Good afternoon, everyone, and welcome to Tata Communications earnings conference call for Q4 FY23. We are joined today by our MD and CEO, Mr. Amur S. Lakshminarayanan, our CFO, Mr. Kabir Ahmed Shakir, and Mr. Rajiv Sharma, our head of investor relations. The results for the quarter ended 31st March 2023 have been announced yesterday, and the quarterly fact sheet is available on our website. I trust you would have had the chance to look through the key highlights. We will commence today's call with comments from Lakshmi, who will share his thoughts on the business and long-term outlook, followed by Kabir, who will share his views on the financial progress achieved. At the end of the management's remarks, you will have an opportunity to get your queries addressed.
Before we get started, I would like to remind everyone that some of the statements made or discussed in today's call may be forward-looking in nature and must be viewed in conjunction with the risk 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.
Thanks, Chirag. I welcome all of you to the Q4 FY23 earnings call. We witnessed another healthy quarter reflecting strong growth momentum in our data revenues. For the full year, data revenues are up by 10.3%. PAT is up 21.2% and ROCE is at 28.3% versus 25.4% in March 2022. Our results reflect the disciplined execution of our reimagined strategy focused on deeper with fewer and our strategic push on products to platform. Our investments in the overlay or as you may call the digital platform services over the last couple of years, combined with our strengths with the underlay, positions us uniquely as a ComTech player.
Our unique strengths are very much noticed by our customers in our ability to impact both the cost side as well as the revenue side of outcomes for them. Our products to platform shift, increased investments in front-end sales, particularly in the international markets, and building new capabilities across the portfolio is reflecting in the growth momentum. Our data revenues grew by 11.2% year-on-year again this quarter. For FY 2023, digital platforms and services revenue grew by 15.5%, highest in the last four years. To add more color to our data growth, we've added INR 1,317 crores of incremental data revenues in FY 2023 against an incremental revenue of INR 903 crores in FY 2021 and FY 2022 combined.
Our digital revenues, including incubation, are 32% of the total data portfolio, and our ambition is that this number should be at 50% of the overall data revenue over the next three years. Final addition in FY 2023 was the highest, and we recorded more than 50% of growth in large deal segment, and we are seeing good traction across India and international markets. Before I get into details of the performance for this quarter, I take pleasure in mentioning that Tata Communications was selected as the Turnaround Company of the Year by Forbes in March 2023, and that we have once again been recognized as a leader in 2023 by Gartner Magic Quadrant for Network Services Global, thus completing a decade of excellence. We further strengthened our DPS portfolio with some new launches this quarter.
We launched JAMVEE, a cloud-based application offering integrated and simplified voice calling solution. This strengthens our offering, especially for knowledge and frontline workforce within enterprises and helping enterprises with a secure and compliant setup. Most importantly, it helps enterprises customers have greater control over deployment and management of the unified communication estate. Let me add, with JAMVEE, we'll be able to address 80% of the managed PBX market, and the overall market is still growing in high single digits. The other product we have launched is Cloud SIM. A software-only SIM primarily addresses on-demand connectivity and enables new use cases such as activating private network connectivity for short periods and provisioning connectivity only to devices in active use and allowing the enterprises to decrease the total cost of ownership. This is a significant innovation and the only one in the world who has the solution as of today.
Moving to our performance for the fourth quarter of FY 2023. Our data business remains instrumental to our overall revenue growth momentum. It improved sequentially by 2.2% coming in at INR 3,670 crores. Our digital platforms and services revenue stood at INR 1,080 crores, registering a healthy growth of 15.9% year-on-year and 2.3% Q-on-Q. Our Q4 consolidated revenue was INR 4,569 crores, improving by 7.2% year-on-year and 0.9% Q-on-Q. EBITDA for the quarter stood at INR 1,034 crores, while EBITDA margin stood at 22.6%. The profit for the quarter was INR 326 crores. Let me talk about our margins and the aspects shaping our EBITDA trajectory.
I want to reiterate that we are fundamentally taking the company through a different growth trajectory. I'd always said that double-digit growth would take time and investment. This year is a milestone with 10%+ data growth on a full year basis and the digital portfolio grown 21% year-on-year, highest in the last four years. This is encouraging and an outcome of the significant investments in people, platforms, IP creation, front-end sales and capacity building. We called out to invest in growth. This was planned. Our full-year EBITDA margins is at 24.2%. It reflects these investments, and we are very well in the range of our margin guidance of 23%-25%.
There is a reason why we see ourselves as a ComTech and not as a traditional telco, as we focus a lot on capital allocation and ROCEs. Unlike traditional telcos, which are at low single-digit ROCEs, our full-year ROCE is at 28.3% and this is despite investments in growth. We have delivered first-time double-digit PAT margin and highest-ever absolute PAT this fiscal. We are staying the course, FY 2024 will continue to be another year of investments, particularly in DPS and our ROCE guidance of 25%+ remains intact. Coming to our core connectivity business revenues, it grew by 7.4% year-over-year and 1.7% quarter-over-quarter.
