Tata Communications Ltd

NSE:TATACOMM

Earnings Call Transcript 2024-Q1

[Chirag Jain, executive]

Good afternoon, everyone, and welcome to the Tata Communications earnings conference call for Q1 FY '24. We are joined today by our MD and CEO, Mr. Amur S. Lakshminarayanan; our CFO, Mr. Kabir Ahmed Shakir; and our Head for Investor Relations, Mr. Rajiv Sharma. The results for the quarter ended 30 June, 2023 have been announced yesterday, and the quarterly data pack is available on our website. I trust you would have had the chance to look through the key highlights. We will commence today's call with comments from Lakshmi, who will share his thoughts on the business and long-term outlook, followed by Kabir, who will share his views on the financial progress achieved. At the end of the management's remarks, you will have an opportunity to get your queries addressed.Before we get started, I would like to remind everyone that some of the statements made or discussed on the conference call today may be forward-looking in nature and must be viewed in conjunction with the risks and uncertainties we face. For detailed statement and explanation of these risks are included in our annual filings, which you can locate on our website, www.tatacommunications.com. The company does not undertake to update these forward-looking statements publicly.With that, I would like to invite Lakshmi to share his views. Over to you, Lakshmi.

[Amur Lakshminarayanan, executive]

Thanks, Chirag. Hello, everyone, and welcome you all to Q1 FY '24 earnings call. Our financial results are a good reflection of the disciplined execution of our [emerging] strategy. Our data revenue growth momentum continues to improve as we invest in improving our capabilities to enhance our relevance with our customers. These investments imply that the margins may remain soft in the short term. And despite this, we aspire to operate at ROCEs of about 25%. Our unique strengths are very much being recognized by our customers as they can address both the cost side and the revenue side outcomes for them, thus increasing our relevance quotient on a continuous basis. Our Q1 reported revenue was INR 4,771 crores, improving by 10.7% year-on-year and 4.4% Q-on-Q. Our data business revenues improved by 17.1% year-on-year and 6.6% sequentially, coming in at INR 3,912 crores. Digital portfolio, which is the DPS plus the incubation combined, that revenue stood at INR 1,415 crores growing healthily at 37.5% year-on-year and 16.6% Q-on-Q. Underlying data revenues, which is excluding Switch, grew by 14.2% year-on-year this quarter, the highest since FY '20 while they improved sequentially by 4%. Underlying digital portfolio revenue grew by 28.1% year-on-year, the highest in the past 12 quarters and improved by 8.6% Q-on-Q. EBITDA for the quarter was INR 1,024 crores with a 21.5% margin. PAT was INR 382 crores. ROCE remains healthy at 26.3%.Before I discuss the financial results in detail, let me spend some time on 2 aspects of our strategy. One is on M&A and the second is on sustainability. On M&A, just to remind all of you, we announced acquisition of Switch in December 2022, and we are happy to report that we completed the acquisition of Switch in this quarter. Switch will help us a long way by expanding our reach to top-tier U.S. footing event venues and gain strong foothold in North America. It will extend our media and entertainment portfolio with live production capabilities. Another equally important event this quarter was us entering into a definitive agreement to acquire Kaleyra, Inc., a leading global CPaaS player with robust product platform offerings and last reported revenues of USD 339 million in calendar year 2022 or an estimated enterprise value of USD 250 million. Kaleyra, combined with Tata Communications DIGO will help us boost our contact play.The second aspect is the sustainability. We declared net 0 goal, and we have several interventions in the direction of climate change, energy conservation and community development. We are being recognized for our efforts in fostering sustainability and community-linked initiatives. We are adjudged winners in the Economic Times Sustainable Organization 2023, Excellence in CSR at CII-ITC Sustainability Award, Platinum award in the 13th [exceed] occupational health and safety and many more.Now let me discuss the financial results in a little bit more detail, particularly our data portfolio. Let me begin with our core connectivity business. The revenues grew by 8.1% year-on-year and 1.6% Q-on-Q. We continue to invest in the core capabilities that's transforming our networks to be intelligent and working on their program ability to cater to the new market needs, particularly on demand needs of our customers. The key drivers for growth this quarter was demand seen in the APAC market.Now moving to the digital portfolio business. Our collaboration portfolio grew by 13.4% Q-on-Q and 19.4% year-on-year. consecutive quarters of double-digit revenue growth accruing in our collaboration portfolio sets the path for the overall growth momentum to accelerate. Sequential revenue growth seen in our collaboration portfolio is the highest in the past 12 quarters. Tata Communications DIGO continues to grow in capability as a customer interaction suite, where it focuses to unify all customer interactions and benefited from additions of new logos and higher traffic revenues.Recently, one of the India's leading passenger car manufacturer has trusted Tata Communications DIGO to transform broker and customer experience of its car insurance venture. The project covers the CX transformation of all the phases of customer journey, attract, acquire, transact and retain. Our DIGO platform won the MEFFYS Award 2023 in the Personal Data & Identity category for the Best Innovation in the field of Authentication. Additionally, InstaCC portfolio grew by a very healthy double digits this quarter and more. So we have robust deals in the delivery pipeline as well. InstaCC benefited from increased usage and addition of new logos in the Middle East and deal wins in the health care segment.Media business revenues, including revenues from Switch, were sequentially up by 103.9% and 108.7% year-on-year. Excluding Switch, media business revenues were up by 36.5% Q-on-Q and 39.7% year-on-year. We are seeing rapid expansion in Japan and Nordic markets with more in-region demand for global content. Our media edge is acting as a strong technology differentiator for all the 3 segments of content, transport, processing and production. With the integration of Switch, both teams are driving synergies by taking up joint offerings to our customers in Europe and U.S. The global presence of Tata Communications and strong broadcast experience with production capabilities of Switch has helped us elevate our conversation across these customers. We are seeing this translating to good pipeline with higher ACV deals in the pipeline.Our next-gen connectivity revenues increased by 14.9% Q-on-Q and 46.6% year-on-year. Our unique IZO land proposition offers an end-to-end managed, predictable and performing business grade Internet to our customers. This serves as a major catalyst driving our deal wins. With our customers moving to multi-cloud interconnect, we see an opportunity to address this growing market opportunity. We will soon be launching our software-defined multi-cloud connect service to provide on-demand self-serve capability for customers to manage and address this connectivity to cloud, multi-cloud and between clouds.Moving to cloud hosting and security. This portfolio registered a growth of 23.9% year-on-year and seen some softness on a sequential basis. Enterprises continue to look for seamless integration across multiple clouds with the flexibility to leverage both private and public clouds with better and transparent FinOps to track cloud consumption. Our multi-cloud management capability with CloudOps, SynOps and SecOps through our TCX Cloud command places us well to cater to the structural trend. Our MSS business continues to grow at a healthy double-digit run rate. Tata Communications CloudSOC and Managed Detection and Response platform is well positioned to address market opportunities.We have recently signed a large CloudSOC contract with a leading life and general insurance group to protect them against the cyberattacks. This is completely a cloud-delivered solution from our platform. The incubation portfolio grew by 27.5% year-on-year. However, on a sequential basis, the performance is subdued. MOVE has grown 40% year-on-year. And our IoT offerings, after gaining wins in the domestic market, we are now looking at expanding to international geographies. Our digital portfolio has a capability to address holistically the needs of our customers. We will continue to invest and drive relevance with our enterprise customers.With this, I'll now request Kabir to share the financial highlights.

