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00:00Thanks for tuning in yet again, and we shift focus to Tata Communications first.
00:05The company reported a mixed set of earnings in Q2 where net profits were lower by 32%
00:11whereas revenues rose marginally. On the QOQ basis, the numbers look slightly better than that.
00:16We spoke or we caught up with the management to speak on the highlights of the quarter gone by.
00:21Here's a slice of the conversation that the MD and CEO had with me.
00:25Now, from a growth perspective, this is what we had penciled for. I mean, internally, we have greater aspirations but the quarter has come out quite well from a growth perspective on the back of both the acquisition, the interaction fabric, the move, the IoT fabric has really done well.
00:48So the growth is in line with the expectations that we have had.
00:54Okay. I mean, what stood out because I think in terms of what people have said, that Manage CPaaS, collaboration, etc. continue to remain growth drivers for you.
01:06You've known now to be a both organically growing and acquisitive inorganic growth led company as well.
01:14Lay it out for us for the first half. What stood out for you in terms of growth?
01:19So the biggest growth came from the interaction fabric driven by the color acquisition.
01:27The second major growth we had in our IoT fabric driven by our move platform, which is more an organic play, largely because we've had an increased usage of the move platform on the back of increased vehicles that we support,
01:45as well as several SOTA campaigns that in the last quarter happened. So these were the two large growth drivers.
01:54In the next-gen connectivity, after two quarters of a slower growth, we saw in Q2 the growth picking up.
02:03So these were the three big sort of drivers of revenue growth that we saw in Q2.
02:11And you seem to be focusing on amongst other things, and please correct me if I'm wrong here,
02:16on CPaaS as a segment. Growth-wise it is strong. I think you're winning orders out there as well,
02:22even if deal conversions might have gotten longer. Can you tell us a bit about the strategy here?
02:28Yeah, so we like to call this as our interaction platform. CPaaS is what
02:34typically has been used in the past. The reason why we call it as an interaction fabric
02:39is we had also the contact center on the cloud as a service. So how do you help customers
02:47to take their contact centers to the cloud and deliver a cloud-based service,
02:51which is more a voice interaction, if you will, and then the CPaaS were more a messaging
02:56interaction. So our vision is to make it all an interaction fabric for enterprise
03:04and across multiple channels, whether it's voice and make it more programmable or SMS and WhatsApp.
03:11So yes, we are betting on interaction fabric. We are betting on the fact that
03:16enterprises will move to multiple channels besides just SMS. And we're also betting on
03:23the fact that these interactions will become more converged. And we need a software layer
03:30of orchestration driven by AI. So we are betting on all of these and we are investing in these
03:36platforms to grow. I'm just trying to understand because there's so much of
03:45confusion around what data is showing in terms of growth, both locally and globally. And then
03:51there are optimists who say that communications connectivity will be cut off from any kind of
03:57growth pangs per se. I would love to understand how you think about what's happening to global
04:03growth, which might impact your business. And do you reckon that independent of what happens there,
04:09you are on track to meet your internal guidances or external guidance as you may have laid out?
04:15So when you say the external pangs on connectivity, see each of the four fabrics that we play,
04:22the network fabric, the cloud and security fabric, interaction fabric, and IoT fabric
04:28have their own nuances. So if you look at the network fabric, and in the network fabric,
04:34we have two components, the core connectivity, which actually connects all the data centers in
04:39the country, data centers around the globe. These are fat pipes that take tremendous amount of data
04:47that makes our internet work and so on and so forth. So these are the core connectivity.
04:53The core connectivity globally has been on a declining trend, even though there is an explosion
04:58of data because of the pricing erosion. Globally, the market, the growth is on a declining trend.
05:06Whereas what we call as a next gen connectivity and what we are betting on is the fact that in
05:12the enterprises, the LAN that we have today are all wired LANs is going to more wireless.
05:18And the wide area network is moving more to internet. And there is a convergence happening
05:23between how LAN and WAN is getting managed. And all of this is becoming software defined.