We continue to invest in the core capabilities, thus transforming our networks to be intelligent and working on their programmability to cater to the new market needs, particularly on-demand needs. Let me spend some time talking about our robustly growing incubation or the connected solutions portfolio. The incubation portfolio progressed on multifold, growing by 65.3% year-over-year and 9.4% quarter-over-quarter. We signed our first MOVE Connected deal with a leading EV manufacturer and are very pleased to support their Pan-Asia scale-up. I spoke about Cloud SIM launch this quarter. It was launched in MWC earlier this year. I'm happy to share that we have signed our first deal as well with a large integrated IoT device and board manufacturer with remote controlling and monitoring capabilities for industrial equipment and plants. This will help them to simplify deployment and reduce costs.
Our MOVE business continues to grow strongly and recorded a year-on-year growth exceeding 100%. Our IoT offerings seeing a growth of greater than 90% in the revenues on a full year and is gaining momentum in international markets, where we cater to both enterprises and smart cities. Being one of the few players with ATEX certified Safe Path badge ID solutions in India, our solution has gone live for one of India's largest oil and gas players, which opens new avenues of growth. Coming to digital platforms and services portfolio, it has grown at 15.9% year-on-year and 2.3% Q-on-Q. A multitude of offerings in the digital platform solution portfolio are intended to consistently deliver more holistic solutions, stitching multiple products together for our customers' ecosystems.
When we stitch all of these platforms together, it becomes a Digital Fabric and creates a robust mode around increasing customer stickiness and insulates us from structural pricing decline seen in the legacy business. The most exciting part of DPS is the strength of this portfolio and suite of applications helping the enterprises to power their hyper-connected ecosystems. We have a good pipeline in our sales funnel and a pipeline of product feature releases and new products in the coming months. Media business revenues were sequentially down by 2.3% and up by 19.5% year-on-year. Sequential decline in revenue is due to lesser number of events this quarter versus the previous quarter. This quarter, Tata Communications supported enhanced video workflows for Formula E, leveraging its Media Edge platform, giving better quality video feeds, leveraging Internet-based last miles.
In FY 2023, the team had supported over 20,000 events, which represents a significant growth. The revenues were up by 28% year-on-year for this segment. We would like to update that The Switch Enterprises, the acquisition which we announced in third quarter, we are expecting all necessary approvals to be in place soon to begin integration in Q1 of FY 20 24. Switch will help us gain a strong foothold into the Americas media and entertainment market. Moving to cloud, hosting and security. This portfolio registered a growth of 38.5% year-on-year and 10.1% Q-on-Q. In Q4 FY 2023, some of the key wins have been with our IZO Private Cloud and our managed service offerings.
From product enhancement perspective, we created automation of orchestration of our IZO Private Cloud platform as a service offering, thus reducing time for provisions within minutes. Additionally, enhanced managed services reporting dashboard are information as a service offering for the solutions deployed on our IZO Private Cloud. Our MSS or security business revenues were up by 26.6% year-on-year. Enterprises continue to see merit in securing network transformation using zero trust architecture, and we recently started working with one of Europe's largest automobile manufacturers to help them enable a secure remote work for their 35,000 global workers more effectively than VPN, deliver secure and direct connection to applications and provide identical user experience from office or from home. Our collaboration portfolio grew by 1.8% year-on-year and declined 3.6% Q-on-Q.
There have been some customer specific issues in layer one offerings, hence you see a dip in revenues this quarter. That said, we continue to benefit from an increased customer interest in our newer offerings, namely the Tata Communications Global Rapide, as well as InstaCC and Tata Communications Vigo. Vigo continues to grow in capability as a customer interaction suite where it focuses to unify all customer interactions. We are seeing customer wins in the layer two, three, four. Our efforts are towards maximizing scale. Coming to our next gen connectivity offerings, revenues increased by 5% Q-on-Q and 10.5% year-on-year. The key drivers of growth this quarter have been IZO WAN and IZO Private Connect. Our improved offerings on IZO WAN, both in terms of wide variety of internet connectivity options and price competitiveness, helped us drive growth.
Our vision for IZO WAN platform is to be the most comprehensive, dependable connectivity platform, providing a wide range of variety of internet pro-connectivity options, from predictable enhanced internet to broadband, to 4G, 5G, from premises to premises, and premises to cloud, and between cloud as well. To sum up, as a digital ecosystem enabler, we remain committed to building innovative and scalable platforms to empower enterprises. With that, I would like to invite Kabir to give an overview of our financial performance. Kabir?
Thank you, Lakshmi. Good afternoon, everyone. I'll take the opportunity to take you all through the highlights of our financial performance for the quarter. Before I dive into the quarter four numbers, it's important to see how we have fared for the full year as a whole. We've delivered full year double-digit data revenue growth, highest ever PAT, highest ever double-digit PAT margins, full year EBITDA margins of 24.2% within our range of 23%-25%. ROCE for the full year at 28.3%, and is up 290 basis points above last year. PAT is up 21.2% year-on-year, and most importantly, the free cash flow generation is up 64% year-on-year. Even if I were to include tax refunds, these are up by 16%.
