Tata Communications Ltd

NSE:TATACOMM

Earnings Call Transcript 2024-Q4

[Chirag Jain, executive]

Good afternoon, everyone, and welcome to the Tata Communications Earnings Conference Call for Q4 FY '24.

We are joined today by our MD and CEO, Mr. Amur Lakshminarayanan; and our CFO, Mr. Kabir Ahmed Shakir; and our Head of Investor Relations, Mr. Rajiv Sharma.

The result for the quarter ended 31st March 2024 have been announced yesterday afternoon, and the quarterly data pack is available on the website. I trust you would have had the chance to look at the key highlights. We will commence today's call with comments from Lakshmi, who will share his thoughts on the business and the 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 comments made or discussed on today's call 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 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]

Thank you, Chirag. Welcome to Q4 FY '21 earnings call. FY '24 has been a milestone year for the company as overall revenues surpassed the INR 20,000 crore mark and the data revenues the INR 17,000 crore mark. I'm happy to share that our reported 4Q FY '24 data revenues were up 26.9% Q Y-on-Y and grew to 21.9% on a full year basis. Incremental data revenues for this fiscal were at INR 3,085 crores, of which core contributed 18.5% and digital 81.5%.

Our fourth quarter FY '24 EBITDA is up 2.1% year-on-year and full year EBITDA was lower by 2%. Our full year EBITDA margins were at 20.2% and fourth quarter FY '24 EBITDA margins were 18.6%. Our core EBITDA, excluding subsidiaries and the impact of acquisitions for the year, is at 23.7%, which is holding well within our ambition range of 23% to 25%.

Coming to the margins and the dip that we see this year, there are five factors which have affected these. I've talked about these before. These are our organic investments in people and platform, both in the market as well as building the platform. Our M&A-related expenses this year, consolidation of the acquisitions which are loss making, a drag from the subsidiaries and the changing mix in the revenues with digital. Let me share that we have an improvement plan in place across all of these parameters that should see a positive trajectory on the margin side, as well as with our investments on the growth side.

We remain confident about our doubling of data revenues by FY '27. And we are aware that we need to grow 15% to 20% every year in order to make this happen. While I had called out that our reported data revenues grew by 21.9% on a full year basis, our underlying data revenue growth for the full year was at 8.8%, a tad lower than 10% in FY '23, affected by the macro conditions. In this context, let me talk about our order book and funnel.

While funnel continues to be robust, order book had been flattish for the past few quarters, and I called them out before. And there are two parts to this order book. One is the enterprise, which is a large focus of the majority of the team members in the sales and the OTT and the ASP segments. Enterprise order book continues to be robust. Both India and international enterprise revenues have witnessed a positive growth momentum and grown double digit this year. Our India Enterprise revenues grew by 12.6% and our international enterprise revenues grew by 10.5%, and some of the geographies showed more than 20% growth.

However, the other part of the order book, which are cruise from OTT and hyperscalers and the service providers, they have been lumpy in the last couple of quarters. An equally important aspect is with the CIS portfolio getting larger, a good part of our revenues are now usage revenues, and they don't reflect in the order book. As such, two aspects that you need to take note of. First, the business model is moving towards an element of usage and usage revenues will be cyclical in nature.

I want to reemphasize that Kaleyra and Switch, they are run as an integrated business with our CIS unit and Switch with our media unit. And I mentioned before, they're all led by one leader each as an integrated business. Customer opportunities are being looked at holistically as opposed to looking at it from the individual product lens. Moreover, new business opportunities are being taken up by Kaleyra as it is our go-to platform for our CIS ambitions going forward. And this started happening, even some of the bigger opportunities were done on Kaleyra paper in the last quarter as well.

Incrementally, the health of the overall business will not be governed not just by the order book, but also be a combination of order book and usage. Coming to our digital portfolio performance. Our Q4 digital portfolio revenue stood at INR 2,082 crores, growing strongly at 71.6% year-on-year. For the full year, the digital portfolio grew by 55.4% on a reported basis and by 14.7% on an underlying basis. Our digital portfolio has grown at a 2-year CAGR of 37%, and all parts of the portfolio are delivered with Next-Gen connectivity growing at a CAGR of 30%. Cloud and security growing at 21%, collaboration and customer interaction suite growing at 40%, media at 64% over the last 2 years.

Media excluding Switch has grown at a CAGR of 21%. Our collaboration and CIS portfolio, excluding Kaleyra, has a 2-year CAGR of 5%. This is a complete reversal of a declining trend this business faced until 2022 -- FY '22.

A couple of thoughts on our medium-term aspirations. We remain confident about our data growth ambitions as it continues to be driven by our expanded portfolio of capabilities as well as our increasing customer relevance with this portfolio and increasing presence in the markets. Our acquisitions and organic capabilities have made our digital fabric breakeven more relevant enterprises today as we help them to solve challenges with their cloud strategies and simplifying the network transformations.

There have been slowness in decision-making, which has hurt growth, but with our expanded portfolio, we are very well prepared to benefit as macro starts improving. Our medium-term structural drivers continue to be our India market leadership, expanding scale in international markets, our increasing customer relevance and our new product rollouts, including what we are planning such as AI cloud. One of the other growth catalyst for us has been the acquisition of new logos. And in FY '24, the new logo revenues were up 90% year-on-year, albeit from a smaller base, justifying our increasing presence in the market and relevance across product domains.

To summarize, we believe that our global digital fabric is a powerful concept with enterprises, especially in international markets, are beginning to realize. With our network fabric, Cloud Fabric, Customer Interaction fabric and IoT fabric, we are addressing a large number of problems that enterprises are faced with, and our digital fabric is coming out as a reliable, agile and resilient solution for that. We are confident about a larger opportunity. And with the strong conviction, we will continue to improve and drive value of these investments and continuously augment our capabilities.

With this, I'll request Kabir to share the financial highlights.

