Debt continues to be an issue – Tata Communications

Update on the Indian Equity Market:

On Thursday Nifty closed2.1% higher at 10,091. Among the sectoral indices Bank (+3.8%), Fin services(+3.7%), and PVT Bank (+3.6%) closed higher. Nifty Pharma (-0.02%) was the only sector that closed lower. Bajaj Finserv (+8.2%), Coal India (+6.3%) and Bajaj Finance (+5.5%) closed on a positive note. TCS (-0.6%), HUL (-0.5%) and Bharti airtel (-0.4%) were among the top losers.

Excerpts from an interview of Mr Amur SLakshminarayanan,Tata Communications with ET Now dated 15^th June 20:

• In his first interaction with the media since taking over as CEO,MrLakshminarayanan said Covid-19 has impacted the deal pipeline, delaying conversions and the company is hopeful that the second half of FY2021 will be better than the first.
• Debt continues to be an issue and the company is looking at various options to bring it down, including infusing equity, paring investments and selling its land parcels.
• Speaking about changes after his joining, he said the company is looking to enable borderless growth. The focusis to serve B2B manufacturing world where people are shifting from pure manufacturing products to services.
• There is a continuing focus on efficiency and productivity through automation and manage risks.
• From customer perspective, he said the shift that the company is planning to make is to be more solution oriented rather than a product company.
• About challenges, he said the pipeline conversion would be too slow because what has been in the pipeline or ready to close has been sort of closed.In many places even if they were to award a contract it will be highly difficult for the company to go and install the equipment and connect.
• Teams did a phenomenal job of helping thousands of users and more than 150 enterprise customers to work from home.
• Speaking about verticals, he said IT, IT services, cloud and OTT providers are very large, and possibly banking and manufacturing are top verticals.
• Serving an enterprise customer is different because it needs to be a lot more robust, secure and scalable, so in that sense the company is engineered to serve them.
• About FY21, he said things will improve in the second half. People would want to look at more innovative ways of reaching out to their consumers and collaboration would get stronger.
• 98% people are working from home and that when it shifts back to normal, it will shift back to around 50-60% still working from home.
• On legal tussle with DoT, he said the case is not taken up to the SC and it is not a relevant judgment of late last year. There has been demand from DoT but that does not take into account accessible charges which should be deducted. They have given certificates and proof for paid basis, DoT has to deduct that and give a revised demand which the company has not received.

Consensus Estimate: (Source: market screener and Investing.com websites)

• The closing price of Tata Communications was ₹ 593/- as of 18-June-2020.  It traded at 32.4x/ 24.6x the consensus Earnings per share estimate of ₹ 18.3/24.1forFY21E/ FY22E respectively.
• The consensus average target price for Tata Communicationsis ₹ 550/- which implies a PE multiple of 22.8x on FY22E EPS of ₹ 24.1/-

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