Effective tax rate for the full year was at 14.4% versus 26.1% in the previous fiscal. For full year, our net debt is down by little over INR 1,000 crores, and net debt to EBITDA has improved to 1.3x from last year at 1.6x. EBITDA to cash conversion has improved from 52% in FY 2022 to 59% in FY23. Not long ago, this used to be in the 20s percentage. I'm happy to share that we have demonstrated a meaningful financial turnaround, and incrementally our focus will be on creating elbow room and capacity for multi-year growth. Let me now talk about the Q4 numbers.
Our consolidated revenue for the quarter stood at INR 4,569 crores, improving by 7.2% year-on-year and 0.9% on a sequential basis. Data revenue for the quarter stood at INR 3,670 crores, improving by 11.2% year-on-year and 2.2% on a quarterly basis. The reported revenue numbers this quarter, like previous quarter, continues to have certain Forex benefits accruing from a strengthening dollar. Our EBITDA margins for the quarter were at 22.6%. Our PAT margins for the quarter stood at 7.1%. Net debt for the quarter and for the year remains the same at INR 5,711 crores, and net debt to EBITDA is now at 1.3x compared to 1.45x the previous quarter.
The notable part is that on the back of our strong cash flow generation that has been consistently coming down, our cash flow generation continues to be healthy, reporting an FCF of INR 631 crores this quarter and INR 2,539 crores for FY2203. Cash CapEx for the quarter stood at INR 400 crores, though our approved CapEx is close to INR 600 crores, the gap is attributed to delayed deliveries and better payment terms. Our consolidated EBITDA margins declined 120 basis points this quarter to 22.6%. Let me elaborate here a little more on what Lakshmi suggested above on the margin trajectory and the bigger picture.
If you look at our ROCE improvement, our PAT improvement, revenue growth, they are suggesting that we are fundamentally transforming as a company to operate in a higher growth trajectory. This needs a very different kind of an OpEx, CapEx structure to fund our growth ambitions. Double-digit revenue growth over the past three quarters is an outcome of the investments that we have made, and this was very much planned. Our strategy around product to platform shift and deeper with fewer demanded investment in sales, pro-product platform builds, and capacity building. Full year DPS revenue growth and digital platform revenue growth is the highest that we have seen in four years, giving us the confidence that we are on the right track.
This fiscal, we continue to strengthen our foundations for achieving our growth ambitions through deepening customer engagements and investing in our expanding our global sales and product organizations to address market opportunities. I continue to hold that if we have the right proposals from the business to fund customer success, we will stay the course and fund those opportunities. Even if that implies that margin will, you know, temporarily go down below that 23% for the short term, we will not hesitate. Having said that, we will manage margins dynamically. In instances where revenue growth is delayed, costs will be pulled.
At the same time, we are focused on levers where we will sharpen our moats and help us improve our trajectory in the medium term. Moving to subsidiaries, we see a steady improvement in TCTS. TCTS revenue improved by 2.6% year-on-year and 2.7% sequentially, coming at INR 342 crores. EBITDA for TCTS stood at INR 13 crores for Q4.
We feel confident about TCTS going forward. Our payment business continues to make positive shifts as we expand our portfolio under the franchisee model. Revenue for the quarter came in at INR 46 crores and an EBITDA of INR 21 crores. As on date, we have added close to 3,300 franchisee ATMs to our portfolio. We are working steadily on increasing this further.
The massive uptake of digital payments over the last few years has had an impact on transaction count for the ATMs and the long-term growth profile of this business. As such, the company considered an impairment of INR 323 crore in standalone books in TCL India. Since TCPL financial losses have been consolidated while preparing TCL financials, there is no impact on the TCL consolidated financials. To sum up, our holistic delivery across financial KPIs, be it the strong cash flow generation this quarter and overall fiscal, the consistent reduction in net debt, continued improvement in PAT for the year, and our ability to fund both organic and inorganic growth opportunities, is laying path to capture the tailwinds and the market opportunities which lie ahead. Let me now ask Chirag to open the forum for Q&A.
Thanks, Chirag. We will wait for a minute for the queue to assemble. The first question is from the line of Sanjesh Jain of ICICI Securities. Sanjesh, your line has been unmuted. You may go ahead and now ask your question.
Can you hear me? Chirag?
Yes.
Hello?
Yeah. Hi, Sanjesh, we can hear you. Please go ahead.
Oh, sorry. Sorry. so sorry I joined a little late in the call. Apologize if I'm asking something to be repeated. first on the order book front, we have added close to 2,000 employees. If I can see, most of this employee cost increase has come in the non-standalone which means that the efforts are to drive the non-standalone business, which is generally the international revenues. How is this translating into a result and say, order book, sales funnel? Overall, if you can give us color on, how has been the order book attrition. Are there Given that what we have heard from the IT companies till now, it looks like there are certain pullbacks from spend on the IT side. Are we concerned with this trend?
How are we looking or what is our interaction with the customer, telling us? That's number one. A related one is, we were already sitting, I think, on a healthy order book, and were facing the supply chain issues. Now the supply chain has eased. Will it be fair assumption for us to tell that, the execution will pick up, so revenue recognition may not get impacted because of all the sentimental things which is impacting the investment on the digital side of it? That's my first question.