[Kabir Shakir, executive]

Thank you, Lakshmi, and good afternoon, everyone. To begin with, as Lakshmi shared, FY '24 has been an eventual year for us. The year we saw the fit to compete and fit to grow, pillars of our financial strategy come to life. Our focus on driving profitable growth, strengthening our balance sheet laid the foundation to enable us to complete three acquisitions in a single year while investing incrementally in our organic capabilities. Some of these inorganic and organic investments were solely on the back of internal cash accruals. We are encouraged by the early success we witnessed as the integration of Switch with [ Amira ] business and Kaleyra with DIGO is progressing well and ahead of anticipated time lines.

Our financial KPIs have departed because of the strategic actions we have taken. That said, their performance is in line with our expectations. As we harvest revenue and cost synergies from these investments, we will see these indicators come back to their ambition range over the medium term. FY '24 as a historic year, we delivered the highest data growth -- growth in our data portfolio coming in at 21.9% and crossing the INR 17,000 crore mark for the first time ever. Our FY '24 underlying data revenues grew by 8.8% on a reported currency basis. The reported current revenue numbers this year continue to have certain ForEx benefits accruing from centering dollars.

Normalizing for this ForEx, our underlying data revenues grew by 6% -- 6.6% year-on-year and a positive impact on consolidated EBITDA margin is only 20 basis points. Our reported EBITDA came in at 20.2% this year on the back of investments in our organic and inorganic capabilities. Our core EBITDA, excluding subs and the impact of acquisition, for the full year is at 23.7%, which is well within our ambition range of 23% to 25%. Our ROCE came in at 18.8%, driven by the impact of the rolling 12-month average of our EBIT performance, which has an element of dilution from our inorganic investments over the last 6 months and increased capital allocation for organic opportunities. The ROCE numbers will witness a further dilution over the next two quarters as the full impact of Kaleyra gets baked in.

Going forward, as we benefit from the synergies from our acquisitions and begin realizing operating leverage from our organic investments, our profitability will improve. On the KPIs, it is fair to say that the first improvement you will see is on leverage. And this quarter, there is a marginal improvement. This will be followed by improvement in ROCE and then later EBITDA margins.

Our focus continues to be on creating elbow room and capacity for multiyear growth, as we have to be ready to participate in new opportunities, including AI cloud, multi-cloud connectivity and cloud light.

Now coming to our quarterly performance. Our consolidated revenue for the quarter stood at INR 5,692 crores, improving by 26.6% year-on-year and 1% on a sequential basis. Data revenue for the quarter stood at INR 4,656 crores, improving by 26.9% year-on-year and by about 0.8% on a quarterly basis. Our EBITDA margins for the quarter were at 18.6%. Our PAT margins for the quarter stood at 5.6%. We have provisioned for a deferred tax asset this quarter amounting to INR 186 crores on account of an assessed recoverability of the past tax losses as we re-domiciled our international business from Bermuda to Switzerland.

Our cash from operations for this year was INR 2,829 crores and FCF for the full year was at INR 747 crores.

Net debt for the quarter stood at INR 9,126 crores, and the debt to EBITDA is now at 2.16x. Cash CapEx for the quarter stood at INR 435 crores, though, our accrued CapEx is close to INR 1,131 crores, largely driven by our commitment to invest in new opportunities and technologies, underpinning our consistent growth on investing for growth.

Moving to subsidiaries. TCTS revenue improved by 9.1% on a full year basis. Our payment business is now a 98% franchisee model, which has helped improving the business margins over the last couple of quarters. This quarter, the margins came in at 13.2% against 9.4% last quarter. Our energies on a continuous basis are oriented towards driving the right capital allocation across the organization with an eye on return on every penny invested.

With a robust capital governance framework in place, we are investing in the right opportunities to help us stay ahead of an ever-disruptive technology curve. Our investments today are helping us participate in mega trends such as the AI Cloud and enhanced collaboration experiences. At the same time, we are also optimizing resources through an ongoing strategic review of our business and subsidiaries. We are confident that these levers will sharpen our moats and help us improve our margin trajectory in the medium term and deliver the right value to our customers and shareholders.

I will now ask Chirag to open the forum for Q&A.

[Chirag Jain, executive]

Thank you, Kabir and Lakshmi. We will wait for a minute for the Q2 assemble. The first question is from the line of Sanjesh Jain from ICICI Securities. Sanjesh, you have been requested please go ahead and ask your question.

[Sanjesh Jain, analyst]

Chirag, can you hear me, please?

[Chirag Jain, executive]

Please go ahead.

[Sanjesh Jain, analyst]

Yes. Sorry, I think there was a technical problem there.

[Amur Lakshminarayanan, executive]

I'm not sure if your connection is bad. We can't hear you. Why don't we take the next one and come back?

[Chirag Jain, executive]

The next question is from the line of Balaji Subramanian from IIFL Securities.

[Balaji Subramanian, analyst]

Am I audible?

[Chirag Jain, executive]

Yes, Balaji.

[Balaji Subramanian, analyst]

My first one would be a bit on the housekeeping side. So if I look at the EBITDA performance of Switch and Kaleyra, there seems to be a INR 110 crore -- INR 110 crore negative swing quarter-on-quarter. So could you share some light on what exactly resulted in this? Is it some kind of onetime severance cost or onetime restructuring cost or something? And how should one look at it going forward? That would be my first question.

The second question is more on the collaboration and CPaaS portfolio. So one can see that on an organic basis, your revenue -- quarterly revenue in this part of the business has been around -- has been between INR 380 crores and INR 430 crores for the last few quarters. And why is it kind of stuck at that level?

And other related question would be on CPaaS itself. So globally, if we look at CPaaS, the revenue growth seems to be coming off, be it the likes of Twilio or be it the likes of Tanla and Route Mobile. So what are the new capabilities that you think will become key in terms of driving growth going forward?

[Amur Lakshminarayanan, executive]

So Balaji, I think maybe the first question, Kabir, do you want to take the EBITDA one?

