Tata Communications may have posted a satisfactory set of numbers in the June 2008 quarter but the stock isn’t likely to go anywhere for some time. The stock has under-performed the market since January 2008, losing about 42 per cent, compared to a 26 per cent fall in the Sensex and trades at Rs 445. Indeed, it could be another year before the international businesses—Tyco and Teleglobe—are turned around and the more profitable data segment accounts for a larger share of the revenues.
While the increasing focus on data for the enterprise market, as opposed to the voice segment, continues, competition in the global market remains keen and it could take a while for the momentum in revenues to pick up. So while Tata Comm is hoping that operating profit margins(opm), will expand as the share of the higher-margin data revenues increases in the overall mix, it could take time.
If opm was up 500 basis points at 22.3 per cent sequentially in the June 2008 quarter, it was more because network costs, which have been in the range of Rs 450-460 crore over the past four quarters, came down by about 12 per cent q-o-q. The growth in the top line was rather subdued; net sales grew by a mere 1.5 per cent sequentially to Rs 863 crore with the non -voice business growing by about 13 per cent q-o-q.
The voice business disappointed, seeing a 17 per cent sequential decline in realisations per minute and offsetting the 9 per cent growth in volumes. That pulled down wholesale voice revenues by 9 per cent sequentially to Rs 400 crore. Tata Comm needs to invest around Rs 4,000 crore in the next 2-3 years for two undersea cables – Inter Asia cable and Euro Asia cable-- and the WiMax roll-out in 110 cities, which has been delayed. It could face competition from both Bharti and Reliance in the WiMax space. The broadband segment too is highly competitive and could take time to break even.
