Tata Communications is navigating through global economic uncertainties without experiencing significant disruptions, according to Amur Lakshminarayanan, the company’s Managing Director and CEO. He emphasized that while there’s a sense of caution among clients, there hasn’t been a drastic knee-jerk reaction to the ongoing tariff issues.
Impact of Global Trade Tensions
Despite the looming global trade tensions, IT and digital service providers like Tata Communications have not faced direct consequences, as services remain largely exempt from tariffs. However, the indirect effects are being felt as international clients reassess their discretionary spending. In FY25, a substantial 57.8% of Tata Communications’ data revenue originated from overseas markets, underscoring its global reach.
- Data Revenue Breakdown:
- Data revenue contributed 84.43% to the company’s total earnings for FY25.
- The fourth quarter saw a growth in the number of deals, although the size of these deals was smaller.
Business Adjustments Amid Economic Climate
Lakshminarayanan clarified that the reduction in large deals is not directly tied to economic uncertainties but rather reflects the natural ebb and flow of business. “Clients are still assessing the ramifications of recent tariff developments. It will take time for the full effects to materialize,” he noted, adding that there have been no significant delays or changes in deal sizes at this time.
Tata Communications is also actively reviewing its subsidiary portfolio to enhance operational efficiency. In a strategic move during FY25, the company divested its payments solutions subsidiary, Tata Communications Payments Solutions Limited.
- Ongoing Strategic Adjustments:
- The company is looking to reduce its stake in NetFoundry, which has been underperforming financially, in pursuit of external investors.
- Efforts are underway to rehabilitate Tata Communications Transformation Services (TCTS).
Growth in Digital Services
Within Tata Communications’ digital services portfolio, all sectors, except media services, demonstrated impressive double-digit growth. However, the core connectivity segment saw a slowdown, particularly in Bangladesh, which contributed to a 100 basis point contraction in EBITDA margins. This is significant because core connectivity is typically a high-margin business compared to digital services, hence affecting overall profit margins.
Lakshminarayanan reaffirmed the firm’s commitment to maintaining a 23%-25% EBITDA margin in the medium term. For FY25, Tata Communications reported a revenue growth of 11.2%, reaching ₹23,109 crore, while its EBITDA increased by 5.8% to ₹4,569 crore for the fiscal year.
In summary, Tata Communications is adapting to global economic conditions while continuing to focus on strategic growth and operational efficiency. The firm’s ability to navigate challenges and capitalize on opportunities will be crucial as it moves forward in a complex landscape.