[Kabir Shakir, executive]

Let me then answer the first question, Balaji. I think it is both a combination of Switch and Kaleyra, which is resulted in the swing. But let me take Kaleyra because that is probably the -- a significant portion of the swing that we talked about. That is as a result of about 3, 4 elements, and none of them, let me state upfront, is a cause for worry. The first is, I think once we start integrating Kaleyra, and you'll see a full fourth quarter go through, then I think the intimacy on understanding the seasonality of the business will be a lot better for all of us. Q3 is indeed always a good quarter with a lot of festivals and a lot of activity happening for that kind of a business. So therefore, I would say, the seasonality indeed has an impact on the negative -- sorry, the net revenue margin.

And that was one contributor in Q4 that it was lower than last quarter. The second contributor is, I would say, as we are integrating, we are harmonizing our policies on multiple things on accruals, on recognition of cost, on PDD and expected credit loss. All of those policies, harmonization that we do in line with Tata Comm, which is I would say, the second reason for that shift. Finally, I would say there have been some one-off legal expenses that we have provisioned for and that is not uncommon in a large U.S. listed public company takeover, so which has actually come through in the second quarter.

I would say these are the three large reasons. Restructuring since you mentioned it, let me clarify. There is a little bit of restructuring there, but we have taken it below the line as exceptional items, and it is not impacting the EBITDA numbers. I hope that clarifies. Lakshmi, you take the rest.

[Amur Lakshminarayanan, executive]

On the -- on the second part of the question, you had two parts to the second question on the collaboration on CPaaS. You said the organic is stuck between a range and not growing. One of -- the whole collaboration business itself has multiple colors to it. It has got it's -- the traditional GSIP. We had Cisco powered solution, the other one was the Microsoft Teams solution that we have, and we have newly launched another product called Jamvee. So these are the main ones.

And there, I think the GSIP revenue with the switch to apps had seen a decline post COVID and was continuing to decline. It got stabilized with our introduction of the GlobalRapide, which we combine all of these into our platform business and more into a fixed revenue business as opposed to dependent on usage and that's stabilized, but has not grown well. So I think there are many factors, but I think we are looking at launching with Microsoft, a product in India, and we will be a partner to launch that. So that will hopefully give some fillip to that business.

The other part is the collaboration with CPaaS, we have reported last year, the DIGO, which we launched had in percentage terms, grown very well. But this year, right from the Kaleyra acquisition, the DIGO business teams and the Kaleyra business team started working immediately upon close. And some of the deals in the pipeline that would have happened on DIGO has happened now on the Kaleyra. So it's difficult to split the organic numbers in that sense. So these are some of the reasons.

We are aware of the collaboration the GlobalRapide portfolio has had ups and downs, and they are ongoing process to revitalize that portfolio. On the CPaaS, your question and observation that the growth is coming off with many global players. And you're right. I think the global players, they publicly stated that they want to focus more on profitability. I think the purely being on the SMS side was a race to the bottom. And I think in my view, there is some sense to rail there to see and bring focus back to profitability. And in that sense, many players have focused more on profitability than growth.

The way we are looking at our business is more as an interaction business, a combination of SMS, programmable voice, emails, multiple channels. And we are also building layers of software on top of these channels to bring more orchestration and intelligence on that. So we will be continuing to invest to build these new capabilities. It's our view that enterprises and the way they interact with consumers are fragmented today across multiple channels. And we have an opportunity to position a more converged and intelligent platform that orchestrates across multiple channels.

So that is where we will invest, and that is where we believe will be new opportunities besides the channel expansions from SMS to WhatsApp and others. So we will focus on both dimensions, increasing the channels and also increasing the platform play.

[Balaji Subramanian, analyst]

Okay. I had a quick follow-up to -- for Kabir. You didn't call out some one-off legal expenses. So could you please quantify that? And also on the seasonality front, one can see that at least at the gross revenue level that you have reported, that doesn't seem to be the case because there has been a Q-o-Q growth. I do know that part of it is because the acquisition was consolidated maybe only for 85, 86 days a quarter. But at least at the revenue level, things doesn't seem -- things don't seem to have come off materially.

[Kabir Shakir, executive]

Yes, the legal expenses so far is shy of $1 million, which is what we have actually provisioned as of now. And all the other things, there's a lot that you need to lift under the hood to understand the revenues and our mix, Balaji, so where it may not be visible for you. So it's quite visible. Yes, you're absolutely right. It's a usage business. So 80-85 days was indeed one of the elements which get in there. But I would say when you look at it in our mix is indeed proving an element that's also a sizable portion of it.

[Chirag Jain, executive]

The next question is from the line of Mr. Mayur Magal from Aegon Life.

I think Mayur is unable to join the queue. The next question is the line of Sanjesh Jain from ICICI Securities.

[Kabir Shakir, executive]

Disconnect and log back again, Sanjesh?

[Chirag Jain, executive]

The next question is from line of Mr. Vibhor Singhal from Nuvama Wealth.

[Vibhor Singhal, analyst]

I hope I'm audible?

[Chirag Jain, executive]

Yes, Vibhor. Please go ahead.

[Vibhor Singhal, analyst]

Yes, so a couple of questions. One, on the growth part and one on the finance part for Kabir. So Lakshmi, the growth part, just wanted to pick your brain on two things. How do you see the cloud business shaping up? I think this year was not a great year, not just for us, I think, but mostly the overall -- the IT services vendors as well in terms of cloud adoption and deals also kind of going slow on the macro front. So how do you see that playing out in FY '25? Any green shoots in pockets where you could probably highlight or what is your outlook for that segment, let's say, in this year?