Yeah. I think there are two questions, Sanjesh, or probably multiple in that. Let me try to answer. First one is, I think on the, on the people front, you know, it's not 2,000 as you said. You know, we have added 1,000 for the year. In terms of, those additions have been both in India and international. We are seeing the additions coming to fruition, in terms of the revenue acceleration. Because these additions that we made in the front end of sales and marketing have been able to reach more customers, build deeper relationships, and help us to drive growth and to build the funnel.
In terms of the color of the order booking and the funnel, I think the funnel addition last year has been one of the best that we have seen. Our order booking is also good. We are also seeing what you call as large deals, which is more than 1 million ACV, which we classify as large deals. We have seen a significant jump in the number of these large deals, both in India and internationally. These are all. You know, I see that as good positive signs of A, our engagement with our customers, our relevance with our customers and how our platforms are making more an immediate impact in our customers' businesses.
That's the sort of color I guess that is the first part. The second part you said is the international trend. In terms of the internationally so far, in all our discussions with our customers we haven't seen any pullback. Largely I would view in the current macro environment of international where people are cautious, a lot of our portfolios lends itself to a cost-led transformation. We believe that will make an impact. In fact, overall for the last year, if you look at the overall order booking, over 40% of the order book is for our digital platforms and solutions. The color of the order booking and the traction we've been seeing so far is quite good.
That is what which we have been saying, and we've been seeing the result of that in the last three quarters in terms of increased revenue acceleration. We believe despite the macro and the caution that you attributed to, we think it will continue because the solutions that we are offering can help our customers genuinely to cut costs.
Order backlog and execution with using supply chain.
As I had called out as that as a business as usual. You know, the supply chain in terms of the equipment delivery from many of the vendors are still not what we experienced pre-COVID. I had called out some time ago that we are treating that as business as usual. That is neither affecting our revenue nor accelerating anything. The reason I say that is, you know, many customers have also come to accept that this is the time taken, and we have found already, you know, if alternate options available for the customers to go ahead rather than being dependent on one provider. I would say that's, you know, as a more as a business as usual that we are treating.
Fair enough. Second question is on the revenue growth. We have earlier guided of a double-digit revenue growth. We are there now. Probably it took couple of years for reaching, but we are there now. We also anticipate the mix within data to change 50/50 between the core connectivity and the digital services. This implies that our digital services need to grow 25% CAGR. You think you're confident about this mix change to happen and this growth to come in considering the order book and on the ground discussion you're seeing with your customers?
Yeah, Sanjesh. I think, when we launched our strategy, we called out amongst all parameters that we want to hit a double-digit growth. I've always said that, while people were not very patient, I said double-digit growth takes time to get there, right? We need investments in products and building capability and takes time to do all of that. Now that we are here, with our continued investments, I feel quite confident that we can stay the course to execute on that.
I'll just add, Sanjesh. you know, the way in which we should look at is not from a CAGR, you know, kind of a, you know, perspective. These are all businesses where, you know, I don't know whether it is going to be next year or year after next, where if you get one transformative deal, then the growth trajectory for that particular year, for that part of the business will, you know, look in three digits as opposed to, you know, a steady state year-on-year, 25% you know, kind of a number. That is, you know, how you should look at this, especially when these are all really new age technologies and things that we want to try to unlock.
The second bit that I would also, you know, leave it is that we said we want to get to double-digit growth, three consecutive quarters and full year we have reached double-digit growth. We want to maintain that momentum. Our next marker, you know, us to become a ComTech player and therefore, having a balance of 50/50 between our digital services portfolio and, you know, and core connectivity. That is how, you know, I would like you to read the ambition and not, you know, about whether it is going to rectify in exact proportions every quarter and every year.
Clear. Clear. Clear. Got the message. On the margin side, is it fair to now believe that the bulk of the employee cost is now behind us in terms of what we needed to add and realign, and attrition is also now normalized? Is it fair assumption that the cost pressure, whatever we were supposed to see, is largely, in Q4 and next year when assuming that we deliver a double-digit revenue growth, that operating leverage will play out, is that the right way to think on the data side of the business?
Sanjesh, two questions. The attrition part is, I can safely say it's behind us. I mean, you probably hear that in the news as well, with multiple IT companies also narrating the same thing. That I can definitely say is behind us. In terms of our hiring, we added 900, you know, I don't know where you got the 2,000 number from.
No, I was talking about two years, 2000, not one year. Sorry.
Yeah. In the last year, we've added about 900, you know, headcount, and there are a lot of them are, you know, backfilling, you know, that we have done. Plus, you know, I would say, the net additions of course have gone in three areas: product, you know, and engineering side, you know, go to market and also our service, you know, delivery organization. See, as far as I'm concerned, this is a continuous cycle that we will, you know, we will get into. That's a whole fit-to-grow model, right? We have compelling business proposals that we need to fund. We will continue to fund. I won't say this is behind us and that we will not do any more hiring, then we will not grow.