[Kabir Shakir, executive]

Thank you, Laxmi, and good afternoon, everyone. And let me take this opportunity to discuss the highlights of our financial performance for this quarter. This quarter onwards we are combining DPS and incubation revenues and calling it as the digital portfolio. Additionally, we are talking about reported numbers and underlying numbers. Underlying numbers exclude the impact of acquisition and disposals. Now let me spend some time on the financial results and how our fit-to-growth strategy is helping us to accelerate our growth trajectory. We witnessed a quarter of strong growth in our data portfolio, both from an underlying as well as reported perspective on the back of a strong execution regard and deeper engagement with our customers. Our reported revenue for the quarter stood at INR 4,771 crores, improving by 10.7% year-on-year and 4.4% on a sequential basis. The reported revenue numbers this quarter continue to have certain ForEx benefits accruing from a strengthening dollar. Normalizing for ForEx, our consolidated revenues grew by 6.9% year-on-year and 4.3% quarter-on-quarter and a positive impact on consolidated EBITDA margins is 30 basis points.Data revenue for the quarter stood at INR 3,912 crores, growing the highest ever since FY '20, coming at 17.1% year-on-year and 6.6% on a sequential basis. The underlying data revenue growth stood at 14.2% year-on-year and 4.4% quarter-on-quarter. Also, the revenue growth for the digital portfolio at 37.5% year-on-year and 16.6% quarter-on-quarter is the highest in the past 12 quarters.EBITDA margins for the quarter came in at 21.5% on a reported basis and 22.1% on an underlying basis. Additionally, there has been an impact on account of acquisition-related expenses pertaining into Kaleyra this quarter, which are one-off in nature. Normalizing for both the switch consolidation and M&A-related expenses, our normalized EBITDA margins are 23.1%, well within the ambition of 23% to 25%. ROCE for the quarter is at 26.3% and the sequential decline is again an outcome of Switch integration and M&A-related costs.PAT is up 17.1% quarter-on-quarter and PAT margins were at 8%. FCF for the quarter is at INR 184 crores, and this includes income tax refund of INR 425 crores. Net debt stood at INR 6,007 crores and net debt-to-EBITDA at 1.4x. Our debt levels continue to be at the comfortable gearing and well within our ambition. Cash CapEx for the quarter stood at INR 431 crores, and the ramp-up is attributable to payments coming in from CapEx projects committed in the prior year. All our KPIs, OC, PAT margins, net debt to EBITDA and revenue growth reflect how we are fundamentally transforming the company to operate in a higher growth trajectory and funding our growth ambitions in a meticulous manner to maximize value for our shareholders.It is important to step back and understand the journey so far. We have come a long way from a significantly leveraged balance sheet to a situation we are steering capital allocation for growth. The healthy FCF over the last few years has allowed us to create a solid base to pursue inorganic opportunities and accelerate growth momentum. That said, we continue to invest and strengthen our foundation for achieving growth ambitions and investing in our sales and product organization to benefit from the market opportunities.The digital portfolio revenue growth gives us the confidence that we are on the right track. Our acquisition of the Switch and our definitive agreement with Kaleyra will further sharpen our modes and help us improve our growth trajectory in the medium term. These strategic intervention will additionally help us penetrate deeper into international markets and accelerate our growth in these geographies.Moving to subsidiaries. TCTS and TCPSL remained flat sequentially. Our payment business continues to make positive shifts and we expand our portfolio under the franchisee model. As on date, we have close to 3,800 franchise teams to our portfolio and working steadily on increasing this product. We continue to strengthen our governance, rigor and agility in TCTS. To sum up, our holistic delivery across financial KPI is laying the path to capture the tailwinds and market opportunities, which lie ahead.I will now ask Chirag to open the forum for Q&A.

