"Tata Communication (TCOM) revenue for Q2FY13 grew by 26.6% Y-o-Y (4% Q-o-Q) to Rs 42.71 bn, well ahead of our estimates of Rs 37.9 bn. The core business of the company witnessed healthy growth during the quarter primarily driven by the Global Voice Business (GVB) which witnessed healthy traction. Cost rationalization efforts undertaken by the company in its Africa operation and improved utilization helped the company to improve its margins in its Africa operation considerably during the past several quarters. However the overall margins disappointed in Q2FY13 caused by few one offs in the company's core operation. EBIDTA margin in Q2FY13 fell 390 bps Y-o-Y (270 bps Q-o-Q) to 10.3% caused by increase in WPC Wimax charges and license fee, one time actuarial loss on Canada pension fund and unfavorable settlements in GVB. The company also incurred significant amount on sales expenditure thus impacting the margins."
"Healthy traction in the GVB business continues while the GDB also witness healthy growth as the company acquires new clients in the new generation businesses Both the GVB and GDB witnessed improved traction in Q2FY13. The GVB revenue grew 34.1% Y-o-Y (3.2% Q-o-Q) to Rs 21.14 bn, while the GDB revenue improved 25.4% to Rs 16.7 bn. However the one offs and continued investments for future growth (sales, marketing, network expansion and product development) impacted profitability of both the segments. The EBIDTA margin in the GVB contracted 160 bps Y-o-Y (340 bps Q-o-Q) to 6.1%, while the EBIDTA margin in the GDB fell sharply to 15.5% in Q2FY13 as compared to 26% in Q2FY12. The core business revenue rose 30.1% Y-o-Y (3.8% Q-o-Q) to Rs 37.84 bn while the startup business which includes Neotel witnessed 4.6% Y-o-Y (5.6% Q-o-Q) growth in revenue during Q2FY13 to Rs 4.87 bn."
"The overall operational performance has been better than our estimates during the quarter and the growth in the GVB and the Neotel business has been very impressive. We maintain our positive view on the company and expect its Africa operation to turnaround faster than our earlier expectation. We are also very positive on the company's managed services business within the GDB business and we believe that as this business scale increases, that would help in overall margin improvement due to efficient resource utilization. We also believe the excess land issue to be sorted out faster and that would help the company to raise equity finances and get its book in order. We revise our consolidated revenue estimates upwards for FY13 from Rs 164 bn to Rs 172.79 bn. However we revise downward our EBIDTA estimate for FY13 from Rs 22.4 bn to Rs 20.6 bn. TCOM is currently trading at EV/ EBIDTA of 7.8x and 5.2x FY13E and FY14E earnings respectively. The stock is trading at P/BV of 4.6x FY13E and 4.4x FY14E. We maintain our 'buy' rating on the stock with one year price target of Rs 325," says FinQuest Securities research report.
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