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Tata Communications Ltd
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Ladies and gentlemen, good day, and welcome to the Tata Communications Limited Q2 FY '19 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vipul Garg, Head of Investor Relations at Tata Communications. Thank you, and over to you, sir.
Thank you, Karuna. Good afternoon, and welcome to Tata Communications' Earnings Conference Call. We are being joined today by Vinod Kumar, MD and Group CEO; and Pratibha Advani, Chief Financial Officer. The results for the quarter ended September 30, 2018, were announced yesterday and the quarterly fact sheet is available on our website. I trust you would have the -- had the opportunity to look at the key highlights. We shall commence today's call with comments from Vinod, who will share his insights on the industry and progress on our business and strategic direction. He'll be followed by Pratibha, who will lead the discussion on financials. At the end of management 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 conference call today, may be forward-looking in nature and must be viewed in conjunction with the risks and uncertainties we face. A detailed statement and explanation of these risks are included in our annual filings, which you can locate at our website, www.tatacommunications.com. The company does not take -- does not undertake to update these forward-looking statements publicly. With that, I would like to turn the call over to Vinod to share his views. Over to you, Vinod.
Thank you, Vipul. Good afternoon, and good evening, ladies and gentlemen. I'd like to begin my commentary for this quarter with an overview of Q2 financial and then move to my commentary on larger industry trends. Our consolidated revenues increased by 3.2% quarter-on-quarter, but declined by 4.2% on a year-to-year basis. This is primarily due to the now predictable degrowth in our voice business. Consolidated EBITDA witnessed a strong growth of 7.4% quarter-on-quarter and a growth of 6.1% year-on-year, and came in at INR 630 crores. Volume and pricing pressures continue to remain in our wholesale voice business. Our endeavor for this business is to sustain the 6% to 6.5% level on EBITDA, while we will continue to push for further cost efficiencies to maintain free cash flow levels for the GVS business. The data business witnessed strong growth this quarter and grew 9.1% year-on-year and 5.2% quarter-on-quarter. The EBITDA increased by 10% year-on-year and 4.1% quarter-on-quarter. Our delivery performance was strong this quarter, and we had new commissioning of INR 50 crores, MRC, or monthly recurring charge, from new deals that we had won earlier in the year. The performance of our traditional services portfolio has been affected, as we've said before, by operator consolidation in India and larger pricing pressure. The reported numbers have been affected by currency movement, which Pratibha will elaborate. Over a longer term, we expect the recovery in telecom sector to be facilitated on the back of a consolidated structure, improved pricing power and increasing data usage. These factors will bring some normalization in parts of our traditional services portfolio, such as the IPL and NPL businesses. We expect this portfolio to normalize by the end of this financial year. As we had guided earlier, the growth trajectory is back in our growth services portfolio, and we are happy to report that our growth services portfolio has turned EBITDA neutral this quarter. This is a big milestone and demonstrates that our strategy of transforming Tata Communications into a digital infrastructure provider is paying off. Our funnel and delivery pipeline for growth services is strong, which gives us further confidence for the quarters ahead. The TCTS EBITDA was affected this quarter due to higher project cost, revenue for which will flow through in H2. Our international pipeline of deals is strong and as new projects get executed, the profitability of TCTS will be back on track. While Pratibha will shed more details on the financials, let me give you a few updates on important developments in our business over the last few months.On land demerger to begin with, Hemisphere Properties has applied to MCA for approval, and we're waiting for MCA to grant this approval. As per the latest update, this approval can come anytime now both with subsequent steps, as mentioned, and the scheme will be completed in a matter of few weeks. Regarding TTSL, at this point, we have no additional update. The issues related to TTSL liabilities are being worked out between the Tatas and DoT and will determine the timing of any transaction related to the enterprise business. A few key updates on activities related to our growth services and innovation