[Chirag Jain, executive]

Thanks, Kabir. The first question is from the line of Sanjesh Jain of ICICI Securities.

[Sanjesh Jain, analyst]

I got a few of them. First, Lakshmi, can you help us understand how is the order book and funnel shaping up? And this quarter has been a very strong growth in the data business. Can you also help us understand was there a bunch up of revenue because of the easing of chips? Or do you believe these growth numbers are sustainable and you believe that you can further accelerate this? That's my first question.

[Amur Lakshminarayanan, executive]

Sanjesh, no, there wasn't anything that bunched up or anything as a result of semiconductors or anything. I think I have been saying that, as a result of investing in the markets, our funnels are improving. I think the order books have been steadily increasing over the course of the last few quarters. And some of the deliveries and conversion were happening, even though it was delayed because, as I had said, the semiconductor delays were delaying some of the deliveries. But we were treating them more as a business as usual and nothing as unusual, right? That is the way we wanted to do that. So it's -- the way we would attribute this quarter's growth is a result of good order booking, disciplined execution on service delivery and assurance and good engagement with our customers to reduce churn and other factors, So that's what we will say. Going forward, if I look at the funnel, I think the funnel is still very good. Last quarter, the number of deals that we added into our funnel is very healthy. The number of new logos that we acquired last quarter again is quite healthy.Having said that, the conversion of the funnel in Q1, we noticed that it was longer than what it took 2 quarters ago. So there is -- it's longer. But the -- mostly the response from customers are more about delay and more time to make a decision rather than stopping anything. So overall, the demand drivers are pretty much in place. And the demand drivers for most of our offerings stem from the fact that the customers are moving to cloud.Stems from the fact now today, many customers are not just happy with just going to one cloud, but they want to be truly on multiple cloud. It stems from the fact that people want to examine private cloud a lot more strongly than blindly moving to public cloud because that was a trend a while ago. There is a very clear discussion happening with customers on the value of private cloud. Customers wanting to leverage Internet and that has not died in terms of customers wanting to Internet.Similarly, on the customer experience side for B2C, they want to see a simpler needs to have conversations with their consumers in a more converged and contextual manner because that's what will help them to deliver better experience. Again, customers wanting to take the contact centers to cloud for a variety of reasons, right? And that -- so these are all the demand drivers. We don't see anything slackening there at all. So in the medium term, things will pick up again because the funnel looks good.

[Sanjesh Jain, analyst]

Got it. Got it. On core connectivity side, again, you should talk about mid-single digit we are clocking 8%, reaching to high single digit. What has changed in the core connectivity?