Secondly, on the CPaaS side, just wanted to understand. I think the -- I mean post-COVID, of course -- during COVID, of course, we saw a great -- a very sharp pickup in this industry overall for all the players, which has kind of died down right now. What is the pricing environment in this domain like? Is there still cutthroat competition, which is continuously creating a pressure on the pricing in this segment? Or as you mentioned that as more and more players are focusing on profitability, is there any scope of stabilization of prices or maybe an uptick because of new platforms coming in? If you can answer these two questions, I'll probably have a couple of follow-ups for Kabir.

[Amur Lakshminarayanan, executive]

Thanks, Vibhor. On the cloud side, we are largely focused in India, while we do have some customers that we serve internationally. On the -- our view of the cloud is -- the cloud adoption today is not complete. I think there are many still on-prem users that are -- and we are trying to position our cloud as a purpose-built cloud that is multi-tenanted, which has the flexibility and offers all the benefits of a private cloud to the customers. And when we say that over a 3-year period, our TCO would be much better than any public cloud player. It's been -- we -- it's achieved a reasonable scale where we are operating fairly national mission-critical applications on our cloud.

So it's proven its base, the technology and our engineering capabilities and services. What we are doing to sort of boost the growth, one is the macro that you called out that is there. But from our side, we are preparing to strengthen our industry cloud where we have a government community cloud, we have a financial services cloud, which is compliant with RBI. So we are strengthening these areas.

And similarly, our Kubernetes and analytics capability and the storage capabilities. So these are all the things that we are investing and strengthening and repurposing the teams in a way that they can take this to market more effectively. So we are using this period where there has been slowness to organize ourselves and preparing for the future. But the potential is still large because not everyone has moved to the cloud.

The second aspect of this is some of the workloads that cannot move to the cloud for various reasons, because they need to be on-prem, because they don't want to incur a large amount of network backhauling costs and the latency associated with taking to some place and bringing it back or they cannot afford a failure in an application, not being able to be accessed because there is a network failure or a failure on the cloud side, they are keeping all of them on-prem. So the classic cases in point are manufacturing, for example. Some of the manufacturing execution systems, many people have it on them.

Some of the store systems are on-prem. So there, we are launching our edge product to make sure that these workloads can operate at the edge. So that is something that we are preparing ourselves. We have already launched it in our media business, and we'll be launching it for other segments soon. Many customers are in the early stage 1 usage of these products with us. So that is how we are preparing ourselves for the upcoming cloud base. And of course, the AI Cloud will be another game changer on its own.

So this is how we are preparing our business for cloud and edge.

On the question of CPaaS, you're right. I think there are, I didn't mention, I think people are -- it's public information that some of the major players announced that they wanted to focus on margins. Internationally, we are seeing that play out. But India market is, as you say, is still -- I think you used the word cut throat, and I know you will be too far incorrect with that statement. So our positioning in this needs to be, as I called out, to expand to channels other than SMS and vertically expand to software layers above the channels to bring more orchestration to bring more intelligence to interactions.

[Vibhor Singhal, analyst]

Got it. That was very helpful. Just a quick follow-up on the cloud question that I had. So typically, we have seen that in any of these technology adoptions, be it cloud, or analytics or basically RIMS before that, Indian enterprises tend to basically adopt a new technology with a lag of at least 2 to 3 years. It's historically been the case. Do we see that playing out in this case of cloud as well? Are the Indian enterprise at least -- I mean, some years behind their global counterparts in terms of cloud adoption or, let's say, in terms of moving to public cloud vis-a-vis the private cloud that they are kind of focusing at this point of time?

[Amur Lakshminarayanan, executive]

I haven't seen the data, but the data clearly is, yes, there has been a lag, but in a way, the lag is good as well because internationally, what we are seeing, people who move to public cloud are not -- are now having second thoughts because the costs of public cloud has gone up. It is easy to get in. But there are other costs that hit them as they grow. So I think that should be an opportunity for us to address that properly in the India market.

[Vibhor Singhal, analyst]

Sounds good. Kabir, just quick 2 questions. One is you mentioned that the cost -- the legal expense cost that has been provisioned until now is around $1 million yet. So are there any more expenses that we are expecting in the coming quarters? Or are we done with most of them? And secondly, last quarter, we spoke about basically getting our interest cost down by the refinancing of some of the bonds or expensive debt that we have on our balance sheet. Any progress on that? Or if you could give us maybe some kind of a time line when we are looking to maybe execute that.

[Kabir Shakir, executive]

Two things. I mean, look, legal, I can only tell you what I know. I mean if something comes up, I hope it doesn't, but if something comes up in future, then it comes up. So I can't speculate that for now, Vibhor. So these are -- I mean all of them are in public domain. I mean there's nothing that -- which is not privy to all you guys. Sure you searched out. You'll know what are the things that are there from Kaleyra, whether it's the borrowing holders or otherwise, which are in there, which we need to defend, which we will.

On the refinancing part, yes, we will be doing it. It will be imminent anytime soon. And once that is there to be declared, we will come out. So we are looking at -- we've already, I mean, signed or rather with the consortium of bankers in terms of when we will do and we will execute in the next couple of weeks. And when that time is there to announce, we will announce that as well. And you're absolutely right, it will be refinanced at a rate which is -- which will be more attractive than what we did the lines of credit when the $200 million refinancing we had to do for the bond repayment that we did in the end of November for the Kaleyra bondholders.

[Vibhor Singhal, analyst]

Got it. Got it. That's great to hear. Just last thing, I'm assuming the guidance is for FY '27 in terms of doubling our data revenue, margins, ROCE and leverage, they all remain intact.

[Kabir Shakir, executive]

Absolutely, they all remain intact. As I mentioned in my speech, we will get the debt to leverage ratio much faster. In fact, we had a marginal improvement. Last quarter was 2.2x, 2.21x. This quarter is 2.16x. I mean in FY '25, it will come under 2x. So that's not an issue. ROCE, not yet bottomed out because it's a 12-month trailing, that's a formula. So you will have two more quarters where you will see a little bit of a deterioration in ROCE, and then it will start coming up. So that will happen in the following year. And EBITDA will be the last one to come back to the range of 23% to 25%. Completely committed on all three parameters as it stands today.

