Good evening, everyone, and a very warm welcome to you all. Thank you for participating in the Q2 FY 2026 earnings call for Tata Communications. My name is Sudeshna Patnaik, and I'll be your host for the call. We are joined by our MD and CEO, Mr. Amur Lakshminarayanan, our CFO, Mr. Kabir Ahmed Shakir, and our Head of Investor Relations, Mr. Rajiv Sharma. The results for the quarter ended 30th September 2025 have been announced, and the data pack is available on our website. We will begin today's call with opening remarks from Lakshmi on the business performance and outlook, followed by Kabir on the company's financial performance. All participant lines will be muted for the duration of the call. There will be an opportunity for you to ask questions after the management remarks.
Some of the statements made in today's call may be forward-looking in nature and are subject to risks and uncertainties. The company does not undertake to update these forward-looking statements publicly. With that, I would like to invite Lakshmi to share his views. Thank you, and over to you, Lakshmi.
Thank you, Sudeshna. Let me begin by welcoming you all to the Q2 FY 2026 call. Starting with the financial performance for the quarter, our overall revenues came in at INR 6,100 crores, 2.3% Q on Q, and 6.5% year-on-year growth. EBITDA grew by 3.2% Q on Q and 3.9% year-on-year, INR 1,174 crores. EBITDA margin came in at 19.2%, an improvement of 17 basis points quarter on quarter. Before I dive further into our performance, let me touch on the strategic bets we outlined at the Investor Day. I'm pleased to share that across our strategic bets, we are seeing strong progress both in product and capability build-out and early customer traction. AI plays an important role for us across these products, and more so with our strategic portfolio. We launched our Voice AI platform, which is powered by Agentic AI.
This will strengthen our Kaleyra AI platform, its value proposition very significantly further. Our next strategic bet, AI Cloud, is seeing good customer traction, largely for model training purposes. A standout win this quarter is our engagement with the largest payments player, which will be leveraging our sovereign cloud for advanced AI use cases. Additionally, Agentic AI, running on our own AI Cloud as a combined value proposition, is proving to be extremely beneficial to our customers. The Digital Fabric tool, which provides intelligent orchestration across the fabric in both India and international regions, is coming out as a valuable differentiator. This Digital Fabric tool, which is one of the strategic bets we called out, gave us a clear edge in securing a large deal with the GST Appellate Tribunal under the Ministry of Finance.
To sum it up, we are encouraged by the traction that we see in the strategic bets, that we are in various stages of product evolutions, which is the early stages of stage zero and one, and believe that they will contribute at least 10% of incremental digital revenues for this year. Coming to the order book, our enterprise order book has seen a double-digit Q on Q growth. Overall, the order book is flat, driven by headwinds in the service provider segment. Our funnel continues to be robust, with 60% attributable to digital services. We're making significant progress in our position as challengers in the international markets. In the European market, we won a multi-year, multi-million dollar deal with a German manufacturer. This is an existing customer for us on the network fabric, and we were able to further expand our relationship through our security offering.
In APAC, we won a large deal with one of the world's largest mobility players for our interaction fabric. We are seeing some strong new logo additions in the international regions. Our international order book has grown healthy double digits this quarter. Coming to more on financial performance pertaining to the data portfolio, data revenue grew by 0.9% Q on Q and 7.3% year-on-year. Data EBITDA margins were up 144 basis points Q on Q. The core connectivity business came in at INR 2,637 crore, a sequential growth of 0.6% Q on Q, an increase of 0.9% year-on-year. We faced subsea cable cuts in the Red Sea area, disrupting internet and data traffic between Asia, Europe, and the Middle East regions. While traffic restoration efforts by alternate available routes on our network and source from market are underway, we expect the impact to continue into Q3 of FY 2026.
Growth drivers like the data center-to-data center connectivity in India continue to see strong demand and will help us to mitigate some of these impacts of subsea cable cut disruption. While we are leaders in the DCDC connectivity in India, we are also exploring investing in international DCDC propositions as well. Digital revenues came in at INR 2,542 crore, increased by 1.3% Q on Q, 14.9% year-on-year. The growth was broad-based, and all parts reported double-digit year-on-year growth. It is worth highlighting that the next-gen connectivity and media reported closer to 30% year-on-year growth rate. Cloud networking, along with ISO hybrid WAN, have contributed significantly to the growth in the next-generation connectivity portfolio. MOVE and IoT fabric reported a decline, largely due to access pricing erosion. That said, the volume growth continues to be robust as the number of active SIMs under management increased by 21% year-on-year.
We're making progress with our platform strategy and have signed two marquee partnerships with Cisco and BSNL for our MOVE platform. Cloud and security fabric revenues were up 13.1% year-on-year. We won a deal with a large Indian fund house where we are establishing a dedicated disaster recovery site to ensure compliant and seamless recovery. We will also provide end-to-end managed services across network, data center, and security with SLA-backed support. We are seeing increased traction in security transformation deals, particularly in the next-gen SOC and network security. We remain confident of achieving mid-to-high teens growth in this segment for the year. Interaction Fabric, which is 49% of our digital portfolio revenues, reported 12.9% year-on-year growth. We are seeing a steady uptick in our enterprise revenue. There is also a gradual revenue share shift from SMS to non-SMS, and this shift will help us to monetize the orchestration layer better.