[Amur Lakshminarayanan, executive]

No core connectivity also, I think the reason -- if you look at the global trend on core connectivity, it's a declining trend. And it is said that we would do better for many reasons. One reason we felt was there is still a lot of demand for data centers and data centers are going to grow and particularly in India and in certain select markets. And that's one of the reasons why we had said that we'll be in a low to mid-digit growth. Now that data center's growth is there, I think as people invest more on data and perhaps AI, there is a lot more of core connectivity requirements that are required. And this year, as I said, this quarter, there was a lot of demand from APAC and not just from India. So that's a -- and the second aspect of why we maintain that we will continue to grow there is because of the investments that we are making in the core connectivity as well, not just making our network mesh a lot more powerful by giving a lot more diversity to our customers, making the core network itself a lot more programmable and making it more on-demand. So, I think those are all the capabilities that we are investing in.So with these are the reasons why we were saying that it will grow. Now whether this level of growth that we saw and this also has some lumpiness in this business because some of these contracts tend to be large. So you will see some lumpiness. But overall, we are still saying that it will be in the low to mid-digits -- single digits. Sanjesh, I hope that answered the question.

[Sanjesh Jain, analyst]

Yes, yes, that answers my question. Lakshmi, one on the Switch strategy side, now that the acquisition is done, can you help us understand how this acquisition will have a synergic benefit and path towards the profitability for this business?

[Amur Lakshminarayanan, executive]

Yes, Sanjesh the Switch, I think the rationale was the Switch is a very strong player in North America, comes with a lot of good customer base and infrastructure in that market where they have connected to many venues. The second is they have a strong production capability, which is a missing piece in the Tata Communications portfolio, and that augments our product capability. So it brings with it a geography expansion for us. It brings with it a product capability and fills a gap in our portfolio. So that's the rationale. In terms of the synergy, we are already -- we are 2 months to close, and we are seeing already the results of that where we are able to take up the joint up offerings to our customers, and they are seeing very good traction with customers with these joint up offerings in North America to Switch customers and we take our telecom offerings and bundle it and take it. And similarly in Europe and other markets, when we bring the Switch production capabilities and bundle it, there are interesting conversations happening. The funnel is looking good, as a result of these conversations.The second aspect of it is the margins that you talked about. Yes. I think the -- as we scale, as we work on the other aspects of synergies that we had laid out, these will play out in due course to improve.

[Sanjesh Jain, analyst]

Got it. One last from my side. Subsidiaries have been very volatile and struggling. We haven't seen a sustained turnaround. What's the end game for us in both TCPS and TCTS?

[Amur Lakshminarayanan, executive]

No, I think the way we want to look at this business is TCTD is addressing telco markets. They have the core competency and a very strong domain knowledge of telecom. And that combined with the technology expertise and service expertise they bring, it is attractive to the telecom companies out there who are investing in fiber to have a lot of legacy technologies and processes and would want to transform. That's the real value proposition of TCTS. And I think that is still attractive, maybe there are some softness in the market today, as you would have seen globally telcos and others are soft. We would have seen that from the [indiscernible] results announcement many of them have called out. So it is taking time for TCTS to convert opportunities and win those deals. And from a profitability point of view, we are turning around, making careful selection of bids and making sure that the mix is more skewed towards international. And as we hit on that, it will turn around. So that's the sort of short, medium-term plan for TCTS.As far as TCPSL is concerned, we had called out that, that company again suffered to a lot of macro changes imposed by various things, one of that being COVID. And we had pivoted that business to from being a fully owned company-operated model to a franchisee model. And that changing to that franchisee model is beginning to show results, albeit while that part of it is showing results, the other part is yet to fully turn around. And as we completely pivoted to the model that we want, it will turn profitable.

[Sanjesh Jain, analyst]

Got it. So my problem with TCTS is that it's been like, what, 4, 5 years that business has struggled. We haven't seen any material turnaround there. The question is do we really want to continue now we have given half a decade for that business?

[Amur Lakshminarayanan, executive]

Yes. I think when there is any other proposal, Sanjesh, we'll come to you. But as of now, the management team is going to keep the head focused -- head down and focus on the execution of the strategy that I just outlined.

[Chirag Jain, executive]

The next question is from the line of Aliasgar Shakir from Motilal Oswal. We move to the next question, in the meantime, Ali can join the queue back again. The next question from line is Pratap Maliwal.

[Pratap Maliwal, analyst]

So I just wanted to have a bit of clarity around our cloud and security business. So we've been seeing some good growth in that particular vertical. So was there any one-off that we had in this particular quarter? And do we expect it to kind of reverse going ahead? And just a doubt I had that is our cloud hosting and security more India focused? Please correct me if I'm wrong there.