We will continue to grow. We need to calibrate, you know, as to when I am getting the operating leverage of the headcount and the investments that I have made when I'm actually seeing that come through, then we take the next call of doing the next level of investment so that, you know, it gets into that continuous momentum. That is how, you know, I would encourage you to actually look at it.
I meant that for the near term, you have hired, you would first want to stabilize this workforce, drive some utilization and then go for the next level of... For next year at least, we are not going to hire another 900,000 people, right?
No, I think Sanjesh, you know, I don't want to give any. What you say is right. We've added significant amount of people in our products and platforms and in the markets. There are two things to look at. You know, last year the hiring, you know, was done over a period of one year, so not all of the costs have seen a full year impact. There is a full year impact that would come about this year. Where it is necessary, we would add people. And like Kabir said, we would need to calibrate that on an ongoing basis.
We would calibrate that because, you know, we are carefully managing the business in terms of, you know, where we are investing and what returns we need to deliver. That would be calibrated for sure.
Got it. Got it. My last question is on the CapEx side of it. We guided for $250 million-$300 million of CapEx. I think we are significantly lower than that this year. How should we think CapEx for next two years?
Well, My guidance remains the same, Sanjesh. That is our intention to spend. If you see our approved CapEx, we are in that zone, right?
Kabir, when we said this $300 million, this includes the additional fiber replacement CapEx as well?
No, it excludes that. You know, the moment you see I want to get to 50/50 on DPS, right? Let's set aside the efficiency that we should get in our CapEx and operating leverage for a minute. If you do the work working backwards, you would find that we would need a significant level of investment to support that kind of a growth, you know, ambition that we have. I'm, you know, targeting that $250 million-$300 million as the number. The reason why we did not spend, we've mentioned before, supply chain, you know, deliveries, delays, plus we had some better payment terms. There will be a catch-up of that. That will actually come up, you know, in following year.
We would like to, you know, get into the zone of spending $250 million-$300 million, you know, and additionally, on top of that, for replacement CapEx for the next three-four years.
No, just from the free cash flow perspective, I see we are investing more in the operating expenses. We are investing more in the CapEx. If we need to even maintain the cash flow as a % of revenue, that means our revenue needs to grow significantly higher than, say, this 11%, 12%. Else the ROCs will start diluting. I hope that's a fair assumption that when we say that we maintain that 25%-30% guidance.
Yes.
All this ambition is well backed by the fact that we will be growing the revenue significantly faster than this, 11%, 12%. Will that be a fair assessment?
Yeah, that's absolutely fair. These are all markers and contours that I have actually, you know, given, and which sets our own internal working and governance in the company as well, you know, Sanjesh. Yes, our guidance is greater than 25%, you know, of ROC. We have been operating in that range, in fact, well above. We will continue to operate in that range. 23%-25% is our EBITDA guidance. If I have to kickstart growth and if I have to invest in a few areas and temporarily for a quarter or two, it takes me below 23%, I'm really not fussed about it because that is being, you know, spent on right areas of investment. It is not, you know, a waste that we are incurring and that I want to be, you know, clear.
If you mix all of these things, yes, we need a different level of growth trajectory in order to have these ambitions. At the same time, you know, if these are not fructifying and then these are not, you know, I would say, a free-for-all one-time approval given, let go ahead and then spend. These are going to be calibrated. These are going to be milestone based, and if we are growing well, if we are getting in the right direction, there will be continued momentum and investment behind it. Where we are going off course, then we will, you know, pause and pull back, you know, so that we are not diluting any of the ambition on the financial metrics that we have given to you.
Great. That's good to hear. Thanks for taking all my question and best of luck for the future quarters.
Thanks, Sanjesh.
Thanks, Sanjesh. The next question is from the line of Aliasgar Shakir from Motilal Oswal. Ali, you have been unmuted. Please go ahead and ask your question.
Yeah, thanks for the opportunity and quite a detailed, you know, explanation. I just have a question from, you know, your growth products point of view. You did give a lot of, you know, explanation in terms of your, order funnel and, you know, how the overall, you know, trajectory is. From a growth product point of view, you know, whether it's MOVE, NetFoundry, CPaaS or even Cloud SIM that you mentioned, what is the traction specifically?
I'm asking this more, you know, from the point of view that, when I see a segment in DPS, you know, I mean, there have been few of them firing, but, like CPaaS, which we've been quite, positive about, for the full year as well as in this quarter, it's, you know, not really, done very great. From your overall growth engine point of view, what are the products where we have, you know, most, positive outlook and where we think we can, you know, drive growth in 2024 if we have to, do double-digit growth in our data business?
Yeah, Ali, I think if you look at the segments, you know, I'd called out each one of them. Barring collaboration, where we have had somewhat of a muted growth, all other segments, the product portfolio segments have grown quite well. Within collaboration, the GSIP, which was sort of drag-couple of years ago that has finally stabilized. The new products that we have introduced, like the Global Rapide, is gaining traction, DIGO is gaining traction. We are quite confident that across all product portfolios, we should be seeing good traction.