portfolios. In the last quarter, Tata Communications unveiled a state-of-the-art Cyber Security Response Center in Chennai and an Advanced Cyber Security Response Center in Dubai. The company will introduce a CSRC in Europe later this year, to help its customers comply with EU's GDPR regulations and later on, in 2019, we are planning for a facility in the U.S. The move is part of Tata Communications longer-term commitment to offering global security services, combined with deep local expertise. And more broadly, the rollout of these services in multiple geographies is in response to the market's needs for distributed network, distributed compute, storage and locally available security. With our global security footprint, our aim is to be a one-stop partner for managing cyber risks, globally, while providing regional knowledge and expertise. With a team now of more than 300 highly skilled security specialists, the Tata Communications' portfolio includes cloud-based offerings to match various business needs. With these strong technical foundations and these showcases in place, we expect that the recurring services from security will start growing steadily in the coming quarters. During the last quarter, we've seen key customer deployments for MOVE and IoT as well as for NetFoundry -- sorry as well as NetFoundry being included in market-leading platforms and ecosystems, such as Microsoft and Amazon Web services. In the media ecosystem, the growth has been steady and we're also beginning to offer OTT services into the media and entertainment sector. We're getting strong traction and a strong pipeline of projects, which will get delivered over the next 4 to 6 quarters in the EMEA segment. I wish to go now a little bit deeper into the market trends and opportunities that are available to MOVE. MOVE, as you know, is our solution to address the phenomenal growth rate in global mobility and in the IoT market. By 2021, enterprises pending on mobility alone is expected to surpass $1.7 trillion. Furthermore, 5G will be the connective tissue for the Internet of Things movement, for autonomous vehicles and for mobile media. The World Economic Forum predicts that by 2023, there will be a staggering 9.1 billion Mobile subscriptions. And according to Cisco, by 2020, connected mobile devices will produce 30.6 exabytes per month of data and annual global mobile traffic will reach 366 exabytes. These are staggering numbers and honestly, we're only beginning to offer and scale-up solutions to benefit from these mega trends. Given the size of the addressable opportunity for MOVE, we wish to advance our capabilities further and decided to acquire and build on the capabilities of Teleena mobile, which is an IoT specialist and an MVNO (sic) [ MVNE ] or mobile virtual network enabler. Teleena technology reduces the operational complexity, the cost of mobility in IoT deployments of businesses, and we're very pleased to have concluded this transaction in the last quarter, which will allow us to continue charting an innovative future in mobility for both our customers and for Tata Communications. These are interesting times for the company, backed by a core of advanced infrastructure and technologies, we believe that we really are at the front line of shaping trends involving artificial intelligence, IoT and big data. The initiatives at the corporate level, like our enterprise-wide digital transformation program, organizational restructuring for more efficient go-to-market coverage and creation of more in-house service creation capabilities, are all proving to be enablers and will further strengthen the business in the future. I'd like to wrap up with what I believe is the most important voice, the voice of the customer. Over the past quarter, I personally met around 30 large customers and prospects that we're doing business with. Every one these discussions around the world has been around solutions that involve both our traditional and our growth services and this further validates our digital infrastructure strategy and positioning and also shows us the headroom that is available for us to grow into the customers that we currently serve. It is key, however, for us to remain innovative and build the right services and offer the right customer experience. Talking about customer experience, equally, the voice from the customers that we've onboarded through -- onto our digital workflows under Project Optimus are giving very positive feedback on the industry-leading customer experience that we're rolling out. What we're rolling out is unique in the large enterprise segment, and this is being validated by the feedback from our customers. With that, I'd like to invite Pratibha now to discuss the key financial highlights for the last quarter, and I will join back for the Q&A session. Over to you, Pratibha.