[Amur Lakshminarayanan, executive]

Yes, Pratap, there isn't any one-off as such. But from an overall demand perspective, as I said, the cloud demands are still solid. From our -- where we take this to market, our cloud offerings are focused on India, or either private cloud. We have launched specific solutions for the government community cloud and we are serving very prestigious government institutions with our cloud. Similarly, we have launched a fin cloud that addresses financial services companies that specifically with specific compliances of RBI and other latency requirements. And we have the IZO Cloud that is running for other enterprises as well, where we are running a variety of workloads on the cloud and it's scaled very well. We compete strongly with public cloud players in that space because it's very unique, very differentiated and gives the customers the level of flexibility and cost savings and more predictable cost that the customers are now beginning to look for. So that's largely targeted towards India market. Now as far as security is concerned, that's more of a global offering. We have a variety of offerings in MSS in the security, one is largely about the network security, and that is a global offer that we do for customers. The other is CloudSOC, which is essentially to build the software customers to deliver a managed detection and response capability.CloudSOC was launched in India 1.5 year ago and has seen a very rapid growth. And we have taken this capability selectively to other markets. So we've launched that in UAE. And while we have not officially launched it in the European markets, there are only two, three customers in Europe who are using our CloudSOC capability. So our security offerings is more global. Our cloud capability at the moment is largely in India.

[Pratap Maliwal, analyst]

Understood, sir. So out in our DPS portfolio of the 4 offerings, which one do we think can really move the needle for us when it comes to our international revenues, which one are we really looking at for that growth trigger?

[Amur Lakshminarayanan, executive]

All of them, no favorites. We'll be betting on all of them. So all of them have good potential in the market. And each one of them have different drivers for them, but all of them have very good potential.

[Chirag Jain, executive]

The next question is from the line of Mr. Mihir Manohar from Carnelian Asset Advisors.

[Mihir Manohar, analyst]

Sir, largely, I wanted to understand, I mean, the acquisition Kaleyra acquisition that you have made now given the fact that, that is like INR 2,700 -- [INR 28, crores] kind of an addition. I mean, despite making this business despite -- I mean getting acquiring this business, are we still hopeful of maintaining 20% to 25% margins from a long-term angle, I mean this question is from a long-term angle. And just wanted to understand, I mean, if such a large business would get added to TataComm consol, I mean what will lead to release of margins in the balance part of the portfolio. I just wanted to have an understanding around that what can be the margin release for us still to have 22%, 25% margins when we are looking at the FY '27 vision here.

[Amur Lakshminarayanan, executive]

Sure. Kabir?

[Kabir Shakir, executive]

Yes. Look, I mean, Kaleyra is a listed company. So I'm sure you can do the mathematics of what their last reported turnover and the profitability is. So indeed, when we close, it will have a dilutive effect in the immediate term. But our ambition for this business is to operate in the 23% to 25% range. So in the near to medium term, we hope to get Kaleyra back. The business case already looks at the potential synergies that we will have as a result of the Kaleyra acquisition plus the efficiencies that we will actually bring about as Tata Communications. The complementarities that we have from a customer perspective, the ambitions that we have from a product portfolio and capability and feature set perspective. When we look at from all of these angles, I think there is opportunity for us to get the business back to profitability, get the synergy benefits and get back in exactly which year will it turn about, I can't say that to you. But yes, our ambition is definitely going to be operating in the 23% to 25% range for EBITDA with a short-term margin dilution as a result of all of these acquisitions Switch and Kaleyra, but we hope to get back to 2% to 2%.^Chirag Jain^ The next question from Aliasgar Shakir from Motilal Oswal.

[Aliasgar Shakir, analyst]

I hope I'm audible now.

[Chirag Jain, executive]

Yes.

[Aliasgar Shakir, analyst]

Yes and congratulations for a good set of numbers especially there was a portfolio change done in this quarter. Just maybe more color if you could share in the digital portfolio. The collaboration in managed CPaaS segment has seen a bit decent growth. I think there are a couple of different verticals here in this I think you also have [indiscernible] as well as you have DIGO and CC businesses. So if you could just share some color about how each one of them is doing or probably what is this growth and how the sustainability trends going forward? And similarly, the media segment, which as you've indicated, even excluding Switch over a pretty strong [indiscernible] what's driving that? And just the last piece is on the cloud since you guided, which is [indiscernible]

[Amur Lakshminarayanan, executive]

I think you're fading away a little bit at the end, Ali, but I think the last question was more about cloud and security and how the future looks for that, if I'm right?

[Aliasgar Shakir, analyst]

Yes, absolutely correct.