To sum up, we are encouraged by the growth in digital services, growing traction in our strategic bets, and increasing relevance in the international markets. All put together is giving us confidence that we are moving in the right direction. With that, I'll now hand over to Kabir to deep dive into the financial performance for the quarter.
Thank you, Lakshmi. Before I start, let me remind that our numbers under discussion today are, as per the continuing business reported in our data pack. On our financial performance, Q2 FY 2026 revenue growth came in at INR 6,100 crore, a growth of 2.3% quarter on quarter, and a growth of 6.5% year on year. Normalizing for forex impact, the revenue growth is up 0.4% quarter on quarter and 2.6% year on year. Data revenue for the quarter came in at INR 5,179 crore, a growth of 0.9% quarter on quarter and 7.3% year on year. Core connectivity revenues came in at INR 2,637 crore, a growth of 0.6% quarter on quarter and 0.9% year on year. While core connectivity had a better quarter, upsides were impacted by the cable cuts in the Red Sea.
Digital revenues for the quarter came in at INR 2,542 crore, a growth of 1.3% quarter on quarter and 14.9% year on year. Our focus continues to be profitable growth, and this reflects both in NR margins and in data EBITDA margins. Net revenue came in at INR 3,413 crore, a growth of 3.7% quarter on quarter and 2.8% year on year. Overall, net margin improved by 75 basis points sequentially to 56%. Happy to highlight that we are seeing healthy improvement in NR margins for our AI Cloud portfolio this quarter. EBITDA for the quarter came in at INR 1,174 crore, up 3.2% quarter on quarter and 3.9% on a year on year basis. Our EBITDA margins for the quarter were 19.2% and improved by 17 basis points quarter on quarter. Data EBITDA came in at INR 964 crore, up 9.4% quarter on quarter.
Data EBITDA margins improved to 18.6%, improvement of 144 basis points over Q1. We've been investing in strategic bets over the last few years, and Lakshmi highlighted the progress we are making in these bets. We are transitioning from capability building phase to monetization, and we will start seeing the compounding over time. The fact that they will start contributing meaningfully to incremental digital revenues in the coming quarters should accelerate our journey towards profitability. This is exactly the operating leverage we have been mentioning about in the past. We shall now start seeing this to play out. PAT for the quarter came in at INR 183 crore, declined by 27% on a year on year basis. Net debt for the quarter stood at INR 11,315 crore. Increase is driven by dividend payments of INR 720 crore and also continued investments in STT to maintain our stake.
Forex also had an adverse impact on net debt, resulting in an increase of INR 222 crore. Net debt to EBITDA therefore stands at 2.45x. FCF for the quarter came in at INR 216 crore versus a negative FCF in the previous quarter. The increase was driven by improvement in working capital and higher EBITDA. Cash CapEx at INR 506 crore is lower versus Q1 by INR 127 crore. ROC came in at 15.1%. Our ROC is based on 12-month rolling numbers. ROC is negatively impacted by forex and investment in STT. A pursuit towards growth with profitability will address declining ROC in the coming quarters. Coming to subsidiaries and real estate, the revenues for the quarter were up 8.1% year-on-year. Breaking it further, TCTS revenue came in at INR 264 crore, up 1.4% year-on-year.
TCTS EBITDA for the quarter came in at INR 54 crore, and EBITDA margins came in at 20.4%. TCR revenue came in at INR 202 crore, up 27.7% year-on-year. TCR EBITDA at INR 89 crore and EBITDA margins at 44.1%. I would conclude by saying that double-digit growth in our data portfolio and our digital portfolio, combined with improvement in data EBITDA margins, is setting us well to continue our journey towards profitable growth. Let me now ask Sudeshna to open the forum for Q&A.
Thank you, Kabir. We'll wait for a minute for the question Q2 assembly. Interested participants may click on the raise hand icon at the center bottom of the pane on the application. The first question is from the line of Sanjesh Jain. Sanjesh, you have been requested to unmute yourself. Please proceed with your question. Sanjesh, please proceed with your question. Sanjesh, we can't hear you. We will probably move to the next question. The next question is from the line of Aditya Suresh. Aditya, please unmute yourself and ask your question.
Yeah, thank you for the opportunity. I had a few questions. Maybe first starting with the data center announcements. We've obviously seen at an industry level a slew of announcements, whether it be the hyperscalers or IT companies. You're obviously a leader in this space from the DCDC connectivity perspective. Even in a zoomed-out manner, as a starting point, could you just help frame the opportunity which you see both in India? I appreciate that you also made a comment about exploring international markets. Maybe if you can just speak about the opportunity that you see as addressable and also the roles in itself which you see playing beyond just connectivity. Thank you.
Sure. Our core premise in our core connectivity has been that in India, we saw a growing demand for data center capacity. We think in the next five years, the data center capacity would double. We are very well positioned as a leader in the data center connectivity space because it requires a highly performant, highly reliable, resilient, low latency capability, both from a technology perspective and also from the ability to service these clients extremely well. That is how we are seeing the market. That is the reason why, while globally, the core connectivity market has been on a declining trend, we called out that we would see a growth, and we are betting on a steady growth in that space. Now, AI clearly has given a tailwind in the data center capacity space, and we will want to fully maximize on that opportunity.