[Vibhor Singhal, analyst]

And the growth as well, doubling of data revenues.

[Kabir Shakir, executive]

101%, yes. That's the main and the most important one, completely committed. Lakshmi made it very, very clear. We remain confident of the opportunity we have. We remain committed to doubling our data business.

[Chirag Jain, executive]

The next question is from Sanjesh Jain from ICICI Securities.

[Sanjesh Jain, analyst]

Can you hear me now?

[Chirag Jain, executive]

Yes, Sanjesh.

[Sanjesh Jain, analyst]

I got a few of them. Lakshmi, first, on the digital piece as itself. It appears that the entire segment have significantly slowed down, and now we are at a 5% Y-o-Y growth. Two quarters back, we were at 24% growth. There's a material shift in the growth rate, what we were looking at. And we were hoping for an acceleration with a solid funnel and the order book we have today. So how does it look for FY '25? Where do you think FY '25, we will land up with whatever order book funnel we have today? Are we confident of delivering a 20% plus growth next year with the order book and funnel and the visibility we have today on this business?

[Amur Lakshminarayanan, executive]

Yes. So Sanjesh, on the digital, I have been calling out on the order book side, we have said that our funnel is good, but the order book came in slow. And that is what I had called out, and I still -- there is slowness in decision-making. The only one thing I have contrasted with saying that in our enterprise side of the business, we are close to 13% in India and a good double-digit in international markets, despite the conditions of macro conditions that the enterprise business in the international markets face.

On going-forward basis, I think there are a few things that we have to keep in mind. It's not as though the macro conditions are suddenly improved. If anything, in the U.S. with inflation and the possibility of interest rates not coming down, there is going to be more caution and the other geopolitical Middle East conflicts that are there. So the caution is going to be in there. So I think there is no doubt. I think bigger picture that I see in all my interaction with the customer is, are we -- the proposition that we are making to customers, is that appealing to customers. Are we now able to engage at senior levels with customers, and I see that traction on. I think clearly, yes.

Our awareness in international markets is still very low and we are trying increase that awareness. And with increasing footprint of sales we have, of course, that alone is not enough. I think we need a lot more. Our participation levels will increase as the macro conditions increase. So that's the -- and the opportunity for us is the need still there for customers to transform the network. Are we still relevant in that space. We are very relevant, especially with the new products of cloud networking, there is even more relevance. And to [Audio Gap] 30% this year.

[Sanjesh Jain, analyst]

Okay. That's fair. That's fair, Lakshmi. Just stripping down digital a little bit more. Within the four subsegment, where are you more confident? Is that next-gen connectivity, are we more confident on cloud hosting and security? Because these are two lines, as you articulate, looks to be much more on the stronger footing than the remaining two. Will that understanding be fair?

[Amur Lakshminarayanan, executive]

I think next-gen connectivity, clearly, we have seen the growth. And even there, as you called out, the momentum of growth in the last 2 quarters have come down. The characteristics of next-gen connectivity is the time period from order booking to turn up of the revenue is a bit longer because we have to implement the network, implementing SD-WAN across multiple sites do take time. So the time taken, but if you ask, that's a large portfolio, and that growing will help us to shift clearly. So we are clearly focused there. The cloud and security is also large, but the cloud is largely in India. Security is a mixture of India and international.

And we are doubling our focus in the international markets by taking some of our cloud stock opportunities there. So that is a critical opportunity. The third is the Interaction fabric because we have invested in Kaleyra. We see a lot of excitement from customers because Kaleyra has a powerful platforms. And combined with the brand of Tata Comm, there is a lot more confidence in using the platform. So we see a lot of opportunity with customers. And as I said, we are going to be further investing in the platform, besides realizing all the cost synergies that we see, to further invest in the platform to build out the software layers for orchestration and intelligence. So that is our third.

The fourth is IoT Fabric and Sanjesh, there, they are quite different. We have [Audio Gap] I don't want to call out any particular thing to say, we're going to be focusing more and less there. All four are equally focused. They are run by separate teams. And we are allocating [Audio Gap].

[Sanjesh Jain, analyst]

Sorry, I think there is some gap in between. There were blanks, but I got the broader message. The next question on the India business, Lakshmi, that looks like has significantly deteriorated or decelerated to five-odd percent kind of a growth. I hear that there is an increased competitive intensity in the Indian market. Do you believe next year could be a fierce competitive year and India market will struggle to grow? Do you see that scenario panning out?

[Amur Lakshminarayanan, executive]

I have called out India, we have grown 13%. So I don't know where -- into enterprise market.

[Sanjesh Jain, analyst]

So the 13% is only for the enterprise, Lakshmi. I guess overall, India piece has grown only 5.8% Y-o-Y.

[Amur Lakshminarayanan, executive]

Yes. So that's why I did call out the service provider and the OTT segment there. The OTT segment, we put large hyperscalers and others into that segment, Sanjesh. And there, I think the context is these people had invested a lot of capacity during COVID and post-COVID and there was some moderation, and it should pick up again with them investing in more data centers, we should come back up again. So I think that's more a significant feature.

But the focus on enterprise is the topmost focus, and we are very happy with the 13% growth. I think we can do more with our expanded portfolio, and we'll be pushing for accelerating that further.

[Sanjesh Jain, analyst]

Got it. Got it. Got it. I got one couple of questions. Sorry for I'm pulling it a little bit more. But on Kaleyra and Switch, what has been our Y-o-Y growth for us because we don't have a comparable number for last year? Can you help us understand how have we been growing on those both businesses?

[Kabir Shakir, executive]

Sanjesh, let me chip in here. Although we call out underlying data revenue at 8.8% and -- and including acquisitions so much. If I have to be honest about it and this Lakshmi alluded in his qualitative description, we are running this business as an integrated business. So let's say Kaleyra, right? We are stripping out all of Kaleyra's numbers as acquisition and reporting the balance as underlying, which is a little unfair. Why? Because we had a DIGO funnel, which before the acquisition. And now we are looking at which is the best way to serve our customer. And in majority of the cases, we are going, as Lakshmi has pointed out, we are going with the Kaleyra paper, right? We are selling that product. So -- and the same with Switch as well, right?

