Good afternoon, everyone, and welcome to the Tata Communications Earnings Conference Call for Q1 FY 2024. We are joined today by our MD and CEO, Mr. Amur S. Lakshminarayanan, our CFO, Mr. Kabir Ahmed Shakir, and the Head of Investor Relations, Mr. Rajiv Sharma. The results for the quarter ended 30th June, 2023, have been announced yesterday, and the quarterly data pack 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 on the conference call today may be forward-looking in nature and must be viewed in conjunction with the risks and uncertainties we face. A detailed statement and explanation of these risks are included in the 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. Hello, everyone. I welcome you all to Q1 FY 2024 Earnings Call. Our financial results are a good reflection of the disciplined execution of our Reimagine strategy. Our data revenue growth momentum continues to improve as we invest in improving our capabilities to enhance our relevance with our customers. These investments imply that the margins may remain soft in the short term, and despite this, we aspire to operate at ROCEs of above 25%. Our unique strengths are very much being recognized by our customers as we can address both the cost side and the revenue side outcomes for them, thus increasing our relevance quotient on a continuous basis. Our Q1 reported revenue was INR 4,771 crores, improving by 10.7% year-on-year and 4.4% Q-on-Q.
Our data business revenues improved by 17.1% year-on-year and 6.6% sequentially, coming in at INR 3,912 crores. Digital portfolio, which is the DPS plus the incubation combined, that revenue stood at INR 1,415 crores, growing healthily at 37.5% year-on-year and 16.6% Q-on-Q. Underlying data revenues, which is excluding Switch, grew by 14.2% year-on-year this quarter, the highest since FY 2020, while they improved sequentially by 4%. Underlying digital portfolio revenue grew by 28.1% year-on-year, the highest in the past 12 quarters and improved by 8.6% Q-on-Q. EBITDA for the quarter was INR 1,024 crores with a 21.5% margin. PAT was INR 382 crores. ROCE remains healthy at 26.3%.
Before I discuss the financial results in detail, let me spend some time on two aspects of our strategy. One is on M&A. The second is on sustainability. On M&A, just to remind all of you, we announced acquisition of Switch in December 2022. We are happy to report that we completed the acquisition of Switch in this quarter. Switch will help us a long way by expanding our reach to top-tier U.S. sporting event venues and gain strong foothold in North America. It will extend our media and entertainment portfolio with live production capabilities.
Another equally important event this quarter was us entering into a definitive agreement to acquire Kaleyra, Inc., a leading global CPaaS player with robust product platform offerings and last reported revenues of $339 million in calendar year 2022, for an estimated enterprise value of $250 million. Kaleyra, combined with Tata Communications DIGO, will help us boost our contact play. The second aspect is the sustainability. We declared net zero goal, and we have several interventions in the direction of climate change, energy conservation, and community development. We are being recognized for our efforts in fostering sustainability and community-linked initiatives. We are adjudged winners in The Economic Times Sustainable Organization 2023, Excellence in CSR at CII-ITC Sustainability Awards, Platinum Award in the 13th Exceed Occupational Health and Safety Award, and many more.
Let me discuss the financial results in a little bit more detail, particularly our data portfolio. Let me begin with our core connectivity business. The revenues grew by 8.1% year-on-year and 1.6% Q-on-Q. 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 of our customers. The key drivers for growth this quarter was demand seen in the APAC market. Moving to the digital portfolio business, our collaboration portfolio grew by 13.4% Q-on-Q and 19.4% year-on-year. Consecutive quarters of double-digit revenue growth accruing in our collaboration portfolio sets the path for the overall growth momentum to accelerate. Sequential revenue growth seen in our collaboration portfolio is the highest in the past 12 quarters.
Tata Communications DIGO continues to grow in capability as a customer interaction suite, where it focuses to unify all customer interactions and benefited from additions of new logos and higher traffic revenues. Recently, one of India's leading passenger car manufacturer has trusted Tata Communications DIGO to transform broker and customer experience of its car insurance in a venture. The project covers the CX transformation of all the phases of customer journey: attract, acquire, transact, and retain. Our DIGO platform won the MEFFYS Award 2023 in the Personal Data & Identity category for the best innovation in the field of authentication. Additionally, InstaCC portfolio grew by a very healthy double digits this quarter and more, so we have robust deals in the delivery pipeline as well. InstaCC benefited from increased usage and addition of new logos in the Middle East and deal wins in the healthcare segment.