05:28And on top of that, because you're going to internet, because you're going to cloud,
05:32the security of this is becoming important as well as complex. And that's an area of big growth. And
05:39we are betting on that growth. So from an overall perspective, the network as a whole is not growing
05:48in market size, but within the network, there are pockets out there. For example, the whole cloud
05:54networking and the cloud connectivity is a small niche area today, about two, three billion,
06:01but it's slated to grow at upwards of 20% over the next four or five years. And we have launched
06:06our ISO multi-cloud connect product there, which helps enterprises to connect to their cloud
06:10providers and exchange the data between the cloud in a more efficient manner. So there are pockets
06:17within each of these, which are going to be fast growing. But if you look at the entire networking
06:23space, that is not growing that much. So we are attacking those pockets, which today might be
06:29small, but it's going to be growing fast. Okay. And which leads you to maintain the formal guidance
06:36that you'd given on for FY27, no changes there? Yeah. I mean, that's an aspiration. Aspiration
06:41doesn't change. The macro conditions might change and we have to just keep our heads together,
06:47get down and execute on what we said we would do. But is it, I'm just trying to understand,
06:51is it aspirational or to your mind, it's a realistic aspiration?
06:56No, aspirations are also to be realistic, right? So we have to pull the entire company.
07:01So it's not a dream, let me say. I get it. Okay. Because I think the other thing that most people
07:07have written, Mr. Lakshminarayanan, is that, you know, digital growth, margins, et cetera, will
07:11pick up. And therefore, even if growth kind of stays steady in FY25, FY26 could be a year of
07:20fairly strong growth. Would that be a fair assessment or is it difficult to call that right now?
07:24So if you look at so far, you know, year on year, I'll be including our acquisitions. We are
07:31growing at, you know, over 18, 19%. So I think that's part of the whole portfolio. You can't
07:38say that you will take the acquisitions we did and take that out of the growth that we are
07:43seeing, right? Because all of that, in my opinion, adds value, adds capability, and adds strength to
07:51the company for the future. So I would not entirely remove the growth that we are getting
07:57through acquisition because there's a lot of hard work going into integrating those companies and
08:03the time and effort of the company goes into that. So, you know, we are quite happy with
08:09the acquisitions and the growth it's providing, as well as the capability that it helps us to
08:14build and further invest on. So, you know, our aim is to make sure that we integrate all of these
08:20very well and set up the platform for the future growth. So FY26, a year of faster growth,
08:26assumptions not completely out of whack? So, you know, obviously FY25 has a tailwind of the
08:33acquisitions. So FY26, if you look at organically and compare organically, yes, FY26, we will
08:42see accelerated growth and that is what we have to work on. So I commented on some of the order
08:48booking the last two quarters. It looks positive. So, yeah, I think, you know, we are quite excited
08:57about where we are. Got it. Just one final question on a small decimal nuance, if you will.
09:03And again, the assumptions are there in the notes and as per our research team as well,
09:08but I would love your sign off on it. The dip in margins for the quarter,
09:12there are some one-offs. You reckon the upticks will happen and return ratios stay at these
09:21levels or do you reckon even those will see an uptick over the course of the next 12 to 18 months?
09:27So from a margin perspective, yes, I think, you know, we had a mess in terms of compared to the Q1
09:37and we explained that by the core connectivity, which is a higher EBITDA business for us,
09:44that decelerated in growth thanks to a lot of cable cuts that we had and the double whammy of,
09:50you know, that reduced growth as well as increased cost to repair all of these made an impact. So,
09:58you know, in the coming quarters, we will work to see how we can recover from that and get it back
10:03to at least a 20% by the end of the year is what we are looking at because also the acquisitions
10:11and acquisitions, the two major acquisitions we did were negative margin companies and we
10:17are integrating that and consolidating that and that drags the margins down. So all of these will
10:22come into play and, you know, we firmly believe that our guidance of 23 to 25% as our long-term
10:30ambition is still very, very executable and doable.