We are going in a combined way together. And even from a structure point of view, we have one common leader for these businesses, who are looking at these products as one integrated offering to the customer. So after a point in time, we're like splitting hair to then say what will be separately this growth without that and stuff like that. I mean I'm still reporting it for better governance and transparency to TheStreet, because one of them came to us with money having been paid to acquire that capability. So 12 months, we will have that and hopefully Switch, that problem will stop in May. It would have completed the 12 months, and we will get into a completely regular way of reporting growth. And it will take 6 more months for Kaleyra. And in Q3 of FY '25 onwards, then you will see all that completely normalized. So it's a little difficult for us to peel that out timely.

[Sanjesh Jain, analyst]

Got it, Kabir. My only intention of asking that question was to understand with Kaleyra in place because that's a heavy portfolio, will the 20% growth become a difficult if Kaleyra doesn't grow by 20%.

[Amur Lakshminarayanan, executive]

Life is not easy, Sanjesh. We will.

[Sanjesh Jain, analyst]

No, no. Because we are just hearing that globally the CPaaS business is...

[Amur Lakshminarayanan, executive]

So I think the -- this market, we can only look at -- keep an eye on the future. My belief is that the B2C players, their interactions with the consumers are not going to decrease. There is going to be more channel diversity that is what is going to happen. SMS will decrease today 99% of the interactions or 95% interactions are all on SMS channels. That will diversify into other channels. And as I said, we will -- we have already diversified into other channels. We will further diversify with other capabilities there. And we have to build out the stack on top, which is where more value-added offerings will be there for customers.

And that will also help us to deliver better margins in the platform. So that is what we need to do. So in the long run, I don't believe the interactions with consumers are going to be reduced in any form or shape. It's only going to be increasing. Only the channel diversity is going to happen.

[Sanjesh Jain, analyst]

Fair enough. Just one last question from my side. We are today at 18.6% margin. The ambition is to be in 23% to 25% range. Can you help us understand the bridge, what is going to drive? Or what are the levers for the margin we are looking? Because the mix is only going to deteriorate towards more digital in terms of margin profile. I understand ROCE profile will improve. But what are the levers are we looking where we already have a few tracks on the margin?

[Kabir Shakir, executive]

I will take that, Sanjesh. Sanjesh, we are confident we will get back to the 23% to 25%. Multiple moving parts within that. First and foremost, you should see a good improvement in FY '25 itself. So this is all not back-ended to FY '27. So we will see that already next year, a little bit of an improvement as Lakshmi called out. We did spend money on M&A, not just the impact of the acquisition but also cost that was actually spent on due diligence and fees and stuff like that.

So those elements will come off, which are not going to be there. Second, we obviously spent a lot of money in terms of our organic investments in the 0, 1, 3 stage. Those should give me operating leverage as well, and that should come back because I'm not going to continue to spend money on them. I will be looking for growth and revenue coming in from there. So the NR margin should directly flow into LOP into EBITDA. So that is, I would say, the second lever.

And the third one is you've seen -- we've done some strategic review, took a call -- a hard call on one of our subsidiaries TCTS on getting out of [indiscernible] contract. Our TCPSL business is doing well already. We've moved the profitability needle up significantly. Likewise, there are other elements also which we will be more sharper focus there and sweat it out. So I would say multiple such levers that we will play into the picture and bring that entire thing.

[Sanjesh Jain, analyst]

Got it. Do you see net profit margin improving? Or you think it will be below the net profit, the leverage will be more for us?

[Kabir Shakir, executive]

Sorry, when you say net margin or you mean PAT?

[Sanjesh Jain, analyst]

Net revenue margin.

[Kabir Shakir, executive]

Net revenue margin, you -- that's -- your point is right. Net revenue margin will have the dilutive impact of the change in mix as we drive digital portfolio harder, right, because they come at a lower net revenue margin compared to the core connectivity business. So there, there's going to be a headwind. And the way in which we are managing is that inter tower, inter business headwinds, the businesses themselves need to take care of. The inter company, within the company level, what headwind is there is what should get offset by the operating leverage. But as we mentioned earlier as well, we have a glide path for each of them.

Now the glide path is whether it is organic operating leverage or whether it is cost synergies coming in from the M&A, our revenue synergies then flowing into margin. I think all of those levers are there by product category, and we have even broken it down to a more granular level by drivers as well, and that is what the governance that we follow to get them to the destination market.

[Chirag Jain, executive]

The next question is from the line of Mayank Babla from Enam AMC.

[Mayank Babla, analyst]

Am I audible?

[Chirag Jain, executive]

Yes, Mayank.

[Mayank Babla, analyst]

Sir, a while back, you had announced that Tata Comm's partnership with NVIDIA. I was wondering if you could give us some detail about this partnership, the nature of it and the scope or potential it has for us.

[Amur Lakshminarayanan, executive]

No, I won't be able to give a lot of details at this stage, Mayank. What we are doing is there is a solid partnership that is emerging. We are working very closely on the various aspects of the architecture and the build-out, and we will be preparing ourselves for a launch during this year. And there's a lot of good interactions that happen in terms of the use cases and very many things.

So as far as our ambition is concerned for AI cloud, we believe AI has a huge potential. And in India, particularly with the launch of our AI Cloud, we will be able to help and move the needle -- the government has announced a huge commitment to use AI as well. A lot of start-ups and enterprises, they have to go through the maturity curve or from the hype that is there today to actual use cases and training with the data, get more data discipline to make use of all of these.

So there is a big potential. And we think that even the AI Cloud, even though it will be built in India and launched it India, there is a potential for even international customers to use this in due course. So we are quite excited about the opportunity, and we are working very diligently in going through all the details, making sure the launch is successful.