Thank you, Vinod. Good afternoon to all of you, and thank you for taking the time out to be on our earnings call today. I will be providing an update on the progress we have made during this quarter. We are happy to report strong financial performance delivered across all key parameters, be it top line growth, margin expansion, PAT, net debt reduction and free cash flow. Before I move to consolidated performance, I want to -- I want you to note that real estate income is now considered business income and reported as a separate segment under data business. All previous quarter financials have been restated to enable like-for-like comparison. To start with the consolidated performance. During Q2, our consolidated revenue stood at INR 4,068 crores, witnessing an increase of 3.2% Q-on-Q on the back of strong growth in data business. On a Y-on-Y basis, revenue declined by 4.2% due to degrowth in voice business. Foreign currency translation did help us in revenue to the tune of INR 110 crores, while gain in EBITDA was just a mere INR 11 crores, as we also have a large share of expense in USD and an -- and at an EBIT level, this gain is negated. Consolidated revenue grew at 0.4% sequentially at constant currency. This is notable because we have been able to bridge the decline in voice revenue through accelerated growth in data business after 6 quarters on the back of strong performance from growth services, which in constant currency grew at 10.7% quarter-on-quarter.Consolidated EBITDA for the quarter stood at INR 630 crores, witnessing an increase of 7.4% quarter-on-quarter and 6.1% Y-on-Y. EBITDA margins have expanded by 60 basis points sequentially and 150 basis points Y-on-Y. Growth services, as Vinod mentioned, have turned EBITDA neutral this quarter, and this has led to significant EBITDA growth and margin expansion. While voice and ForEx have provided a fillip to our margin by 50 basis points, but major expansion is on account of growth services, which contributed 140 basis points to overall margin, offset by traditional services, which were down by 115 basis points and innovation services by 10 basis points. I would like to highlight that our traditional business, despite operator consolidation impact of INR 35 crores this quarter, grew by 1% sequentially on constant currency. The margins in this business continue to be healthy, and the Q-on-Q decline is not because of any structural weakness, but because of incremental backhaul cost due to operator consolidation. This cost will smoothen out after a few quarters. I would like to add that this quarter, we have also given a wage hike to our employees. Reported operating costs have increased marginally, but in constant currency and after excluding the impact of backhaul, operating cost has declined Q-on-Q on account of productivity initiatives that have been underway. I'd also like to add that our enterprise business has grown by 12%, and even our service provider business has grown by 1%. This quarter, PAT came in at INR 1.6 crores compared to a loss of INR 58.5 crores in last quarter. The reduction in loss is primarily due to business performance and an increase in EBITDA. Proceeding to segmental performance, data business revenues came in at INR 3,069 crores and showed a growth of 9.1% Y-on-Y and 5.2% Q-on-Q on the back of strong performance in growth services. In constant currency growth came in at 2.9% sequentially and 4.6% Y-on-Y. Data business now contributes 75.4% to the overall revenue, an increase of 9.2% compared to same quarter last year. As Vinod mentioned, we had a very healthy monthly recurring charge growth in data business. This quarter, we added INR 50 crores of monthly recurring charge on back of strong execution of deals. Data EBITDA grew by 10% Y-on-Y and 4.1% Q-on-Q, led by growth services. You would recall that last quarter, this portfolio had negative EBITDA of around $9 million. Data margins contracted by 20 basis point Q-on-Q due to drop in TCTS margins. In constant currency, margins expanded by 10 basis points on quarter-on-quarter basis. As you would recall, we took shareholders approval in our AGM this August and amended our objects clause. Post this exchange, rental income from real estate, which was previously recorded as other income, is now considered business income and is reported as a separate segment under data business. Prior to this change, costs for this segment were largely accounted above EBITDA under data segment, which led to a P&L mismatch. This mismatch is now rectified. With rental income moving from other income to a separate segment as part of operating revenue. Rental income of INR 31 crores is included in data revenue this quarter, as this rental income largely comes from leasing of data center space. All previous quarters have been restated to enable like-to-like comparison. Moving to traditional services performance. Traditional services revenue for the quarter stood at $287.3 million and witnessed a decline of 1.3% Q-on-Q and 3.3% on Y-on-Y basis. In constant currency, this portfolio witnessed a growth of 1%, both Q-on-Q and on Y-on-Y for the