Even internationally, not just because of the AI, but many of the large customers are looking at their data center strategy, looking at their cloud strategy to see what is the hybrid model they want, what do they want to keep on-prem, how much do they want to do on private clouds, and how much do they want to do on the public cloud. We believe that large enterprises will want a lot of private cloud solutions and consolidate some of the data centers, which is the reason why we are exploring the DCDC connectivity options to be delivered internationally. We already do that for several large customers, and we are exploring how to further strengthen that. That is one on the core connectivity side.
The second equation of the AI that you pointed out, that a lot of people are investing in data centers specifically for AI, we have the entire Digital Fabric is geared towards that, not just the core connectivity which does the DCDC connectivity, but also in all these places, people are going to be in multi-cloud, and they're going to have workloads running in multiple places. They will have training in one place, inferencing in another place, which requires multi-cloud connectivity. That is where we have launched a product for multi-cloud networking. Already, we had a site-to-cloud networking product in the market, and we are enhancing that with a multi-cloud networking. We probably will be a very unique player that will offer both site-to-cloud and to network within the cloud. That is one of the strategic bets.
That will play out very well as people move to cloud and people start to train and inference with their distributed data. Secondly, with our AI Cloud, our goal is to build the most efficient AI Cloud for customers. We are one of the very few players, probably only one in India, which have done the liquid cooling. It has shown that in the last few months, where we have actively deployed the GPUs for our customers, very high availability, the power consumption is low, which is why we've been saying that this would be one of the best-performing GPU clouds available in the market. We are topping that up with the capabilities of AI Studio and Agentic AI and so on. Ours will be an all-rounded capability that we can offer to enterprises and to leverage the expansion of AI-based opportunities in the market.
Thank you, Lakshmi. Thank you, Aditya, for the question. We will move to our next question. Sanjesh, I've tried to unmute you. Please unmute yourself and ask your question.
Yeah, thanks, Sudeshna. Yeah, good evening, Lakshmi. We hope you can hear me now. Yeah, a couple of questions from my side. First, on the order book, Lakshmi, a flattish order book after a good growth in FY 2025. Now, what's transpiring here? I thought we have built a decent funnel, and we have crossed the journey of a longer decision-making. I thought now the order book growth should come more consistently. What suddenly has happened where the order book again for the first half has been flattish for us?
On the Sanjesh Shah, the order book is, as we go into larger deals, they are a little bit lumpy in nature. In the last year, we saw good order booking in Q1 and Q2 on the back of some of the larger deals.
We did call out Q3, Q4 was partly macro, where we said the order book had gone to more of a steady state situation rather than the increase that we saw in Q1 and Q2. This year, definitely the order booking is much better than the H2 of last year. Compared to the Q1, Q2 of last year, it's somewhat low. As I called out in my commentary, the enterprise segment order booking is still quite robust. The service provider segment is somewhat static. The OTT side of the order booking is anyway a bit lumpy. I will not read too much into that. I think we are still seeing a good funnel. We are winning large deals in the market, both in India and the international side. I don't think we are very concerned.
For us to increase this even further is where we are looking to see how to even more have coverage in the international markets. We are also exploring alternate GTM models for some of the newer products with more digital-first model, as well as the partnership and distributed models are all being explored. That's the color on the order book, Sanjesh.
Got it. Got it. To summarize, first half was high base. On a high base, we are flattish. We will hit a more normalized base second half, so we should see an order book growth. The quality of order book has improved because we are booking more enterprise and less of services. Will that be a fair summarization?
Yes, I mean, that's true.
Yeah, that's true. Thanks.
Second, Lakshmi, on the digital services, on the back of a nice order book growth in FY 2025, I thought we would cross a 20% growth. Again, a 15% growth. Why? On a net revenue, it is significantly lower, 5.7%. I think the growth is coming from CPaaS. Net revenue conversion obviously is much inferior. That again doesn't show a much exciting number. How to read this?
Even last year, I called out some of the order booking. The time to revenue varies. We did call out a good Q4 on the back of some of the deals that we won in Q1 of last year. I pointed out some of the deals, especially in the media, we said it'll play out in Q2, especially the World Athletics order that we called out last year itself.
Another order which we called out with the hyperscaler last year will only play out in the end of this year. The time to revenue of some of these order booking is quite varied. It's very difficult to give a consistent view of the conversion of revenue and time taken to revenue because it depends on the product portfolio and the customer, which is we have been very explicit about calling this out and mentioning that. I don't think I would read much into that conversion and the reason. This quarter, in terms of our overall digital revenues, if you see the digital revenues have grown, there have been some delays that got pushed out to the next quarter. Having said that, the next-gen connectivity and the media has grown 30% year on year. We see that some of the pushed-out ones will play out in the H2.
That is how I would look at the conversion from order booking that we talked about to revenue.
Again, on the cloud side, Lakshmi, within digital, we are so gung ho about the cloud, AI Cloud, GPU as a service, and security. The number at 13% growth really doesn't justify the kind of opportunity size. We being so low on the base, what's really happening in the cloud? Why it's not translating opportunity or a potential not translating into a number, particularly in the cloud? I thought that is a segment which can grow at a much higher clip on a base we are today.
We don't separate out cloud and security. Both portfolios together have grown in a mid-teen, year on year. Having said that, it is lower than the growth that we have had in the past. There are many reasons.