[Chirag Jain, executive]

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

[Gautam Rathi, analyst]

Rathi from Chanakya. Just Lakshmi, I think I missed the number, but you said that you added -- the number of new logos you added -- you gave a percentage. Could you just help us understand that data number, something like 90%?

[Amur Lakshminarayanan, executive]

Correct. I know I talked about the revenue growth in new logos is at 90%. Now there are a few things we have done from the sales teams. We had brought about a team that focuses purely on going after the new logo, and that has helped us in a way and that focus helped us in acquiring new logo. And secondly is the quality of the new logo that we get as well in terms of what revenues we get.

So that's been a change that we did last year in terms of how our sales teams got organized. And that is what I was reporting as. And I think the one thing we have to keep in mind is it's starting off from a fairly low base, but it's delivered good results as a result of the focus that our sales team has brought about in it.

[Gautam Rathi, analyst]

And Lakshmi, if I understand it right, what you're basically telling us is that the more structural part of the business, which is your enterprise business, is seeing decent traction and is growing well, though, you would want it to grow faster. But it is the more cyclical part of the business, which is kind of right now a bit more impacted. Is that understanding right? And how -- and historically, when you've seen -- you must have seen many of these cycles. How much time does it take for it to come back? And can it come back pretty strongly whenever it does when these cycles correct?

[Amur Lakshminarayanan, executive]

I think your observation is very spot on. I think the enterprise business, both in India and internationally is quite good. And as you called out, it's not as fast as we would like it to be, but it's still seeing good growth. The -- the growth got pulled down largely from our OTT and the service provider segment. I wouldn't call them cyclical, but what has happened, especially with the OTT segment is, as I mentioned earlier, I think there was a lot of capacity that had built. And also last year, they focused more on their build-out of data centers and others.

And therefore, the growth on the network side didn't happen for us as much as the previous years. So -- and also the OTT business in some parts, we also had the messaging business, which had some cyclicity. The other part to the question is also, if you look at our portfolio, the next-gen connectivity had very good growth. The Cloud and Security also had double digit, even though it's not as much as in the past. The collaboration, as was observed earlier, is -- has been static and there are many moving parts in there. We sort of revitalized that portfolio with a very combined GlobalRapide, which is GSIP, Cisco and Microsoft. There are moving parts in that business that happens.

And we were prepared for that business to be of a lower growth, which is why we started investing in DIGO at that time. And therefore, we'll focus more on the customer interaction side. On the GlobalRapide side, we believe the growth will come back. We've also invested and launched on a product called Jamvee. They're all in very early stages, so they should come back. So each of these portfolio has a different rhythm within our company. Some of them are affected by the macro as well. So it's a combination of factors. But as I called out, the four fabrics in the company, we will continue to invest in all the four fabrics.

The big chunk of focus needs to be in the international market, which is -- where there is a lot more of headroom for growth purely by the size of the market. But the international markets also have strong incumbents and we are looking to replace the incumbents through the power of the offer that we have and the capabilities that we bring to the table. And we are seeing that steadily happen. Clearly, with our brand, as I said, the awareness levels are very low. I mean, interestingly, in one of the products we did a test, and the awareness levels are low.

And I think we need to improve our awareness levels. Our -- despite our investments to increase the sales headcount and the strength there, it's nowhere sufficient to reach the full aspirational potential. And therefore, we will be increasing our marketing spend. We will have to continue to spend on the sales and increasing the capacity of the sales and gearing our teams to do more larger deals, which means that they do take time to shape. They do take time to close.

So we will have to get used to all of these cycles, but the opportunities are there.

[Gautam Rathi, analyst]

Sure. And Lakshmi, just wanted to understand, like some of the deals, is it possible that there are certain deals that have been won, which are because of the slowness in the market are taking time to scale up or are there certain -- is there certain pressure on the usage side? I'm just trying to understand, see, there are two ways that the revenue comes back, right? One way is you win new deals and they will show up in the subsequent quarters eventually, right? And the other thing is there are certain parts of it, we are lapping certain quarters where certain parts of the portfolio started slowing down a couple of quarters back. And once they come into the base, the base impact will come out of it. Or the third is that the usage or certain deals start scaling up. So I'm just trying to understand if you could give some sort of color as to how should we think about it, the drivers of growth for maybe specifically FY '25?

[Amur Lakshminarayanan, executive]

Yes. So FY '25, largely the focus and the drivers of growth would be the next-gen connectivity, whatever we've booked the orders last year as we start to deliver the revenues will come. Hopefully, the order booking will improve as the conditions improve because parts of the -- what we book in here gets realized in the year itself, especially if the order booking happens in Q1 and Q2. So we are hoping that conditions will improve and we can do that.

In the usage side of the business, it's more about acquiring new logos, going to the existing logos to diversify the channels beyond SMS. And we are seeing, as I said, with Kaleyra, particularly with Kaleyra and Tata Comm now working together, the leadership is in place and the motions of how we take it to market is falling into place. So with that, we will see some acceleration. We are acquiring customers, but it is also a factor of how these customers actually ramp up and put their traffic through our platform.

So there are a couple of dependencies to it, but we'll have to work through those factors. I think there was a question on the cloud. I did mention there was a -- as everybody else, we also saw a slowing down, but we were still at a good double digit on the cloud and security portfolio. And as things improve, we believe that should accelerate. So the way -- that is how I would see how it will shape up. And I did say that the order booking had slowed down, which will have an impact. But we also have a lot of organic business growth possible in the usage side from Kaleyra, the Switch integration, which brings the occasional use, the number of events that we do in the media is increasing, and that should help us as well.

So different portfolios will have different cycles, and we are monitoring. How it pans out immediately in the quarter or something is difficult to say. But as I said, we are very cognizant of the fact that we need to deliver at least a 15% to 20% growth in order to realize our ambition that we stated out. And we are very, very focused on delivering on that ambition.