Okay. Got it. Just one question for Kabir. You did mention, Kabir, that, you know, a lot of these OpEx investments are very milestone and timeline-driven, and therefore, you know, whatever investment you're doing, either OpEx or CapEx, we will see the, you know, I mean, benefits of that or else we will curb them. In that context, if you could just, you know, I mean, explain how the operating leverage will behave in, you know, probably 2024/2025 investment that we have done. You know, what is the trajectory of growth and operating leverage we should see? Should we see this margin to recover at some point? You know, what will be the timeline milestone we will look at?
Thanks, Ali, you know, for that question. Look, in the immediate term, you know, this is going to be in the in-investment phase that we are in. What you have actually seen our OpEx on staffing costs, we haven't seen the full year impact of that yet, you know, because our hiring had only more back-ended in Q3 and Q4 of, you know, of this year. You'll see the full year effect of that coming, you know, through. As Lakshmi also outlined and I mentioned to Sanjesh, we are doing the investment on staffing in or on headcount on three aspects. You know, there is product and engineering, and these are folks who are working on my next, you know, set of innovations that will actually come through.
I have my feet on street. I have my delivery organization. You know, these are the three, you know, large buckets in which, you know, our investments have gone. The product follow a cycle of one -three -30. One, you know, stage 1, zero-to-one stage that we are in, we will see those products coming to fruition maybe, you know, 18 months, 24 months from now. Three is where we are, you know, currently taking from one and, you know, going to three to, you know, five customers to see, you know, whether it has legs in multiple other industries and multiple other use case. 30 is when it gets into the product stage. Now 30 is where you will see operating leverage kicking in because the revenues will come through in FY 2024.
For one and three, you know, those will only come through in FY 2025, you know, and beyond. Likewise, for the sales organization also, it will take three months for, you know, any salesperson to come on board and, you know, go through the readiness program and be ready, and takes another three months for them to then start building customer relationships and working on, you know, on building the funnel and then converting the funnel into an order book. Then, you know, we have our own gestation period of when the order book converts to revenue. That will flow through during the course of, you know, FY 2024. Here all we need is sometimes there are, you know, some aspects where you look at output metrics, you know, and measure the outcome of the business.
In some, we need to look at input metrics and measure the right, you know, call for the business. I would say this is the input metrics that we need to do that are we, you know, doing the right investments in the right places? Then do we have governance mechanism internally to see the, you know, the progress of each of them. That is how we, you know, I would want to navigate. Therefore, you know, in FY 2024, we are expecting our margins to be at the lower end of the range. Well, that's what I said, I would, you know, exactly same time, you know, last year for FY 2023. We were helped by the market shift that we actually had in voice, you know, which I called out in a couple of quarters ago.
We had some, you know, benefit there on the profitability line, which actually took us to 24.2%. Otherwise, we would have probably been in the 23% range. We will continue to be in the 23% range, you know, is what I see for the next year. These are, in my view, the right investments because we want to now maintain the momentum of a double-digit growth, and we want to launch this to a different trajectory. You know, I'm not gonna, you know, spell it out for you. You guys can do the numbers yourself. Our ambition of 50/50 on, you know, on digital platform, you know, is tells you as to, you know, where we need to head and therefore what investments that need to happen.
I wouldn't be myopic about one quarter, one year to take away what opportunities this company has, you know, ahead for itself.
Got it. should we be expect FY 2025 to then start seeing some benefit out of this?
I hope so. You know, Ali, in FY 2025, if we have more places where we need to invest, you know, then we will come and tell you guys, you know, where we are actually making those-
Got it.
those investment and why we are making those investments.
Understood.
We talked about MOVE. I mean, our portfolio has grown over 100%. IoT over 90%. I mean, these are all markers that tells us that we are in the right direction and we are getting the right design wins, you know, for us. If tomorrow, you know, our SASE and security portfolio gives us promise. Media is another exciting, you know, place that we are, you know, so, you know, confident of, and that's why we made the Switch, you know, acquisition as well. These are all green shoots that are available and these need support. These need the tender love and care.
We cannot not offer to them because they have the ability to scale up to $500 million, $700 million, $1 billion, you know, dollar businesses on their own in five to seven years' time.
Got it. This is very useful. Thank you so much, Kabir.
Thanks, Ali. The next question is from the line of Mr. Gautam Rathi from Chanakya Wealth. Gautam, you have been unmuted. You may go ahead and ask the question.
Just, you know, I know, people have been asking you regularly about some quantitative color on the order book. You know, that is where again, my first question is a request towards that. Lakshmi, you know, whenever you've, if at all there is any kind of quantitative color that you could give towards the order book, you know. Like even in the fact that, you know, what is the order book that we started with in FY 2023 and where are we today? Even on an annual basis, that will be very, very helpful for us to see, to actually see the progress going forward. Whenever.
Gautam, sorry to cut you short, I think the ask is well understood, Gautam. I think you're asking for lead indicators. Last time around, we did give some indicators of lag in terms of how we are faring in the million-dollar customers. I tried to give you some color on even the million-dollar large deals within our order book. It's significantly improved. The order booking itself has significantly improved. The reason why I haven't given out the exact numbers is there are a few things that happen in our business, right? In our traditional connectivity as well as even sometimes in the next-gen connectivity.