I think some of the attrition that we had last year, which I called out, a couple of customer-specific things, that has contributed to some of the slowdown. Having said that, our order booking, specifically on the cloud, this quarter has increased year on year in mid-teens. We see a good pipeline for the next quarter for conversion as well. Specifically on the AI Cloud, we have won some marquee deals, which is what I called out. I think our performance of GPU in our ability to service that with very high uptime and reliable solution is playing out very well. These will take some more time. I'm still bullish and gung ho about the cloud and security. In the security space, we continue to win large SOC deals. We continue to win the network security deals internationally.
I called out one of our existing customers in Europe where we expanded our security footprint for them. We are also further investing in the security space. That is one of the strategic bets that we called out as to how we leverage our edge, our own CDN software that we have developed, the DDoS software that we have developed that we deployed for the Olympics earlier this year. Combining all of those capabilities is what we are putting together, an edge distribution platform for helping enterprises to deliver better application performance and security is what we are working on. This whole space, we will continue to invest. We continue to be bullish. There have been some blips for the reasons that I called out, but we are still very bullish about this portfolio.
That's clear.
One, if I can ask in relation to TCS, which has announced a very large investment in data center, how at the group level we are looking at the synergy? We have our own stake in STT. TCS is coming up with a very large investment in the data center. We have a nice DCDC connectivity. Now we are getting more bullish on the services layers, a private cloud or a GPU as a service. Within the group, how do we want to exploit these opportunities with TCS having both passive and the application layer? We are in between them. How is the synergy going to work and how it's going to benefit Tata Communications in medium to long term? What's our take on STT stake now that TCS is getting into data center business?
There are several questions in this question, Sanjay, some of which I cannot answer.
All of these are independent companies. STT has its own board. We have, and so is TCS. All I would say is, and as you rightly pointed out, our offering sits very nicely to be able to take advantage of growing data center capacities in India. As enterprises mature in their AI journey, we believe there is going to be a lot more of AI workloads, not just for training, but also in inferencing. We are well positioned with our full stack, not just for training, but also on the edge inferencing. We have recently won a few deals with our edge cloud in factories for vision analytics, for example. We've even won some of the deals in international markets for the edge capabilities. As you pointed out, we are positioned well. We will collaborate with TCS and others to truly exploit these opportunities.
Anything we have started working in terms of synergy benefit that can be shared with the public, which you think can transpire in the next 12 - 18 months for us?
That's too specific. I think we are continuing. With TCS, there is this very strong collaboration in many areas.
Got it. One to Kabir. Kabir, this TCR EBITDA margin, there is a significant drop sequentially from 75% to 44%. What explains that sudden drop in the margin? I thought it's a very steady state business for us. At least that was the impression we got with the numbers we have shown for the last so many quarters.
Yeah, I mean, thanks for that. Let me explain what has happened in TCR. Since we acquired Kaleyra, TCR as a business has done exceedingly well, both in terms of growth and profitability. This quarter, the management of Tata Communications, along with the board of TCR, decided to incentivize the management for almost having created a solid business out of literally nothing. Plus, we're also now looking at how we can take TCR, which is predominantly U.S.-based, to more international markets. Therefore, we have crafted an incentive comp structure for the management team, which aligns with the growth ambitions that they will actually deliver. This quarter contains a one-time incentive payment to the management. Going forward also, I mean, we have structured in such a way that the management will get compensated on a variable pay basis directly in relation to the value that they will generate for TCR.
In any case, we were not expecting it to continue in the 70s, any which way with this revised comp structure. The EBITDA will come down. With one-time hit, it is at 44. I would more stabilize this business in the low to mid 50s, is what I actually see this business on a steady state basis after taking into account this revised comp structure that we have offered to the management of the company.
This will shave off almost 2,000 basis points of margin in the TCR.
That's true.
Pretty generous. Yeah, Kabir.
Yeah, I hear you.
You made a statement. Are you asking a question, Sanjesh?
I was asking if the question rate appears to be quite high. That's how we should think, right? What should be the growth rate we should look at? It should grow at a much higher rate, correct, ideally?
No, we can't comment on the future, but if you look at the past three years since we acquired Kaleyra, it's grown very, very impressively.
In this quarter, if you see 28% growth, you know, is what this business has demonstrated growth. It's a very, very niche business and has a potential to replicate, you know, that across the globe, which needs investment as well. It's not slam dunk and it is not easy that what has been created. That's the kind of big target that the management is taking. Therefore, you know, the comp structure is in line with that aggressive ambition that they have.
Yeah, that's very clear. Just one last question. I know I've taken a lot of time. Tax rate, Kabir, anything you want to comment on the tax rate and the negative other income?
The negative other income is because of the cross-currency swap. I wouldn't pay too much attention. We don't do hedge accounting for it. We took an NCD of INR 750 crore in India because that was more beneficial for us to do it, although our requirement was in dollars. We immediately did a swap on both ends. We are not exposed. That's just the mark-to-market effect of that. I wouldn't worry too much about the other income.
the tax rate?
Tax rate, there's been a dividend payout in one entity that we actually did, which is TCR itself. As a result of that, there was a withholding tax.
For the full year, we still maintained the 22%, 21% of tax rate.
Yeah, we maintained that.