quarter. Traditional services continue to be affected by operator consolidation and pricing pressure. EBITDA for the quarter came in at USD 83.1 million. EBITDA was lower due to unfavorable ForEx impact of $2.3 million, wage hike of $1.5 million, backhaul cost of $1.5 million and one-off cable-cut expense of $2.4 million. Growth services witnessed a strong quarter with revenue growth of 13.1% Y-on-Y and 9.2% Q-on-Q. On a constant-currency basis, this portfolio witnessed a growth of 10.7% Q-on-Q and 15.9% Y-on-Y. We witnessed good traction in some of our products like IZO, cloud enablement, media and entertainment, global hosted contact center and mobility services. We achieved a very important milestone this quarter, as Vinod mentioned, our growth services portfolio turned EBITDA neutral on the back of strong revenue growth and execution with our platforms integrated into enterprise ecosystem and an increase in usage-based revenue. Moving to our innovation services portfolio. We continue to focus on investing and strengthening this vertical, as we believe that it would be a significant contributor to the overall revenue going forward. This quarter, we have invested $12 million into this portfolio, and we will continue to make similar investment over next 2 quarters. Moving on to the subsidiaries performance, transformation services revenue came in at INR 286.5 crores, witnessing a growth of 7.6% year-on-year and 4% quarter-on-quarter. EBITDA for Q2 stood at INR 29 crores, witnessing a decline of 6.8% Q-on-Q and 15.1% Y-on-Y. The decline was due to higher onetime project-related cost, revenues for which we will see in the future quarters. Moving to the payment solutions business, we closed over 594 ATMs this quarter as these have been less profitable, and this has affected our revenue to a certain extent. Also this quarter is a seasonally weak quarter with low average ATM transaction due to monsoon. Average transactions this quarter were at 86 compared to 96 in quarter 1.Despite lower revenue, we have turned EBITDA positive this quarter on back of continued productivity initiatives. Voice business revenue stood at INR 999 crores, and we witnessed degrowth of 2.7% Q-on-Q and 30.3% Y-on-Y, due to decline in volumes and continued pricing pressure. This decline is steeper in constant currency. EBITDA for the quarter was at INR 92.7 crores and was higher by 31.2% Q-on-Q, due to one-off benefit. CapEx for this quarter stood at USD 65 million as compared to USD 72 million during last quarter. Free cash flow, that is EBITDA less CapEx for the quarter, came in at INR 172.4 crores, an increase of 67.2% over last quarter. Even after deducting finance cost and taxes, we delivered positive free cash flow of INR 31.2 crores this quarter versus negative cash flow of INR 51.9 crores last quarter. Consolidated net debt was at USD 1.25 billion, a reduction of USD $17 million over last quarter. Net debt has seen a decline despite dividend payout of USD 22 million in Q2. Our average cost of borrowing is at 3.67%. This has marginally increased due to average LIBOR movement from 1.97% in Q1 to 2.11% in Q2. To conclude, I would like to reiterate, our data business delivered strong performance despite industry challenges. Growth services portfolio turned EBITDA neutral this quarter on the back of strong revenue growth of 10.7%, sequentially. Our focus will be to continue showing top line and profitability growth trajectory in our data services portfolio. Our roadmap for future CapEx is range bound, and we are only investing where it is aligned with our long-term vision. Despite changing revenue mix, we are committed to strengthen our free cash flows further and enhance return ratio through optimum allocation of capital. This brings us to end of our commentary, and I would like to request the moderator to open the forum and for Q&A.
[Operator Instructions] The first question is from the line of Riddhesh Gandhi from Discovery Capital.
Congratulations on numbers and especially on the trajectory around growth services. The question I had was around the traditional -- actually the data. And we've been seeing a slightly declining trend in that area. If you could just sort of maybe emphasize as to the reasons behind this and the reason we believe that this is actually not structural and actually kind of temporary. And actually, time lines when we would expect this to reverse again to a growth phase.
If I can take that. The effect of consolidation in the Indian market has dampened revenues, especially in the first 2 quarters and we expect that in the next 2 to 3 quarters, we'll start seeing a normalization. It may not go to the growth rates that we saw 2 to 3 years ago, but we expect that the demand for our services like IPL, Ethernet, IP Transit and MPLS are still very much there in the market, both in India as well as international. And we expect that this will start beginning to come through, as I said, in about 2 to 3 quarters. So in the meanwhile, we continue to automate, we continue to drive various efficiencies and will keep looking to squeeze out more operating leverage in that portfolio.