There is a churn that happens that, the, you know, the customers shift offices or there is a price churn that, unfortunately, happens. That something is not very predictable yet, right? I think we are having to balance that. The, the new order booking that adds on top of it to make up for this, for this churn. If I give you 1 number, I have to then give you another number, which is not, that very well predictable, because that's based on plan discussions and negotiations that we have. The second aspect of it is the color of the usage business, right? The usage order booking is purely usage-based. If there is uptick in usage, the revenue goes up.
Even in the order booking, it's very difficult to give a proxy order book on what that usage needs to be. We've experimented with the different models internally of attributing a smaller value of order book, attributing almost zero value to the order book for usage. These are all things that we are doing so that we get better predictability internally for us to govern. I hope I'm giving you a color of the reason why. It's not that we don't want to give you that color. The reason is, you know, by giving one parameter, we don't want to misdirect you and confuse.
That's very fair, Lakshmi. I understand, you are taking your time to be absolutely sure that what you share with us, is the most relevant information. The only thing is, given. Something seems to have given you the confidence that it is the time to push the pedal, right? You are doing that, right?
Yes.
Just whatever, if that, something, if there is anything quantifiable is what I was, trying to understand. But.
I think, you know, qualitatively, if I said that, Gautam, I, you know, I think I mentioned that if you look at our overall funnel and order booking in FY 2023, digital portfolio is 40%, right? Which was not the case before. That would give you a feel for the acceleration of digital portfolio in the order booking in the funnel. The second is what we classify as large deals, which is $1 million deal in enterprise segment. That has seen significant growth in the deals. Both in India market as well as in the international market.
The third is, as we speak to our customers, we get a sense that our relevance to them is evermore increasing because we are not talking to them anymore just about connectivity and connecting branches. We are truly discussing with them, you know, how the Digital Fabric can help them end to end in their in their in their own journey to build their digital experiences for the customer, right? These are the these are the factors that I can tell you as to why, you know, our our confidence is there.
Fair. If I were to just, you know, Lakshmi, if I were to just take this discussion same on the qualitative line, you know. How has the experience with the PPC and the churn been with respect to that, you know? Those are again, two very important parameters that you could associate with relevance, right? If I were to just take that. If you could give some sense out there. Another framework that you've used is one-three-30, right? Again, if you were to just overlay that framework, you know, just a few examples out there would be very, very helpful.
You know, where you've kind of tested the one-three and you know, you're now in the phase where you are saying that, you know, it's more like a three-30 that we are gonna push for in the coming quarters.
When you meant PPC, I think the product penetration.
Yes. Yes, yes.
Yeah. No, I think the that is number of products per customer is definitely seeing an upward trend. Even though I am not tracking that metric by itself, because even when we had a product penetration of four before, I sometimes used to see while the that ratio is four, but the revenue with the customer was small, right? There's no point in doing very small things with four products, that was not very meaningful. We do measure that, I don't assign too much of weightage to that. I look at more how many customers are at the threshold of a million dollar and how many million-dollar customers do we have, how is that growing.
We put out that number last year, and we will put out that number come the investor day that we would have in June. You would see the growth in that. That's one parameter for, you know, how we see our relevance to the customer is increasing. In terms of churn that you asked for, I think I alluded. The churn, you know, last year we were able to reduce it through strong actions from the team in the front, supported by all the delivery and assurance functions. We are trying to move that to a more programmatic activity to see how we can engage early with the customers to reduce the churn.
You know, this is something, it seems to be more of an industry factor that we are caught up in. Until we transform ourselves to fully realize our vision of Digital Fabric, which is in progress, this churn is going to be there. I hope that answers the question that you had.
Sure. And just the last part, which was the one-three-30, what I meant out there was, you know, just a few examples where, you know, basically what I'm trying to understand is, you've seeded a number of initiatives and you, what I understood was, you know, you wanted some of them to kind of reach that three levels before you really scale it up. Are there visible examples out there?
Yeah. There are visible examples. See, the one-three-30 is a very continuing thing. It's not, you know, a product at any point in time will have several ones. If you look at Global Rapide, you know, we started with a stage 1. We have now launched the Global Rapide 2.0, and 2.0 have enhanced features. While the Global Rapide itself is in stage 30, the 2.0 is still in stage 1, for example, right? Global Rapide has seen a significant growth in terms of number of seats that we won last year and the number of seats that we are deploying. Similarly, within even the next-gen connectivity, we had the IZO WAN, and we launched the stage 1 of the...
with the multiple variants, and that has now reached stage 30. We said that our next-gen connectivity has seen a good amount of growth, and we are further continuing to expand. I think if I were to give a color to you, in the past, you know, we used to say that, you know, if our sweet spot of our customers in the international market is any customer having, you know, presence in five regions and their network requirement is no more than 30% in the domestic market and 70% of the requirement is in international market, that would be our sweet spot. Because our true strength was then the international connectivity that we offered, and we were not able to, you know, fight against the strong local incumbents.