Thanks, Lakshmi. Thanks, Kabir. I think we are into a very exciting journey. I wish all the best for the team. Thank you.
We have been on it for a while, Sanjesh. Thank you.
Thank you, Sanjesh. The next question is from the line of Vibhor Singhal. Vibhor, please unmute yourself and ask your question. Vibhor, we can't hear you. We will move to the next question in the queue. The next question is from the line of Aditya Suresh. Aditya, please unmute yourself and ask your question.
Hi, can you hear me?
Yeah, we can.
Thanks, Kabir. I had a few follow-ups to my earlier questions and also the previous remarks which were made. I was hoping, Lakshmi, Kabir, if you all could maybe revisit your ambitions, which you had articulated at the analyst tape. Whether that be revenue, are you feeling more optimistic or are you feeling more confident that we kind of meet these revenue ambitions given this clear kind of positive announcements we've seen more recently? That's part A. Part B is that as you're kind of chasing these revenue aspirations, how should we think about CapEx intensity and your path towards expanding ROC towards 25%? Thank you.
Yeah, on the growth side, Aditya, we set out a target because we think that there are market opportunities in every domain that we operate in. If you look at the network space, people have to redesign the network for all the distributed data, AI, distributed workforce. All of that needs to happen. I don't want to go through the rationale for each one of them. We think that some of those transformations are more a question of when rather than if they would do that. We are beginning to participate in that. We still have to execute by expanding our reach in these markets and so on. Some of the strategic bets that we've called out are, as I said, we are in the early stages of that, all the five that we called out.
In the initial stages of our taking that to market, we are receiving a good amount of reception and traction in the market. That's where we called out, if you see, those five are supposed to contribute INR 10,000 crores by 2030. These are too early to see. I mean, those are the ambitions. Too early to see whether how and when we will reach those. All we can say is we are very still gung ho about all the product opportunities that they laid out in all the fabrics. We keep our ambition intact. That's what I would say on the revenue side.
Yeah, I mean, Aditya, just to add on to even onto revenue, when we came on with the Investor Day, and we gave, it's not a target, an ambition we want to double because of all the opportunities that Lakshmi called out. We also need to be realistic of sometimes the headwinds that we get, like the cable cuts that we've all heard of. Despite that, I would say we're quite happy with our core connectivity growth. If that had not happened, then it would have been a very different kind of performance in the quarter from core connectivity. Equally, I would say on, there was also a question on cloud. On AI Cloud, today we made the investment almost close to 1,000 GPUs have already been bought. We've yet to get revenue. I mean, very small, minor revenues of INR 200,000 is what is reflected in the numbers so far.
We've got a very good funnel. We are seeing good customer traction. All the input parameters seem to be saying the right story in terms of our investment that we are making. Now, the flip side of it is that the KPIs don't catch up with it immediately in that near quarter. Obviously, we don't see if you do the maths of adding investment but not having anything on the numerator will continue to look weak. What I time and again remind is our guardrails with which how we approve investment decisions, how we set annual and strategic plan targets are based on doubling business, 20% - 25% margins, and greater than 25% ROC. In fact, every CapEx decision outside of the strategic CapEx, we are guided by the IRR thresholds in line with our ROC ambitions.
The strategic CapEx, like for example, that we do on AI Cloud or the strategic bets that Lakshmi mentioned, or the inorganic investments that we have made, all of those things have to pay back over a period of time to get the process back up and running. Are we confident that they will happen? Absolutely, yes. With geopolitical situation, with tariffs, with macro, with things like cable cuts, there will be a little bit of volatilities in a quarter here or a quarter there. We are still married to the ambition that we have outlined on the investor.
Thank you, Kabir, for that. If I can just clarify, maybe ask for one clarification. Our ambitions here in the Vayu AI cloud, is it fair to say that the CapEx in itself is done with your, as you say, you kind of got 1,000 GPUs, and now it's about the catch-up and better utilization driving returns? Is there still a large kind of CapEx phase here for us to think about? I guess the real question is, we used to think about CapEx for sales sub 10%. Is there a blur there to that number which could happen?
On AI Cloud in specific, let me answer this way. We first went ahead saying we will put in 1,000 GPUs to start with and won't worry about revenue. Let's have, you know, customers come in, use it, even internal traction as well of that usage internally, you know, on a lot of our products and a lot of our use cases that we are working on are all extremely promising. Once we have the 1,000 GPUs utilized fully by paying customers, we will invest more. Look, we are here in the business of driving growth and, you know, delivering our products and services and solutions to our customers. Therefore, now we are not going to not invest, you know, if we are having the customer traction. Obviously, we will not invest more GPUs if the first 1,000 are not getting utilized.
That cycle will, you know, will continue per se. We are looking at, you know, 11 % - 12% CapEx to sales is what, you know, I'm looking at as we see now. That's the, you know, level that will continue in the near term.
Thank you, Kabir. May I ask one more separate question?
Go ahead, please, Aditya.
Just on margins, maybe Kabir, when I kind of try to, I appreciate that you don't split out the margin for core connectivity and the digital portfolio, but just given your disclosures around gross and net revenues and so on and so forth, the broad sense that at least I was able to land at was that maybe you saw a reduction of losses in the digital portfolio by about 200 to 300 basis points, which is fairly material in this quarter. I'm not sure if you're able to comment on that assessment, point one, but it does seem that there was a reduction in losses in the digital portfolio. Was that scale or was that specific discretionary actions which the company took? How should we think about that journey to break even? Is that a few quarters, a few years? How do you all think about that?
