Tata Communications Q1: Net profit down 30% YoY, revenue up 11%

The pressure on profits was led by a higher mix of digital portfolio of services instead of core connectivity solutions, AS Lakshminarayanan, managing director at Tata Communications, told ET.

Speaking about the general investment sentiments, Laxminarayan said that barring the India market, there is a level of caution across the board. “All markets there is some caution, especially in Europe, US; a little bit more in the US.”

“So we’ve added a lot of deals into the pipeline this quarter. But the closure time is getting elongated compared to the previous quarter,” he said, adding that the company continues to see robust client additions despite delays.

Revenue for the quarter ended on June 30 stood at Rs 4,711 crore, up 10.7% over the previous year. Sequentially, profit grew 17.1% and revenue was up 4.4%.

The data business, which is the largest business segment, grew to Rs 3,912 crores during the quarter, registering a growth of 17.1% on year. As the acquisition of Switch was completed in this quarter, the data services revenue included two months of revenue from The Switch Enterprises LLC.

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Data services includes core and nextgen connectivity services, digital portfolio and connected services. The digital portfolio consists of cloud and security, managed CPaaS (communication platform as a service) and media among other solutions. “Core connectivity is a business that has higher capex and net revenue. But the digital portfolio has very different characteristics with lower capex and lower margins. As this mix of digital portfolio increases, it (revenue) is bound to see some pressure,” said Lakshminarayanan.

He added that the company has accelerated investments in capabilities which has played into employee costs. The company’s employee costs have increased 30% over the same quarter last year.

Lastly, capability expansion has also occurred through the inorganic route, Lakshminarayan said, adding to higher expenses. The company announced two new acquisitions of Kaleyra, a US-listed CPaaS provider and Oasis, a France headquartered e-sim services provider over the past few weeks.

The core connectivity portfolio reported growth of 8.1% YoY growth in revenue while the digital portfolio delivered a growth of 37.5% YoY including the integration of The Switch Enterprises LLC.

“Growth is not going to come without investments and we said that we had to invest in sales and marketing, in the international markets particularly, and in strengthening our products and platforms and services,” he said, adding that headcount costs will play out through the fiscal year.