Media business revenues, including revenues from Switch, were sequentially up by 103.9% and 108.7% year-on-year. Excluding Switch, media business revenues were up by 36.5% Q-on-Q and 39.7% year-on-year. We are seeing rapid expansion in Japan and Nordic markets, with more in-region demand for global content. Our Media Edge is acting as a strong technology differentiator for all the three segments of content transport, processing, and production. With the integration of Switch, both teams are driving synergies by taking up joint offerings to our customers in Europe and U.S. The global presence of Tata Communications and strong broadcast experience with production capabilities of Switch has helped us elevate our conversation across these customers. We are seeing this translating to good pipeline with higher ACV deals in the pipeline.
Our next-gen connectivity revenues increased by 14.9% Q-on-Q and 46.6% year-on-year. Our unique IZO WAN proposition offers an end-to-end managed, predictable, and performing business-grade internet to our customers. This serves as a major catalyst driving our deal wins. With our customers moving to multi-cloud interconnect, we see an opportunity to address this growing market opportunity. We will soon be launching our software-defined Multi Cloud Connect service to provide on-demand, self-serve capability for customers to manage and address this connectivity to cloud, multi-cloud, and between clouds. Moving to cloud hosting and security, this portfolio registered a growth of 23.9% year-on-year and seen some softness on a sequential basis. Enterprises continue to look for seamless integration across multiple clouds, with the flexibility to leverage both private and public clouds with better and transparent FinOps to track cloud consumption.
Our multi-cloud management capability with CloudOps, FinOps, and SecOps through our TCx Cloud Command, places us well to cater to the structural trend. Our MSS business continues to grow at a healthy double-digit run rate. Tata Communications Cloud SOC, a managed detection and response platform, is well-positioned to address market opportunities. We have recently signed a large Cloud SOC contract with a leading life and general insurance group to protect them against the cyber attacks. This is completely a cloud-delivered solution from our platform. The incubation portfolio grew by 27.5% year-on-year. However, on a sequential basis, the performance is subdued. MOVE has grown 40% year-on-year. In our IoT offerings, after gaining wins in the domestic market, we are now looking at expanding to international geographies. Our digital portfolio has a capability to address holistically the needs of our customers.
We will continue to invest and drive relevance with our enterprise customers. With this, I'll now request Kabir to share the financial highlights.
Thank you, Lakshmi. Good afternoon, everyone. Let me take this opportunity to discuss the highlights of our financial performance for this quarter. This quarter onwards, we are combining DPS and incubation revenues and calling it as the digital portfolio. We are talking about reported numbers and underlying numbers. Underlying numbers exclude the impact of acquisition and disposals. Let me spend some time on the financial results and how our fit-to-grow strategy is helping us to accelerate our growth trajectory. We witnessed a quarters of strong growth in our data portfolio, both from an underlying as well as reported perspective, on the back of a strong execution rigor and deeper engagement with our customers. Our reported revenue for the quarter stood at INR 4,771 crores, improving by 10.7% year-on-year and 4.4% on a sequential basis.
The reported revenue numbers this quarter continued to have certain Forex benefits accruing from a strengthening dollar. Normalizing for Forex, our consolidated revenues grew by 6.9% year-on-year and 4.3% quarter-on-quarter. A positive impact on consolidated EBITDA margins is 30 basis points. Data revenue for the quarter stood at INR 3,912 crores, growing the highest ever since FY 2020, coming in at 17.1% year-on-year and 6.6% on a sequential basis. The underlying data revenue growth stood at 14.2% year-on-year and 4.4%, you know, quarter-on-quarter. The revenue growth for the digital portfolio at 37.5% year-on-year and 16.6% quarter-on-quarter, is the highest in the past 12 quarters.
EBITDA margins for the quarter came in at 21.5% on a reported basis and 22.1% on an underlying basis. Additionally, there has been an impact on account of acquisition-related expenses pertinent to Kaleyra this quarter, which are one-offs in nature. Normalizing for both the Switch consolidation and M&A-related expenses, our normalized EBITDA margins are 23.1%, well within the ambition of 23%-25%. ROCE for the quarter is at 26.3%, and the sequential decline is again an outcome of Switch integration and M&A-related costs. PAT is up 17.1% quarter-on-quarter, and PAT margins were at 8%. FCF for the quarter is at INR 184 crores, and this includes income tax refund of INR 425 crores.