[Amur Lakshminarayanan, executive]

So let me take on the collaboration portfolio, as I have commented earlier, we had pivoted that model from purely being a usage-based GSIP revenues to more of a product and services portfolio by introducing GlobalRapide, which we introduced. And I think that helped us to stabilize the degrowth of purely a usage-based consumption model that we had. As people moved to using more of the applications, the UCaaS applications like Teams and Zoom and Cisco and others for their collaboration purposes. So I think the products that we introduced helped us to stem the degrowth and stabilize it. Now what is driving the growth? And that in future, going forward, we believe that GlobalRapide has good potential for it to grow as well. In the last 2 quarters, we introduced Digo in the market last year. And InstaCC while it has been in the market for some time, we have expanded the InstaCC portfolio, which is a CCaaS offering. And combined, the InstaCC and go is what we call as a customer interaction platform or a suite of customer interaction platforms. And this has seen really good growth, and that is what has fueled the growth this quarter and last quarter as well. So that's what you're seeing in that portfolio.And we believe as we continue to invest in and that's the rationale for also investing in Kaleyra, it will further strengthen our position the product and the presence in various geographies to help us to grow in this market. This is a very fast-growing market. There's a lot of movements happening in the market where people are looking at how to strengthen the customer experience journey for enterprises. We think we'll be very uniquely positioned there to continue this forward as we bring the 2 companies together.On media, yes, I think media by itself is growing very well, and combined with Switch has good potential. So I think it's a question of more disciplined execution in media. We have also a lot of new products from the digital side. We keep calling out the media edge. Our edge solution, while we will formally launch edge for other horizontals and verticals, edge is a solution which brings the cloud closer to the users, right? So that is what edge is designed for. And this edge capability that we have developed is being used by our media and is taken to market.And there are many use cases that they are addressing in the world of media, and this is getting very good traction. Because our edge sits right on top of the video network that we have brings a lot of capabilities, blue latencies and a lot more abilities than what a public cloud or a public cloud edge provides at the moment. So that is one of the key drivers for media plus our deepening engagement with customers is also helping the media growth organically. And now with Switch, it will only strengthen that more.Coming to the cloud and security. I think I already answered the question. Cloud is largely focused in India. Our IZO Cloud is a very strong proposition. We do compete with public cloud in that space. We believe the private cloud has a very unique place in the workloads of enterprise customers. It offers them a lot more predictability of costs. It lowers the total cost of ownership when you look at a 3-year horizon, it brings a lot more flexibility. And we are able to offer better performance because our cloud in India is distributed in many locations and therefore are able to offer a much better performance on this.And we today run very prestigious workloads for government organizations. We are running workloads for major enterprises. So it's a very proven platform that we have, and that is something that we believe will continue to go forward and drive forward as we bring more and more new capabilities for AiML in it, video object storage and other capabilities that we will add to our cloud capabilities. From our security offerings, security offerings are more global. In India, we have a little bit more wider offerings, but it is truly a global offering that we have. And that, again, as you observed, is showing excellent growth for the past, and it's got even greater potential going forward.

[Chirag Jain, executive]

The next question is from line of Mr. Nishit Rathi from Chanakya Wealth.

[Nishit Rathi, analyst]

So just wanted to understand the employee number seems to have gone up again by 250 employees this quarter. I assume there would be some addition because of Switch. Can you just break that up for me, please?

[Amur Lakshminarayanan, executive]

Yes, you're right, Nishit. I think the employee count has gone up with Switch as well as some of the offers that we had made towards the fag end of the last year also coming into play. So yes, those are the reasons why it's going up.

[Nishit Rathi, analyst]

And Lakshmi, is it fair to assume that 100, 150 employees would have been added due to Switch because that's the number we could find on the net?

[Amur Lakshminarayanan, executive]

Yes. I think the precise number would be 128, but yes.

[Nishit Rathi, analyst]

Okay. That is great. Secondly, any comments on any particular reason why MOVE saw this sequential softness? It's been growing really well, and it's a product which we've been pretty excited about. So just wanted to understand anything in particular to read or it was just a --

[Amur Lakshminarayanan, executive]

Nothing particularly to read into it. Today, the Move platform addresses different segments, right, of what they're addressing the MNOs headlines and yet to be discovered segment to semiconductor, which we are really excited about. So these are different segments. Each of these segments are in sort of different stages of maturity in our [1330] model. And as we navigate through these, we believe each one of these will scale. So the softness that we are seeing is only transient. Having said that, I want to emphasize that this is still sort of early stages of discovery of use cases and so on. So as we win customers from a design win perspective, we will scale them to the next levels.

[Nishit Rathi, analyst]

And is it fair to say that we were a fairly strong player in the auto connectivity part of it? And as the connected cars keep on increasing, you could start seeing -- you could start seeing much better revenue traction in this portfolio?