Yeah, I think good question, Aditya. I think it's a combination of both, and it varies business to business within the digital portfolio. There is an exceptional item that we have in PAT, and one of the reasons why the PAT dropped as well, that is to right-size some of our businesses, including our subsidiary as well from an operating model perspective. That is definitely one area. Plus, we are also seeing businesses, I would say, getting the scale, although not all of them getting the level of growth that we would want them to. They're definitely better than what they were last year and in the second half of that. It is going in the right direction. I would have liked the speed to be a little faster, but it is still going well.
It's a combination of both volume resulting in operating leverage and us right-sizing our operating model.
Thank you so much. All the best.
Thank you.
Thank you, Aditya. The next question is from the line of Vibhor Singhal. Vibhor, please unmute yourself and ask your question.
Yeah, hi. Thanks for giving me the opportunity again. I hope I'm audible this time.
Yes.
Sorry for that. I think some connectivity issue from my side. Thanks for giving me the opportunity. Two questions from my side. One, Lakshmi, again, sorry to dwell a bit more on the data center thing. In the TCS conference call, I think the CEO specifically mentioned about basically the opportunities that are there in the Tata Group ecosystem. To that extent, I know it will be difficult for you to comment on that. At a broader level, or at a very preliminary level of these conversations, what are we looking at as our role in this entire thing? Is it just providing the data center-to-data center connectivity that we're talking of? Or could there be a possibility of us taking a stake in that entity as well, in terms of maybe having a stake in a data center? We already have a 26% stake in STT.
Will it be more, partnering with other companies in that as well? Some clarity or some early indicators would be really helpful.
No, I can't give clarity when there is no confusion. There are, you know, to be fair, TCS has made an announcement, which is an entity by itself. Okay. As you rightly pointed out, we are also operating with STT. All I would say, Vibhor, is, and I'm sorry to repeat what I said, we have a very strong proposition in the data center connectivity space, and we'll continue to explore all opportunities and exploit all opportunities. We do have a strong cloud proposition, especially with the AI Cloud and the other capabilities that are there. Those are the areas where we would look for collaboration and expand what we do in the market.
Got it, got it. Sure, Lakshmi, I understand. Basically, it's in very early stages. Also, keeping in mind the entire, I mean, as you mentioned, the data center capacity should more than double in the next few years and the kind of opportunity that we're looking at. Is there any thought on increasing, decreasing, or selling our stake in STT data center or nothing on that sort on the cards of that also at this point of time?
Kan, there is no such proposal.
There is no in either direction.
Either direction. Yeah, we are retaining. That is what we called out even this quarter for the investments to keep the 26% stake. If there is anything that we would be coming to the market, but.
Got it. Got it. That's really helpful.
This quarter, Vibhor, as I called out in my commentary, we have continued to invest in STT.
To maintain the stake.
I know the questions that Aditya asked on. I know we have an ambition of ROC, and if we invest in STT, it dilutes our ROC. We believe that strategically, that's the right thing to do for us to maintain our stake, and it's an investment in the right space. We are not getting swayed by short-term KPI things while we are married to what we have said as the right markers for us to run the business. We will not shy away from taking the right actions, even though in the short term, they may be different to the markers that we have told the market.
Sure, Kabir. Since you mentioned about ROC, let me basically ask you a question on that. As you rightly said, these decisions are definitely good for the business from a long-term point of view, while they might be slightly dilutive or let's say from a very immediate or a temporary point of view. I know we basically, we start in FY 2023, we had given a guidance of four-point guidance of doubling our revenue, margins, ROC, and leverage by FY 2027. Now we know the data revenue doubling will probably happen somewhere in FY 2028 now. Are we committed to the other three guidances that we had given in terms of margins, ROC, and leverage? This quarter we saw the leverage also, that it also picking up, ROC is also coming down.
Margin pace, as you mentioned, maybe the pace of that pickup is not to the best of our likings. It's definitely improving, but maybe it could have done better. In terms of those three things, where are we, and do you think we will still be able to achieve them in FY 2027?
No, we said that our ambition got shifted by a year from a data doubling point of view. The other three elements have their own timeline with net debt to EBITDA coming to the under 2x range, faster ROC followed within a year, and EBITDA margins a year after. That's what we had said that we are working towards. Again, I will repeat, Vibhor, these are the right contours with which we do our strategic planning for our business. There are elements which are sometimes outside our control, like the entire external environment in terms of interest rate and Forex, which, for example, this quarter, we did not expect our net debt went up by INR 222 crore because of the Forex volatility that we've actually seen. We almost touched 90 as well. We went to whatever, 89, 70 or something of that sort.
We do have those external variables with which we are operating, which has an impact. Plus, we are taking certain actions, which we do believe. I don't know if those will give the result to me within the FY 2027 timeframe. If they give me the result within the FY 2027 timeframe, we will hit the ball out of the park by that time. Each of the set of the actions, I mean, I would say the STT investment alone is almost 220 basis points of my ROC if that was not there per se. We will not do anything wrong from terms of overall value creation for our shareholders because of these metrics. Operationally, the investment decision that we have that we take in our organic investments in the business, they are guided by these thresholds. We run business that way.