Today, that ratio has shifted. You know, rather than 30/70, we just won a deal which is 70% regional and 30% international. That was possible because of this one-three-30 approach of introducing new products and taking these to customers in a staged manner, right? I think also have a figure, and we'll probably share during the investor day. Last year. We do track how much revenues that we are getting from stage 3 moving to stage 30. Last year, of the incremental revenues that we showed, a significant part of it came from the products that moved from one- three to 30.
That'll be very helpful, we look forward to that in the analyst day. Thanks a lot. This is very helpful.
Thanks, Gautam. Next question is from line of Mr. Vinit Manek from Karma Capital. Vinit, your line has been now unmuted. You may go ahead and ask your question.
One question for you, Kabir. Just coming to the depreciation part. There was INR 64 crores-INR 65 crores of absolute increase in the depreciation during the quarter. Just wanted a clarification that was there any one-off during the quarter in terms of depreciation or this is a sustainable run rate that we will be seeing going forward?
No, there was a one time correction that we actually did in our... the way in which we used to recognize cable life and the residual value of cable life. I know that was about 40 odd crores, you know, where we took that correction. Aside that, I think it's business as usual.
Okay. It was just a INR 40 crore one-off during the quarter in terms of the depreciation.
Yeah. We used to have, you know, as per the Companies Act, we used to recognize 5% as the terminal value and then depreciate, you know, the balance over the life of the cable. We took a call, since we are not getting in that 5% anyway when we, when we decommission the cable, we made that change. For all the past ones which have finished life, we've taken the hit.
All the ones which have useful life left over, we have apportioned that, you know, over the rest of the life of the cable. That therefore you'll see that small change in the future until, you know, its end of life. This INR 41 crores represents the past.
So near term, maybe two or three quarters, you might still see something like this coming in or it's already done.
It's already done. There's nothing more that will actually come. Whatever will come is going to be marginal, you know, very, very marginal increase in, insignificant and immaterial from your point of view.
Okay. Okay. Got it. Got it. Thank you. Thank you.
Thanks, Vinit. The last question is from the line of Mr. Pratap Maliwal from Mount Intra Finance. Pratap, you have been requested to kindly unmute yourself. Please go ahead and ask your question.
Pratap, are you there?
Yeah. Pratap, please go ahead and ask your question. The next question is from the line of Mr. Abhishek Singhal from RAD Investments. Abhishek, you have been requested to unmute. Please go ahead and ask your question. Yes, Abhishek, please go ahead.
Yeah. My first question, effective tax rate in FY 2023 was 14%. What will be the effective tax rate in FY 2024? Second question, what will be the EBITDA margin in FY 2024 and what kind of growth expectation in top line for FY 2024?
Yeah. Abhishek, we don't give specific, you know, numbers as guidance for every quarter or future years. As we've said, our stated ambition is double-digit growth. We have delivered that for the last three consecutive quarters and for the full year, our endeavor is to maintain that same momentum going forward. Our EBITDA, you know, ambition is to stay in the 23%-25% range. As Ali and Sandesh asked, I clarified for FY 2024, we expect to operate at the low end of the range for various investments that we are actually making. I have nothing further to add other than, you know, restating and reiterating the same ambition that we have given.
Okay. Effective tax rate for FY 2024?
The effective tax rate for FY 2024, you know, will be better than, you know, what it has been in the past of 25%-26%. That is because we have net operating losses in international geographies. As international geographies are becoming more and more profitable, you know, we are utilizing those losses, plus also recognizing that as a deferred tax, you know, asset in our books. It is not just that we are. It's also a, you know, an asset that we are creating in our balance sheet. You, you should be able to see that in, you know, in conjunction. We hope to operate, you know, at a good, you know, levels of ETR. What exact number I'm sorry, I'll not be able to give you that, you know, Abhishek.
Okay. Sir, last question. if may. Sir, what is the one-time acquisition cost of Switch Enterprises, which was acquired for INR 86 crore in December? When it reflect in profit and loss account statement?
This has not yet come in our books, you know, Abhishek. As Lakshmi mentioned in his call, we expect all approvals to come through and integration to start only in the first quarter of FY 2024. We have not paid any of these things yet until the close, you know, has happened. There will be some costs, you know, on account of due diligence and, you know, and other M&A related ancillary costs that we have actually absorbed in our current year finance, financials.
Okay. Thank you so much, sir.
Thanks, Abhishek. This brings us to the end of our call. I would now request Lakshmi to share his closing comments.
Thanks. Thank you, everyone. I just wanted to say how pleased we are in terms of where we are today in having got to a double-digit growth and having achieved all the financial parameters that we set out to achieve in our strategy. We are very well poised for the next phase of our journey in our strategy, which remains the same, and we will continue to execute on that. Thank you very much for all your support.
Thank you, Lakshmi. This brings us to the end of the call. In case of any queries, you may please write to investorrelations@tatacommunications.com and we'll respond accordingly. The recording will be available on our website in the next 24 hours. You may please disconnect now. Thank you so much.