its billion-dollar business with the help of its recent acquisitions of the Switch and Kaleyra. "It is already around $400 million for us in the US, which is the focus area."

Tata Communications, he said, is working on private 5G proof of concepts (POCs) with a slew of its existing customers. However, the executive feels there is more time before companies start to see the real promise of the latest technology. "...we are demonstrating that value for them. But the whole promise of 5G is yet to be unveiled."

The company is also tapping the opportunity arising from data localisation following the implementation of the data protection law last year. "A lot of government customers and sensitive data runs on our cloud," Shakir said.

Tata Communications has also identified next-generation connectivity and customer interaction suites as the critical focus areas to drive growth in the coming quarters.