The corporate actions are anything below the line that we may take that we are taking in view of a longer-term strategic direction. That's how I would put that in. Short answer is yes, we are married to it. If it doesn't happen in a quarter or six months here or there because of the corporate actions, which we are calling it out and letting the street know well in advance, they are driven not by KPI, but they are driven by the right outcome for our shareholders.
Got it, got it. Sure, great. Thanks, Sudeshna. Thanks, Ravi. Thanks for taking my questions and wish you all the best.
Thank you.
Thank you, Vibhor. The next question is from the line of Sumangal Nevatia. Sumangal, please unmute yourself, introduce yourself, and ask your question.
Good evening, everyone. This is Sumangal from Kotak Securities. My first question is on the core connectivity revenue. Is it possible to give some color as to what would be the contribution of DCDC business today and over the medium term, say, next three or four years? How big can it become given all the investment plans? Just from an understanding perspective, is there any thumb rule to work with with respect to, I mean, say, every one megawatt of DC plan, what sort of spend goes into core connectivity?
We don't have a metric like that to give. Also, we don't have the metric to break out in our core connectivity how much is the DCDC connectivity. Largely, it would be that, but it's very, we can't break that out.
Okay, okay.
We also called out that one of the main drivers for growth in the core connectivity space has been, and this is not something new. We called out even, you know, three, four years ago that we were pegging our core connectivity to grow in the low to mid-single digits, and we delivered more like 5% plus. That came because of the large DCDC connectivities that we were doing. The AI is only adding that tool as a tailwind for further growth in the core connectivity space.
Got it. If I can just ask one more, given all the data center investments which are being planned in the country and the associated requirements of land parcel, does it in any way boost our prospects of land monetization, which we've been already doing? Is there any connect between the two which we should think in the direction of?
We are doing that independently anyway, Sumangal. You know, even this quarter, we had a small parcel of land in Calcutta that we actually sold for INR 85 crore. The gain on that was about INR 77 crore. We've declared it in our results. There are a few big land parcels that we have, and we have plans of monetizing them in the next few years. If that happens to be within a group company, that will be within the ambit of delivery party guidelines. We will maximize our value. We maximized that already with Ambatur, which we sold a few quarters ago. I think the shareholders would have positively benefited from the big gain that we actually got from that land parcel. That is a separate parallel track that is running. We've done a tremendous amount of work.
Each and every land parcel needed work in terms of documentation and other issues that were surrounding it, which is coming in the way of monetization. We are working that completely independent of what it is. I'm sure with these investments, as Tata Communications, we can only stand to benefit in monetization of these parcels.
Okay. Kabir, is it fair to say, is the heavy lifting what we've seen last year already done, and what lies in future is more of small land parcels, or similar sizable opportunities are also there in the portfolio today?
No, I have two big land parcels, Sumangal, which are much, much bigger than anywhere else. Our GK land in Delhi and Chattarpur is another one. These are the two big land parcels from a value perspective. I have an equally much larger one in Dehradun as well, but that's value-wise not big. Value-wise, these two are very, very big. They are not of the order of magnitude that you have seen in the past, very, very much higher than that.
Got it, got it. Thank you very much and all the best.
I think just to add on the data center space, we said that we have a very strong position of the DCDC connectivity in India. Over 40% market share is what we have. I also mentioned that we are exploring opportunities of DCDC connectivity for enterprises internationally as well. This area, especially with our investments to make them more software-defined, on-demand products that we are adding to this, all of that will help us to further strengthen this portfolio for us in this space.
Understood. Thank you and all the best.
Thank you.
Thank you, Sudeshna. The next question is from the line of Mayank Babla. Mayank, please unmute yourself, introduce yourself, and ask your question. Mayank, please unmute yourself and ask your question. Mayank, we can't hear you. We will move to the next question in the queue. The next question is from the line of Sanjesh Jain. Sanjesh, please unmute yourself and ask your question.
Yeah, thanks. Thanks for it. I hope you can hear me. Thanks for taking the follow-up question. Kabir, just one small question. This quarter, and we have been doing this for the last few quarters on the staff optimization. When should we start seeing this translating into a margin benefit, right? Or this is reinvested in terms of getting better resources, which is more aligned to our current strategy? How should we see this staff optimization? Because even in this quarter, we have booked close to INR 1 billion of that cost.
Yeah, I mean, Sanjesh, you will see at least for this immediate benefit come through in the next few quarters itself. When we in the Investor Day talked about improving our digital portfolio margin profile, I said it's made up of a few things. We are holding our leaders leading these businesses accountable for certain outcomes. Yes, we want growth. I mean, growth, growth, and growth is the most important priority. If for some reasons growths are getting pushed out, we are also saying get ourselves into a right operating model, which is then scalable with that particular growth, that I'm not carrying the cost too long until the growth actually comes. This is going to be a continuous journey.
Hopefully not staff costs, not redundancies is not a continuous journey, but a continuous journey of us getting the growth and then investing more and then getting the growth and investing more, right? This is the right sizing that we have done for two of our categories, two of our businesses internally within Tata Communications and for one of our subsidiaries as well when we exited an onerous contract. That I'm assuming is only one-off and not going to repeat. In Tata Communications, we will continue to invest in people, continue to invest in the strategic bets. Of course, we will scale that up with growth as the marker, but we will also right size our business as we get along. Short answer, hopefully, in our margin aspirations that we had called out for digital leading in, this should help in the margin progression in the coming quarters.
