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Why Tata Communications maintains margin guidance at 23-25%, growth plan for global markets and more

Why Tata Communications maintains margin guidance at 23-25%, growth plan for global markets and more

Why Tata Communications maintains margin guidance at 23-25%, growth plan for global markets and more
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By Reema Tendulkar  Oct 19, 2022 10:06:07 PM IST (Published)

Tata Communications reported a decent set of quarter two earnings with the data segment driving growth after a few sluggish quarters. CNBC-TV18’s Reema Tendulkar spoke with Amur S Lakshminarayanan, MD, and CEO on their quarter two performance and the outlook going forward

Tata Communications reported a decent set of quarter two earnings with the data segment driving growth after a few sluggish quarters. CNBC-TV18’s Reema Tendulkar spoke with Amur S Lakshminarayanan, MD, and CEO on the company's quarter two performance and the outlook going forward

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Here is an edited excerpt:
Q: Margins for two quarters in a row have been above that 25 percent mark or at 25 percent which is above your guided range, so why not go ahead and increase the margin guidance for this year and what would it stand at? Is it still 23-25 percent?
A: Eighteen months ago, we narrowed the margins of our guidance to 23 to 25 percent. The journey from where we were at 16 percent three years ago to get where we are, is a very commendable one that the teams have executed on.
The reason why we are sticking to the 23 to 25 percent is that we need to continue to invest in our products and platforms. We need to continue to invest in sales and marketing in all of the major markets, not just in India, but also in international markets. Given these investments that we have to make back into the business, we are keeping a range in which we would like to operate to be at 23 to 25 percent.
We will continue to drive efficiencies in the business. But we will reinvest and therefore we are keeping that range of 23 to 25 percent.
Q: So double-digit data revenue growth for FY23, or do you think that will take time? Will it be an FY24 exercise?
A: Double-digit growth is our first milestone. Having achieved financial fitness, achieving this milestone sooner than later would be all of our goals. I am very pleased that in this quarter, we have got very good growth year-on-year growth on data, and especially the digital platforms and services are very good.
Our international markets are beginning to show growth. In all the markets, barring two, we have registered very, very good growth. We would hope that when we fire on all cylinders in all the markets, we should be hitting double-digit growth sooner than later.
Q: What led to the quarter-on-quarter increase in debt and net debt to EBITDA is one and a half times. Is that the level you are comfortable with or do you want to bring it down?
A: We had said that below 2 is comfortable for us and now at 1.5 we are quite comfortable. The forex plays a little bit of optics on our net debt position. But overall, as far as the net debt is concerned, we are in a good position.
Our first priority would be to continue to generate from the EBITDA good cash conversion and continue to invest that back into the business, if not, not paring down the debt is how we would operate in terms of priorities.
Q: Could you elaborate a bit more on the two markets where you have registered some moderation in growth?
A: Firstly, on the international market, I didn't say moderation, the overall international markets have not been growing in the past, which is one of the reasons we have not registered better growth rates.
India, we have always had very good growth and even this year, we would be registering a good growth so we are one of the leading players in B2B in large enterprises in India and we continue to enjoy that status.
In the international markets, it is beginning to show growth and I was mentioning that barring two markets, which is not to do with the markets themselves but are more internal, we are getting our teams.
We have hired people there, the teams are building up there. So, hopefully, those two markets will also start to show growth.
Q: Your large order book, how much is it increased on a year-on-year basis?
 A: Our order book in the last two quarters has shown a very good increase. This quarter also on a year-on-year basis, has shown good growth. One good thing about the funnel in the pipeline that we have is the number of large deals. So the colour of the deals in terms of large deals, in terms of more digital platforms and solutions in the funnel and their contribution to the overall funnel is constantly increasing, which is very good given the investments we are making.
Q:  Just one word on capex. What is the capex number for the full year? And because of 5G, will your capex be a lot higher, the number for this quarter is Rs 421 crore, but is that the run rate?
A: Yeah, that is the run rate. We had sort of a plan to spend about $300 million, that is the range that we said because we had increased our approvals on the capex spend for the year. But our rate of spending is lower because of the OEM issues and that is how it will pan out for this year unless the supply chain improves on that front.
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