[Amur Lakshminarayanan, executive]

Yes. I mean, auto is one of the core segments that we are addressing because as you said, the connected cars are a reality. And connected cars is to deliver for the auto players, a better visibility of what is going on inside the car in terms of understanding how the car performs give real-time feedback to engineering team. So all the telemetry data is what they are using. And the second use case is more about how do I use it for passenger infotainment purposes so that passengers can have better experience riding the car, delivering over-the-air updates as the cars themselves tend to have a lot more of compute capabilities. They have to be updated on a periodic basis. So the sota updates are going to become more of a feature. So these are the key drivers of growth for the Move platform in that segment.

[Nishit Rathi, analyst]

And it will be both -- we will participate in both the usage as well as core fee, right?

[Amur Lakshminarayanan, executive]

Yes, yes, absolutely. So this is a platform, right? So we will be charging for the platform. There will be usage as well.

[Nishit Rathi, analyst]

Perfect. That is perfect. And one last question. Any update you would like to share on the land side? You've acquired 2 companies, you said you look to match that with the lands.

[Kabir Shakir, executive]

Yes. No we've been -- once we have something we will announce all the small land parcels on a very transactional basis, we are actually taking a call whenever we get the right value for it. The large parcels, a lot of work needs to be done in terms of the title and stuff in that. So as and when we have news, Nishit, you will get from us.

[Chirag Jain, executive]

The next question is from Santosh Sinha from Emkay Global.

[Santosh Sinha, analyst]

So my question is starting regarding the margins. When we look at the underlying EBITDA margins, it stood at 22.1%. That is still a decline of around 50 bps quarter-on-quarter. So what has led to this decline in margin on the underlying basis. And if we look at the margin improvement going forward, which will drive more margin improvement for the company, is it Switch or Kaleyra?

[Kabir Shakir, executive]

Well, let me answer the first part. Look, there are -- as I mentioned, there are quite a bit of drivers that you need to organically understand for the company. And some of them play in the quarter-on-quarter variant some of them play in the year-on-year variance. Let me explain the 3 holistic drivers. One is the mix effect that we actually have as we drive the digital portfolio harder. They are currently coming at a lower margin, even though we have margin accretion there at an absolute level, but that still has a weighted average will play out as a negative mix. So we need to understand that element structure. The second one is we have actually, as I said, added [PPE] costs and those come in, that's there in the year-on-year, but not that much in the quarter-on-quarter. As I also explained that this quarter, we have spent on the M&A related expenditure, all the due diligence and investment banker fee and strategic adviser fees that we had leading up to the decision that we made to enter into a definitive agreement with Kaleyra. So those are all the things that have impacted us. And we have been clear.Let me reiterate that both in the Investor Day and in the last few quarters, we have been transparent with the Street, with the investors and the analysts about what our outlook on margin and what our approach to margin is. Our ambition is 23% to 25%, but if there are strategic reasons why we need to depart, we will take that call. However, we will -- our return on capital employed and the return on that will be a robust -- greater than 25% is what we would like to aim at. And again, when we have some huge investments coming in, again, if that dips a little bit here or there, there's a lot of headroom available there. But even that happens, I think structurally, we are a much, much healthier business, and we will continue to retain the focus on a healthy balance sheet.I don't want to kind of speculate on whether it's Switch or Kaleyra, it's like -- so each of them have their own, I would say, demand drivers. Each of them have their own positives that they actually bring to TATACOMM, and the synergies have a different gestation period and a different dimension to it. So I wouldn't compare between Switch or Kaleyra. I think all of them sit part of my digital portfolio and have a very strategic role as they do. So the mix of what is having a higher net revenue margin and LOE costs or what is the capital that each of the business demands that will vary depending on the nature of the business. So I wouldn't really take a judgment of the business on looking at just one KPI in isolation. It needs to be looked at in totality.

[Chirag Jain, executive]

The next question is from Urmil Shah from Ageas Life Insurance.

[Urmil Shah, analyst]

2 questions. First is as regards to our strategic roadmap regarding M&A, we have two acquisitions already been done and Kaleyra being a sizable one. So would it be reasonable to assume that from the next four to six quarters point of view, you would first look at integrating and taking the synergy benefits from it or you still are seeing M&A opportunities at the market mix? And just the second part, again, on the margin front while -- from our outlook in the medium term from 23% to 25% EBITDA margins. The organic business will have or to offset the impact of the M&A. So would it be reasonable to assume that at least for FY '23 and '24, this is the period where you would still continue to invest both in the organic business and consolidation of M&A and our EBITDA margin range would be achievable from FY '25 and beyond.