That's clear. Just one follow-up on the margin, Kabir, before I end my question. Last year, you mentioned that we will at least do a 20% margin, which we did achieve last year. I think we will surpass 20% in this year because first half, we are shy below 20%. Do you think we will make up in the second half and we should cross last year's margin profile?
Sanjay, there are a few headwinds which we had not foreseen when, you know, that ambition was set in. There are Red Sea cable cuts, you know, which I would have seen more uptick in terms of potential revenue that we would have got, which would have been good because that comes at a different margin profile, a healthier margin profile. We've been robbed of that, you know, with this, plus the cost associated with the repair, you know, of it, not all of which is already reflected in this quarter, which will come through as well. There is one such headwind. I'd called out the TCR management, you know, compensation structure.
It's not just the entire margin, you know, reset is not only on account of that, but it's also about certain cost elements that we believe will come through from a steady state, you know, perspective, both of which were not factored in. One is internal, purely internal, and one is, you know, external. We are hoping, we are aiming to have a better, you know, improvement trajectory on overall margins with data EBITDA margins, you know, driving, you know, that forward. Whether 20% or not, I can't give you an exact, you know, answer there, but we are all aiming towards an improvement over the last year.
Fair, fair. Thanks for that answer. Again, best of luck for the.
Thank you, Sanjesh. The next question is from the line of Mayank Babla. Mayank, please unmute yourself, introduce yourself, and ask your question.
Hi, thank you for taking my question. Am I audible?
Yes, you are.
Yeah, better now. My first question is related to the interaction fabric and specifically the managed CPaaS subsegment. This industry has gone through certain disruptions in terms of the whole movement from SMS to WhatsApp. I think from 2022 onwards, there was the whole fiasco about fake accounts and spam bots, which made clients reluctant. I have a three-part question to this. One is, what is driving growth for you in this segment? Second, how should we look at growth for the years ahead? Third, I think you mentioned that this whole shift from SMS to WhatsApp is benefiting your orchestration layer. I didn't quite understand that. If you could help me with that, yeah.
Mayank, you're right. I think in the managed CPaaS business, which largely today is SMS, the market growth in SMS is in single digits. We are very happy and pleased to see a 12% growth in this business, simply leveraging both the platform capabilities that we acquired through Kaleyra as well as the larger customer base that Tata Communications has. In terms of our strategy, we called out that SMS will, the growth of SMS, SMS will still continue, but the growth of SMS will not be as high as in the past years. The other channels, notably programmable voice, RCS, WhatsApp, and others will start to pick up what we had called out. As people go to multiple channels, there is a need to orchestrate between these channels.
If we send an SMS and the customer doesn't respond, we will have a fallback channel automatically to a voice to communicate with the customer or any other channel. That is what we mean by orchestration. That is one layer of orchestration. We're also building a lot more of AI and intelligence through Agentic AI and Voice AI platform and journey orchestrations at the top layers, which brings a lot more of context. When people switch between the channels, the contact center agent, for example, knows exactly what happened in the communication in the earlier time.
Handing over from a voice agent, a human agent to a Voice AI or the other way around, all of these involve very intelligent orchestration, which is what we are working on. That's a direction and investments that we are making.
Sure. Is this rate of growth sustainable in the years ahead?
That is what we are calling out, and that is where we see the markets. Therefore, we are very optimistic about, you know, exploiting these opportunities.
My last question would be, you know, I know you had given some clarification to Sanjesh Jain on the order book. The first half is that we've seen a flattish order book. Is that purely a function of, you know, base effect, or are there some other headwinds? What is giving you, you know, the confidence or visibility for that order book revival in H2? Thanks.
Yes, as you said, it's a base effect. In Q1 and Q2 of last year, we had a very good and large order booking that we had. This quarter's order booking is quite decent. It's much above the previous years, but lower than Q2 of last year. We don't have any major concerns on the order book at all. Our funnel is also very solid. We called out that our order booking in the international markets has grown, our enterprise segments have grown. We called out that, you know, we can't predict the order booking for H2 because it's a function of many things. What we are saying is because of the order bookings that we had done and some of the revenues were back-ended from those order books, we are saying that H2, you know, we should see some acceleration. That is what we called out in our commentary.
Sure. Thank you so much, and best of luck.
Thank you.
Thank you, Mayank. The last question is from the line of Amit Maskara. Amit, please unmute yourself and ask your question. Amit, we can't hear you. Please unmute yourself and ask your question. Amit, we can't hear you. Please get in touch with the Investor Relations team and we can get your questions answered. Thank you, everyone. This brings us to the end of the Q&A session. I would request Amur Lakshminarayanan to please share his closing comments.
All right. Thank you. Thank you all. We're very encouraged by growth in our digital business. As I mentioned, some of the new products that we announced are seeing good reception and traction in the market. We will continue to invest in these areas and exploit the opportunities available both in India as well as in the international markets. Thank you.
Thank you, Lakshmi. This brings us to the end of the call. In case of any queries, please write to investor.relations@tatacommunications.com. Thank you for joining the call, and you may disconnect your lines now. Thank you.