[Gautam Rathi, analyst]

No, I think -- which is very fair, the question. And I think to some extent, if I understand it right, you're saying that in a quarter or 2, you don't know. But for the full year, there are enough and more levers for you to kind of deliver the 15% to 20% growth despite the slowness in the macro and the last couple of quarters that we've seen. You feel that, that is a doable task from what you see today, right? How it pans out, eventually, it's a different matter, but that -- we just wanted to understand from where we are in terms of orders, which we booked and the slowness that you've seen, is it...

[Amur Lakshminarayanan, executive]

If your question is, do I have 100% visibility to deliver what I'm saying? The answer is no. I mean if it was there, then I'll probably be on vacation tomorrow onwards, right? So that's not the case. We have to -- still a lot of work to be done in order to -- because in your order booking is as important as the orders booked last year, some of these conversions do take time. All I'm saying is from a qualitative perspective, we would -- the kind of conversations, I just had a trip to the U.K. last week. The conversations have been very good. The customers still want to engage.

I was just telling -- and one of the customers did tell us that changing the network is touching a live wire. There are applications that are running today. And changing anything, they have to do it very cautiously, right? So it's not like in an application world where I can build a new application and put a new application. So this is somewhat different. So we understand the mechanics that customers go through. But all I'm calling out is the opportunity exists. Obviously, we have to get into the consideration set, which we are now increasingly getting into. And then we have to win and close it. The confidence level of the growth comes from the fact that the inorganic acquisitions will start to play this year, at least. We will see the benefit of those coming through. And that is why I'm saying that this year is critical for us to ensure that these -- the go-to-market motions of both Switch and Kaleyra we get it right, and we bring the full year benefit of the acquisitions to play.

And organically, we should go to more enterprise customers to pitch ourselves in the international market. So those are the colors that I can give you in how we are seeing the picture.

[Gautam Rathi, analyst]

That's very fair. Just two more questions. One is on the IoT stroke move portfolio, right? It's a portfolio, there was a JLR announcement also that you put out, the partnership getting more strong out there. And autos have started to do well. So that's one portfolio. How should we think about it? Given that you had an early leadership in that platform. It's been -- it's -- at least optically, it looks like a fairly disappointing year in that portfolio there. Any light on that portfolio, particularly the IoT move portfolio?

[Amur Lakshminarayanan, executive]

Yes. I think the -- in the whole -- I think we club it all into incubation and give the numbers to you there. There are a move by itself has delivered a double-digit growth, but nowhere near the expectations we ourselves have of that business, right? So we have to do a lot more. I think the key levers for that business is to strengthen our position in the auto OEM world. We have won a few in India. But in the international markets, we need to expand beyond JLR. So that is very critical for us to achieve.

The other ones in helping the MVNOs to launch and the airlines, they are sort of going on as normal. So -- but the big needle shift will come from the OEM business, which is what we'll need to work towards. The second aspect of the portfolio is about the IoT business. I think the IoT business, we had a big fillip as a result of a major deal in the international market last year. And the replication of that is what we need to work on for that business to grow. We are also expanding the capability there with a lot of video analytics combined with our edge. So that's a new product that we are taking to market.

So I think that is still in the early phases of, shall I say, getting the offerings right and pivoting the business from one to another, right? So that is what we are doing in that business. And we will keep a very close watch on that to see how we deliver the growth.

[Gautam Rathi, analyst]

And then the last question is on the balance sheet side. We see a big increase in the current liabilities line item. Some of it could be explained, I think, by a big increase in current taxes. And there seem to be some other current liabilities, which have increased. Kabir, can you just help us understand what this could be? How should we think about this?

[Kabir Shakir, executive]

Three, four elements, Gautam. One, I mean the absolute increase is also because of the impact of acquisitions. So when they came in, you just add them together, about rather INR 250-odd crores is just on account of the impact of acquisitions. If I take that aside and then look at BIU business, I think there are three components to it vis-a-vis last year. The first one is we are in a continuous mode in terms of balance sheet cleanup, so past balances on vendor [indiscernible] and stuff like that, which we had cleaned up. So therefore, that cleanup has removed, of course, the credit. But from a working capital point of view, it has the opposite effect.

We've had some increase in prepaid expenses that are all growth related. They are deal-specific, but that's another chunky item that we had. So those are two big elements from a BIU perspective. And yes, I would say those are the ones which are impacting our working capital numbers. I mean, sorry, the last one was we did create this new entity, Novamesh, which you are aware of. As we actually transition it, we had put a pause to the billing and the collections of it in March until we get the new GST registrations and all of that as well.

[Gautam Rathi, analyst]

Does that mean that some of the revenues in the month of March are unbilled and stand in unearned revenues in the -- in your revenue?

[Kabir Shakir, executive]

Yes, that's correct. And also, there is a reclassification of long-term borrowings to short term when you see the period, the moment it's less than 1 year, they get reclassified as well.

[Chirag Jain, executive]

In the interest of time, we will proceed to us closing the call. Before we close the call, I would request Lakshmi to share his closing comments.

[Amur Lakshminarayanan, executive]

Yes. Thank you all. I think I mentioned there are critical things that we need to do for the year ahead. Our #1 focus is to make sure that the Switch and Kaleyra acquisitions are well integrated in the business. The process is very strongly on. And in the portfolios of network fabric and cloud and edge and the Interaction fabric and the IoT fabric, we are going to keep a sharp focus to make sure that they can deliver. I think we called out on all the levers available for us for the growth in the margins, and we will look forward to executing on those levers.

I think the biggest excitement for me is as we talk to the customers, the ability to engage at senior levels and increasing relevance of Tata Comm's portfolio to them is the most encouraging sign for us. And we'll have to capitalize on that to get into their consideration set and participate in opportunities and then win those deals. So I think those are the factors that I would be focusing on.

[Chirag Jain, executive]

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