Got it. But just so I understand, the consolidation has already happened a few quarters ago. Is there still lingering impacts of it, that's why we're continuing to see it? Or is this something...
Well it is -- it's a whole course that was created, right? So while we have new revenue coming in to make up for it and put it into a growth phase, takes a little bit of time. That's really -- the loss of those revenues have already happened, but it is filling it back up with other customers is what takes a little bit of time.
Got it. And then, the other question I had, sorry...
Go ahead, sorry. No, go ahead.
Well the other question, though was around like growth services, and is this effectively the breakeven which we've seen now? Is it expected to be actually -- can it just -- sustainable into the quarters going ahead? Or is this a blip that we've seen now?
No, I -- listen, when the number is at a neutral stage, right? Especially going into Q3 with the holiday season and so on and having services which are usage driven, you could see some movement. But frankly, what I'd like -- I think we have turned the corner in general. We have a healthy pipeline of orders under implementation, which will start coming through in Q3 and Q4, especially in Q4. What I can say is that we expect to be EBITDA neutral on growth services on a full year basis, right? So between Q3 and Q4, you will -- we will see us make up for what was negative in Q1 and that -- after that, I think, we should be fine. But Q3 will -- could have, I don't want to put any -- take any sentiment out of the turn we've made on growth services, but because of the fewer days in the holiday season, usage services could be marginally impacted.
Riddhesh -- Vinod, if I may just add data point for Riddhesh, although, I did mention it in my commentary. We're already seen the rebound happening in the traditional services and that's why our enterprise business is going by 11%, while some of that effect is also from growth; but it's also of the uptake of demand in the traditional services. And even service providers is not a degrowth, but a 1% growth year-on-year.
The next question is from the line of HariKrishnan from Blue Lotus Capital.
What I wanted to ask is, you said there is a onetime effect on the voice EBITDA. Could you elaborate on that?
Yes. Typically in voice, we do see some favorable market changes and this is one of the changes. We don't know how sustainable it is, and that's why we're calling it a one-off benefit.
So you basically say that your 9.2% EBITDA for voice is not sustainable?
That's right. I mean, we can't predict it right now. And voice has been pretty unpredictable.
And if I can add to that, I think, let's not keep 9.2% as a benchmark, it's -- we haven't touched that in a while. We believe that the 6% to 6.5% range is where it will kind of average out over the quarters. Obviously, when we see opportunity to ride a market trend and higher termination rates into a certain destination, we will be prudent and avail of that. But there's too much volatility in rates for us to say that 9% will sustain.
And one more question on your -- the MCA approval for Hemisphere, you said it should come anytime. Do you see that the other one, which is TTSL, you said it's status quo, what is the time line for that?
I hesitate to put a time line on that. Frankly, we haven't been able to predict it, therefore, I don't think it will happen within the next 3 to 4 weeks, is maybe what I can say. But we'll have to see. I -- the honest answer is, I don't know.
The next question is from the line of Rushabh Sheth from Karma Capital.
This is Rushabh from Karma Capital. I just wanted to -- I had a very simple question, if you look at the business over the last few years, the business has not made any money. I mean, actually, because of the exceptional losses, it's loss about INR 1,300 crores, INR 1,400 crores. We are at a INR 20,000 crore balance sheet with negative net worth, and you have a quarterly profit of INR 1.6 crores. How do you think, I mean, when do you think we will reach a sensible level of profitability in the business? Of course, there are always events, which will, kind of, quarter-to-quarter, which will keep sort of dampening for some reason or the other. But I mean, at least some sensible profitability has to come into the business. You cannot keep running a negative net worth business with a INR 700,000 crores of debt and a INR 20,000 crore balance sheet with INR 1.6 crores of profit.