[Kabir Shakir, executive]

Let me take both of them. Look, there were many M&A opportunities that we have passed. So I'm not -- there is no target or a goal seek that we have. We have clear operating principles as to how we look at M&A. We explained that in our Investor Day and let me repeat, it has to have a strategic fit for us. It needs to create value for TatacomM and all its stakeholders. And therefore, we will act responsibly. Now we knew back then when Lakshmi talked about strategy on a page and called out financial fitness as an important lever because unless until we got our balance sheet in order, I don't think we would have been able to participate in the M&A game. We were a mere spectator in the past. Now today, we are actively participating. There is a separate engine, separate side of the business, which is continuously evaluating these targets, and they will bring those targets to us. And we have a governance mechanisms where these targets are evaluated and then looked at. Of course, there are many factors that go into play, our ability to acquire, to fund it, our ability to execute and integrate. So there are a lot more factors that go into in the play. So I can't tell you that for the next few quarters, we will not do it or do it. I can't -- I don't have a definitive answer. All I can only tell you is that M&A plays a very, very strategic and an important role in our growth aspirations and that will continue to be so.As far as EBITDA margins are concerned, look, again, I don't want to tell you what will be FY '24 or FY '25, right? I don't know it will be 6 to 9 months, maybe sooner that we will be able to close the Kaleyra acquisition and integrate that. And as we do that, you can do the mathematics as to what will be the impact on EBITDA on PAT for us, as a whole. It will have a dilutive effect for the 1 or 2 years until we get the entire synergy benefits kicking in and restore Kaleyra back to its growth trajectory and convert that into a profitable business.The existing business, I wouldn't make that assumption that it needs to make up for it. Existing business, on its own, has its margin drivers has its own plan on how to improve profitability, how to drive overall success for that portfolio, both top line and margin progression. So that will continue and just because we have an acquisition doesn't mean someone else needs to overcompensate. That's why we talk about being responsible. Every element of the business needs to reach each potential and deliver to the best of its potential. So that's how we will actually manage and I would want -- wouldn't want one to be compensating for the other, which indirectly then means that those businesses have then starved of the investments that they otherwise don't deserve. So that's how I would actually sum up add my response to your question.

[Chirag Jain, executive]

The next question is from Mr. Saurabh Sadhwani from Sahasrar Capital.

[Saurabh Sadhwani, analyst]

So I just wanted to understand one thing. For the long term, let's say, 4 to 5 years, what are our aspirations for revenue and the revenue mix?

[Amur Lakshminarayanan, executive]

Saurabh, I think we said that we want to double our data revenues in 4 years' time.

[Saurabh Sadhwani, analyst]

But data revenue is still 80% of the portfolio rate, 88%, 85%?

[Amur Lakshminarayanan, executive]

Correct.

[Saurabh Sadhwani, analyst]

So what about the other things?

[Amur Lakshminarayanan, executive]

Other thing is only voice. Yes. So our data is only voice, and voice is a declining business. So what exactly is your question? When you talked about aspirations, want to talk on aspiration, especially aspiration for growth, the aspiration for growth comes from the data business and the data business will double. And within that, the digital portfolio will have to grow at an even greater pace. And that is why we are looking at strengthening all the digital portfolio, whether it is connected solutions or connected experiences or the entire connected digital infrastructure that we have. And those are the portfolios that we are investing in and strengthening in, in order in order to be part of the digital transformation of our customers.In 4 years' time, we said that we want to evolve from not just being a platform player but to become a digital fabric for the enterprises. So these are the aspirations that we have laid out, which we discussed in the Investor Day quite extensively.

[Saurabh Sadhwani, analyst]

And also, the data revenue would be at the same percentage of the overall revenue then at four --

[Amur Lakshminarayanan, executive]

No, it will not. So as the data revenue grows, then the voice, looking at the current trajectory, the voice is declining. So I haven't worked out then what percentage will data be but see, largely, when we talk about the strategy, the voice, everybody knows is a declining business, and data is the business that we are focused on. So when we talk about our strategy, we largely are focused on the data side. All of our articulation of our strategy is in line with that aspect of how we want to grow the data business.

[Kabir Shakir, executive]

I encourage Saurabh that you probably look at our Investor Day presentation, which is uploaded on our website. Have a look at this. I think probably these are all questions that have been already answered in our presentations available.

[Chirag Jain, executive]

. This bring us to the end of the Q&A session. I would now request Lakshmi to share his closing comments.

[Amur Lakshminarayanan, executive]

It's been truly a very exciting quarter. We call it a pivotal quarter in Tata Communications. The growth in the data growth in the digital portfolio is phenomenal. The major announcements that we made of completing the Switch transaction is truly a landmark event in our media business. The announcement of Kaleyra is another important milestone in this growth journey. So we are very excited about the future. I'm excited about the fact that we are becoming more and more relevant to the digital transformation of our enterprise customers. Thank you.

[Chirag Jain, executive]

Thank you, Lakshmi. This brings us to the end of the call. In case of any queries, please write to [e-mail]. The recording will be able on the website in the next 24 hours. You may please disconnect now. Thank you.