Net debt stood at INR 6,007 crores, net debt to EBITDA at 1.4x. Our debt levels continue to be at the comfortable gearing and well within our ambition. Cash CapEx for the quarter stood at INR 431 crores, the ramp-up is attributable to payments coming in from CapEx projects committed in the prior year. All our KPIs, ROCE, PAT margins, net debt to EBITDA, and revenue growth reflect how we are fundamentally transforming the company to operate in a higher growth trajectory and funding our growth ambitions in a meticulous manner to maximize value for our shareholders. It is important to step back and understand the journey so far. We have come a long way from a significantly leveraged balance sheet to a situation where steering capital allocation for growth.
The healthy FCF over the last few years has allowed us to create a solid base to pursue inorganic opportunities and accelerate growth momentum. That said, we continue to invest as, you know, and strengthen our foundation for achieving growth ambitions and investing in our sales and product organization to benefit from the market opportunities. The digital portfolio revenue growth gives us the confidence that we are on the right track. Our acquisition of Switch and our definitive agreement with Kaleyra will further sharpen our modes and help us improve our growth trajectory in the medium term. This strategic intervention will additionally help us penetrate deeper into international markets and accelerate our growth in these geographies. Moving to subsidiaries, TCTS and TCPSL remained flat sequentially. Our payment business continues to make positive shifts as we expand our portfolio under the franchising model.
As on date, we have close to 3,800 franchise ATMs to our portfolio and working steadily on increasing this further. We continue to strengthen our governance, rigor, and agility in TCPSL. To sum up, our holistic delivery across financial KPIs is laying the path to capture the tailwinds and market opportunities which lie ahead. I'll now ask Chirag to open the forum for Q&A.
Thanks, Kabir. The first question is from the line of Sanjesh Jain of ICICI Securities. Sanjesh, you have been requested to unmute yourself. Please unmute and go ahead and ask your question.
Thanks for taking my questions. I got few of them. First, Lakshmi, can you help us understand how is the order book and funnel shaping up? This quarter has been a very strong growth in the data business. Can you also help us understand, was there a bunch up of revenue because of the easing of chips? Or, do you believe these growth numbers are sustainable and you believe that you can further accelerate this? That's my first question.
Yeah. Yeah. Hi, Sanjesh. No, there wasn't anything that bunched up or anything as a result of semiconductors or anything. I think I have been saying that, you know, as a result of investing in the markets, our funnels are improving. I think the order books have been steadily increasing over the course of the last few quarters. Some of the deliveries and conversion were happening even though it was delayed, because as I had said, the semiconductor delays were delaying the some of the deliveries. We were treating them more as a business as usual and nothing as unusual, right? That is the way we wanted to do that.
It's the way we would attribute this quarter's growth is a result of, you know, good order booking, disciplined execution on service delivery and assurance, and good engagement with our customers to reduce churn and other factors. That's what we would say. Going forward, if I look at the funnel, I think the funnel is still very good. Last quarter, the number of deals that we added into our funnel is very healthy. The number of new logos that we acquired last quarter, again, is quite healthy. Having said that, the conversion of the funnel in Q1, we noticed that it was longer than what it took two quarters ago.
So, there is a, i t's longer, but the mostly the response from customers are more about delay and more time to make a decision, rather than them stopping anything. Overall, the demand drivers are pretty much in place. The demand drivers for most of our offerings, stem from the fact that the customers are moving to cloud. Stems from the fact now, today, many customers are not just happy with just going to one cloud, but they want to be truly on multiple cloud. There stems from the fact that, you know, people want to examine private cloud a lot more strongly than blindly moving to public cloud, because that was the trend a while ago. There is a very clear discussion happening with customers on the value of private cloud.
Customers wanting to leverage internet, and that has not died, in terms of customers wanting to move to internet. Similarly, on the customer experience side, for B2C, you know, they want to see a simpler means to have conversations with their consumers and in a more converged and contextual manner, because that's what will help them to deliver better experience. Again, customers wanting to take the contact centers to cloud for a variety of reasons, right? These are all the demand drivers. We don't see anything slackening there at all. In the medium term, you know, things will pick up again because the funnel looks good.