It's a fair question, and I think that we've got to look at the overall business. This quarter, we've generated INR 500 crores of free cash flow, right? Operating free cash flow. So we are -- we believe that we're working on the right levers and you will see -- and our profitability profile is not pretty as for the size of the business, but it is improving. And I'm hopeful that in the next 3 to 4 quarters, it'll reach a state of stability and then these kind of one-offs will be less materially impacting quarter-to-quarter numbers.
So you think that in the next 3 or 4 quarters, we should reach some sensible level of profitability? Because the worry is you're running at INR 700,000 debt on a negative net worth, if something goes wrong somewhere, you are in a really difficult situation. So as an investor, and we have been long-term investors in this business, you kind of worry that at least at some point of time some sensible profitability has to come so that if some -- another issue comes in the business, at least there is some ability of the business to withstand some kind of an adverse event. Because today we don't see that ability with the current level of profitability and current level of debt and...
Rushabh, right, sorry to interrupt, but I got your point. The fact that our business is resilient is why we've been able to take several regulatory knocks, payment issues we've had to make in the case of the TTSL, DoCoMo transaction. The changes in market dynamics in certain products, while we explain these to you, we don't take these as impacts. And we've been main able to manage our debt levels and, in fact, bring them down marginally and absorb it. We've never had any issues servicing the debt, never had any issue raising debt when required. Therefore, we will be prudent, but I also don't want to get alarmist about any challenges to the business' viability or business' strategy. We are focused on making the investments, and we need to be prudent about where we make those investments so that they start yielding real, an increasing trend quarter-on-quarter at the PAT level. I guess your point, and I completely buy that, and we're driven by that as a leadership team. But I don't want to swing the pendulum of sentiment the other way also.
Also, I just want to add that the reason for negative net worth is largely because of the foreign currency translation reserve impact. And when we look at our loan covenant ratios, that is not included. So we are secure from that end and as Vinod mentioned, our ability to raise debt has never been a challenge for us.
[Operator Instructions] The next question is from the line of Girish Raj from Quest Investment.
Just a question on IoT and MOVE. So we already have base station of 5,000 approximately. So I would assume base station would [ mean ] gateway and customer in MOVE would be 116. So what is the scale that we would require for commercial -- or the revenue to come in?
The -- on -- they're 2 slightly different businesses and I'm -- this requires a longer conversation to be honest, Girish, but I wouldn't measure it yet by if you have this much gateway, this is -- this much revenue. We have the IoT LoRa base stations deployed in order to get a certain level of coverage to support existing customers. So what we're doing now is not rolling out before demand. We're actually working on specific use cases and then, where required, we are deploying. That's why if you see across December '17 to June, we've only added about 700 base stations and we will -- oh, sorry, till September, in one year period, we've gone about -- yes, about 657, 700 base stations. And we'll remain at that level unless the demand picks up. I think the better indication is number of devices ordered, the PoCs, number of customers and so on. I don't think you can use this as the formulaic interpretation of the size of business. The -- in the case of IoT India, we are working on multiple smart city projects, working on lighting, metering and so on. But these are -- we are market creating in a way. And our offerings are unique, there's almost no competition when we go in, but it does involve a fairly lengthy sale process and a proof of concept process before it turns into usage, which grows over time. In the case of MOVE, right, obviously the infrastructure that we have is very limited. It's more the software capabilities that ride on the radio -- local connectivity of mobile operators around the world. And we have our IoT gateways, which we're deploying in order to provide a seamless architecture and seamless quality of service. And there again, you can see the number of customers increasing, and we believe that we're still at the very early stages of deployment. You -- this number should significantly increase in the coming financial year.
So any commentary on competition that is coming up in these 2 space?
In MOVE, obviously, there are global players, who have -- some of them are mobile operators. But we find that, being a nonmobile operator in a way and being carrier agnostic, that combined with the reach of our IP infrastructure, we are able to do certain things, both from a technical standpoint, commercial and operational diversity standpoints, which are unique, and it is putting us into some large RFPs. And we will -- we're working hard at them and hopefully, we can be able to publicly report them in the coming quarters. So there -- in IoT in India, yes, and BIoT will eventually become available and compete in this space. But LoRa is ideally suitable for certain use cases. We're focused on smart metering, smart lighting, asset tracking, asset tagging and industrial safety. And frankly, in those cases, it's -- as I said, it's less about competition, it's more about showing the capability and getting the customer to drive adoption.
