Tata Communications shares fall 2% after Q2 net profit declines 58%

The company’s net profit fell by 58% YoY to Rs221.3 crore, with expenses increasing by 16% to Rs4,600 crore, mainly due to network and transmission costs

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Shares of Tata Communications Ltd dropped nearly 2 percent after it reported a 58 percent fall in its September quarter net profit. At 10.15am, the stock was trading at Rs 1,740 apiece on the BSE, down 1.97 percent from its previous close.

The company’s net profit fell by 58 percent year-on-year (YoY) to Rs 221.3 crore, with expenses increasing by 16 percent to Rs 4,600 crore, mainly due to network and transmission costs. However, their data services segment, contributing over 80 percent of total income, saw a 14 percent revenue increase driven by strong demand in connectivity and digital portfolio segments.

Overall, income from operations grew by 10 percent to Rs 4,873 crore. Tata Communications prioritises revenue growth over margins in the competitive cloud, cybersecurity, and networking market. EBITDA margins fell to 20.8 percent YoY, down 465 basis points following several acquisitions, including Kaleyra in June.

Tata Communications’ CEO, AS Lakshminarayanan, expressed confidence in long-term opportunities and continued investment in their product portfolio. ” We anticipate a turnaround in the switch next year. It will take a few quarters to reach a 23-25 percent margin, but we aim to maintain this margin in the medium term”, Lakshminarayanan told CNBC TV.

The company fast-tracked the Kaleyra Inc transaction to establish a new digital platform category, the Customer Interaction Suite, with Kaleyra becoming a wholly owned subsidiary. Tata Communications has also assumed Kaleyra’s debt. Additionally, Lakshminarayanan mentioned that Kaleyra has a negative EBITDA, which is expected to impact margins in the future.

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