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Shares of telecom services provider Tata Communications Ltd were among the top performers in the post-covid rally, rising about 500% from their March 2020 lows. But the shares have cooled off a bit from their highs in early March this year.

After a 3% drop post its March quarter results, Tata Communications shares are now down 16% from their all-time highs. The drop on Thursday was after the company reported muted March quarter earnings.

Operating margins and revenue growth both missed expectations.

Revenue at 470 crore was down 3.5% sequentially and below analysts’ estimates, impacted by a decline in the voice and data business. The former was down 17% quarter-on-quarter and the latter fell by 1% sequentially.

Lagging behind
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Lagging behind

Analysts attribute the decline in data revenue to longer deal conversion and execution cycle due to covid-19 and the moderation of UCC (unsolicited commercial communication) traffic. Pandemic-related restrictions continue globally, impacting growth.

According to analysts at Motilal Oswal Financial Services Ltd, the decline in Ebitda margins of the data segment, which forms a chunk of the overall Ebitda, can be attributed to a fall in revenue, coupled with higher marketing expenses and one-time catch-up costs. Ebitda is short for earnings before interest, tax, depreciation and amortization.

Margins showed a slight 15 basis points improvement, thanks to the cost optimization measures undertaken during the quarter. One basis point is one-hundredth of a percentage point.

Ebitda margin stood at 24.9%. Analysts were expecting pressure on margins with the return of marketing spends and the absence of cost savings, owing to the coronavirus pandemic last year.

It should be noted that the company saw an exceptional gain of 1.2 crore in Q4 attributed to insurance claims. However, that was partially offset by an exceptional loss towards interest for unpaid provisions of licensee fees.

Further, strong cash generation translated into a net debt reduction of 186 crore to 7,786 crore. The company also made a payment of 380 crore to the department of telecommunication on difference in the accounting of costs.

Also, the company’s capital expenditure for Q4FY21 stood at 390 crore, compared with 340 crore in the December quarter of FY21. For fiscal year 2021, capital expenditure fell 11% year-on-year to 1,420 crore.

Some analysts were of the view that the moderation in capital expenditure and strong operating cash flow generation would continue to help Tata Communications in deleveraging its balance sheet.

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