Tata Communications’ 2008-09 results hit by higher interest outgo

Tata Communications’ performance during 2008-09 was a mixed bag. Its sales increased smartly, by 20.1%, driven by an expansion in the volume of traffic it handled during the year. Its profit declined by 2.4% due to a sharp jump in interest costs.

On the standalone front, its sales increased by 13.2% but profit before tax and exceptional items stagnated due to a sharp jump in interest costs. Its March 2009 quarter results were not good. Sales grew by just 3.7% and PBT (before exceptional items) fell by 48.6%. Here, its not just interest but higher depreciation costs too have hit its bottom line growth.


Consolidated revenues grew by 20.1% to Rs 9,963.2 crore, an excellent performance in a tough year. However, the company release does not attribute reasons to this performance. Its revenues in India had grown by a much lesser quantum. But it would appear that its international business has prospered.

Tata Communications has increased its equity stake in African fixed line operator Neotel, from 43% to 56%. After becoming a subsidiary, its financials will reflect to a greater extent in the holding company’s financials.

The company’s operating costs grew at a much lower rate compared to sales, at 16%. Hence its operating profit margin improved to 13.5% from 10.6%. Even in 2007-08, it benefited from lower interconnect charges, pass-through of lower telecom costs and benefits of integration of its various acquisitions.

Depreciation, amortisation and impairment costs jumped by a sharp 40% to Rs 1,102 crore. The company has been implementing a sizeble capex programme, that may have led to this.

Profit before exceptional items rose by a smart 41.1% to Rs 457.6 crore. Here’s where interest costs kicked in to spoil the party. Net interest (interest expenses less interest income) jumped by 83.5% to Rs 301.3 crore. The company had debt of Rs 3,042 crore as of March 2008. At the beginning of the year, it had forecast a capex of Rs 3,946 crore for 2008-09 and had also approved a $226mn (Rs 1130 crore at 1$ = Rs 50). Hence, its borrowing would have jumped substantially.

As a result, its profit after interest declined by 2.4% to Rs 156.3 crore. But exceptional items, chiefly Rs 362 crore earned as profit on the sale of its investment in Tata Teleservices, propped up net profit growth. Its net profit for the year was Rs 192 crore compared to a loss of Rs 28 crore in the previous year.

What the company does
Tata Communications operates in the international long distance telecom market, internet services and also provides national long distance services in India. It also owns a majority stake in Neotel, a South African telecom services company. It has made some significant international acquisitions, giving it a presence in the global telecom services market and operating undersea optical fibre networks that carry voice and data across the globe. While it does have a retail consumer base, it primarily provides services to business users and to other telecom service providers. The company gets nearly 50% of its revenues from international markets.

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