Fair point. Just -- when can we see a meaningful revenue in this innovation statement? And finally, that $100 million -- plus $100 million target remains that we had given.
That aspirational target remains. The -- I believe that in MOVE, we will start seeing meaningful revenue from next financial year. And IoT India is going to be of a smaller scale compared to the opportunities that MOVE addresses, one is global and one is very local to India with fewer use cases.
[Operator Instructions] The next question is from the line of Amit [indiscernible] an Individual Investor.
I just wanted an update on -- I believe that we were in the running to pick up Tata Teleservices' enterprise business. Has there been any further progress on that?
That's what we mentioned, Amit, that right now there's no further progress on that. There are issues related to DoT liabilities, which Tata Sons is resolving with DoT, and that is a bit of a pacing factor to decide how and when our transaction moves forward. So we are awaiting to hear from that before being able to give any concrete view on time lines.
Okay. And then my second question is that with the MCA approval for the demerger, have they given any time line for when they -- I mean, is there a hearing date or something along those lines? Or how does that work out?
I can only go by anecdotal feedback that it was meant to be after Dussehra, and I'm expecting that obviously, things take time and it's -- there can be unpredictability when it comes to these matters with authorities. So hopefully, post-Diwali, we'll hear from them.
The next question is from the line of Girish Raj from Quest Investment.
On the transformation service, we actually increased the revenue in this particular quarter despite -- we thought there would be some loss of revenue because of the TTSL going to -- how do we see revenue going forward? And margin to that extent?
Pratibha, you want to take that or you want me to?
Whatever, if you want to take it, Vinod, go ahead.
Yes, so I -- we -- okay, they -- I don't have the margin figures we expect -- Pratibha, you can guide me on that. We expect that in Q3 and then more in Q4, we'll see TCTS show an increase in revenues. And especially, revenues coming from some of our international contracts, which are under implementation, which will result in margin expansion in Q4.
Okay. And the traditional, there were couple of onetime expenses in the operating. Can you give a breakup and how -- what will remain and what will go off?
I actually had given the breakup in my comments.
Yes, yes. I just wondered if those -- so there is $7 million increase in expenses quarter-over-quarter. So the entire $7 million was onetime or...
As I mentioned, that wage hike, it'll get normalized as revenues pick up in that portfolio. And cable cut, which was $2.4 million, that was onetime.
There was one more onetime, which you had mentioned I...
No, I had mentioned that the backhaul expense that would continue, that's on account of the consolidation impact that we are seeing in India. That will continue, but over a period of time, it'll get evened out.
Okay, so $2.1 million would go off, right?
$2.4 million, that's right. And also your question on margins on the transformation services business. Those should start to improve from Q3, Q4 as the revenues pick up. As I mentioned, again, in the commentary, that there was a onetime project-related cost that came in this quarter, that impacted our margin.
Thank you. Ladies and gentlemen, this was our last question for today. I now hand the conference over to Mr. Kumar for his closing comments. Over to you sir.
Ladies and gentlemen, thank you for your participation in the call. We are happy with the results of the last quarter. We believe that it is a turning point. However, as the leadership team and the entire organization is focused to make sure that this performance improves in the second half of the year and then furthermore after that. And what we feel that directionally, the product capabilities that we've established are the right ones. The operational disciplines that we've put in place are beginning to show signs of traction and turn into positive numbers. So you have a commitment that we will stay at it. And finally, I'd like to wish everybody on the call a very happy Diwali. Hope it's a safe and peaceful and joyful one for each of you and your families. We look forward to chatting with you again in the next quarter's call. Thank you.
Thank you very much, sir. Ladies and gentlemen, on behalf of a Tata Communications, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.