About the Company:
Tata Communications (TComm) provides services for internet and cloud connectivity, digital platforms, and incubation for service providers. Their core connectivity services provide reliable and scalable connections to customers across the world. It carries 30% of global internet route, connects 4 of 5 global mobile subscriber and it is a number 1 wholesale voice provider. They also offer collaboration and communication solutions for enterprises and communication service providers.
TComm is termed as being a ‘Leader’ in Gartner Magic Quadrant for Network Services for 10 consecutive years on completeness of vision and ability to execute. TComm’s lead clients include HP, Devyani International, Dabur, HCL, Federal Bank. Etc. India accounts for 43% of its revenues while US/EU/APAC & ME account for 27%/13%/10%/6% respectively.
Business Segments:
Data:
1. Core Connectivity(53% of total revenue):
Tata Communications' Core Connectivity segment provides the fundamental building blocks of a customer's network architecture. Their service portfolio covers more than 100 countries and serves all types of customers, including OTTs/CASP, service providers, and enterprises.
TComm control Point-to-point and multi-point core networking services including WAN Ethernet, Global VPN and International private lines spanning over 100 countries. On the Internet, Tata Communications is a majorTier-1 IP provider, consistently ranked in the top five telecommunications companies in five continents, by internet route.
2. Digital Platform: (22% of total revenue):
Tata Communications' Digital Platforms and Services segment offers digital solutions to meet the growing demands of customers who seek digital transformation. Their portfolio includes unified communications and collaboration solutions for enterprises and communication service providers.
It is currently working with Star to bring out IPL in India. Leveraging their core capabilities of voice calling, SIP trunking, conferencing (voice, data, web, video), and cloud-basedContact Center as a Service ('InstaCC'), Tata Communications helps businesses adopt cloud strategies and digital transformation.
3. Incubation Portfolio:(3% of total revenue): Tata Communications' Incubation segment is a collection of advanced technologies that they create, along with insights into industry trends. They offer IoT and mobility solutions and they provide seamless cross-border connectivity to offer international services that are efficient and effective.
Voice: (12% of total revenue) is the traditional Voice connectivity business which is declining as the world is moving towards communication via Internet. Voice market size is expected to decline to $9bn by 2024 from $11bn in 2020 at CAGR of 5.9%
Industry Overview:
The concept of ‘digital ecosystem’ is fast evolving. Digital ecosystems are fundamentally changing how businesses collaborate and compete. Many of the world’s largest companies are part of vast digital ecosystems that are disrupting not just their industries but broad components of the economy.
Hyper-connectivity enabled by technology has been the bedrock for people, businesses and governments in managing the Covid-19 crisis. The number of IoT is expected to reach 25 billion by 2025, as per GSMA Intelligence.
Next generation connectivity market size relevant for the company is expected to grow to $18bn by 2024 from $11bn in 2020 at CAGR of 14.5%
Cloud, Hosting, Security & SDWAN market size relevant for the company is expected to grow to $30bn by 2024 from $15.4bn in 2020 at CAGR of 18.4%
Risks:
Slower than expected execution in Digital services shall delay the scale-up of revenues from growth and innovation services and thus would cap margins to lower levels than anticipated.
Business Performance:
Tata Communications data revenue grew 2.9% quarter-on-quarter and 11.1% year-on-year in Q3FY23, indicating a sustained growth momentum even in a seasonally weak quarter. The growth was primarily driven by a healthy 17.2% YoY increase in digital services revenue, which was boosted by the recovery in Collaboration & CPaaS services.
The company's order book and sales funnel remain strong, with a favourable tilt towards digital services. TComm expects further acceleration in growth with the expansion of its international markets and an improvement in win-rates.
The recent acquisition of Switch TV, a live video production company (~80 million dollars of revenue last year) will help drive the company's US regional sport production and distribution business and strengthen its position in the global sport market.
While cost inflation has affected the company's profitability in the short term, Management expects to see a rise in revenue growth momentum as investments yield benefits, with the peak of inflation now behind them.
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Increasing Dominance of Data Business in Revenue mix:
Data revenues getting dominated by Digital Platform & services business:
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