Got it. Got it. On core connectivity side, again, we used to talk about the mid single digit. We are clocking 8%, reaching to high single digit. What has changed in the core connectivity?
No, core connectivity also, you know, If you look at the global trend on core connectivity, it's a declining trend.
We said that we would do better for many reasons. One reason we felt was there is still a lot of demand for data centers, and data centers are gonna grow, and particularly in India and in certain select markets. That's one of the reasons why we said that we'll be in a low to mid-digit growth. Now, the data centers growth is there. I think as people invest more on data and perhaps AI, there is a lot more of core connectivity requirements that are required. This year, as I said, this quarter, there was a lot of demand from APAC, and not just from India.
The second aspect of why we maintain that we will continue to grow there is because of the investments that we are making in the core connectivity as well. Not just making our network mesh a lot more powerful by giving a lot more diversity to our customers, making the core network itself a lot more programmable, you know, and making it more on demand. I think those are all the capabilities that we are investing in. With these are the reasons why we were saying that it will grow. Whether this level of growth that we saw, this also has some lumpiness in this business because some of these contracts tend to be large, so you will see some lumpiness.
Overall, we are still saying that it will be in the, in the low to mid digits, single digits. Sanjesh, I hope that answered the question.
Yeah, yeah. Thank you. Thanks, that answers my question. Actually, one on the Switch strategy side. Now that the acquisition is done, can you help us understand how this acquisition will have a synergetic benefit and path towards the profitability for this business?
Yeah, Sanjesh, the Switch, you know, I think the rationale was the Switch is a very strong player in North America. Comes with a lot of good customer base and infrastructure in that market where they have connected to many venues. The second is, they have a strong production capability, which is a missing piece in the Tata Communications portfolio, and that augments our product capability. It brings with it a geography expansion for us. It brings with it a product capability and fills the gap in our portfolio. That's the rationale.
In terms of the synergy, we are already, you know, we a re two months into to close, and we are seeing already the results of that, where we are able to take up the joined-up offerings to our customers, and we are seeing very good traction with customers with these joined-up offerings. You know, in North America, to Switch customers, we take our Tata Comm offerings and bundle it and take it. Similarly, in Europe and other markets, when we bring the Switch production capabilities and bundle it, there are interesting conversations happening. The funnel is looking good as a result of these conversations. The second aspect of it is the is the margins that you talked about.
Yes, I think , a s we scale, as we work on, the other aspects of synergies that we had laid out, these will play out in due course, to improve.
Got it. One last from my side. Subsidiaries have been very volatile and struggling. We haven't seen a sustained turnaround. What's the end game for us in both TCPSL and TCTS?
See, I think the way we want to look at this business is TCTS is addressing telco markets. They have the core competency and a very strong domain knowledge of telecom, and that, combined with the technology expertise and service expertise they bring, it is attractive to the telecom companies out there who are investing in fiber, who have a lot of legacy technologies and processes and would want to transform. That's the real value proposition of TCTS. You know, I think that is still attractive. Maybe there are some softness in the market today, as you would have seen, you know, globally, telcos and others, you know, are soft. We would have seen that from the SI results announcement. Many of them have called out.
It is taking time for TCTS to convert opportunities and win those deals. From a profitability point of view, we are turning around, making, you know, careful selection of bids and making sure that the mix is more skewed towards international. As we hit on that, it will turn around. That's the, sort of short, medium-term plan for TCTS. As far as TCPSL is concerned, we had called out that that company again suffered through a lot of macro changes, imposed by various things, one of that being COVID. We had pivoted that business to from being a fully company-owned, company-operated model to a franchisee model.
That, changing to that franchisee model, is beginning to show results, albeit, you know, while that part of it is showing results, the other part is yet to fully turn around. As we completely pivot it to, the model that we want, it will turn profitable.
Got it. My problem with TCTS is that it's been like, what, four, five years?
Yes.
That business has struggled.
Yes.
We haven't seen any material turnaround there. The question is, do we really want to continue now? We have given half a decade for that business.
Yeah, I think when there is any other proposal, Sanjesh, we'll come to you. As of now, in the management team is gonna keep the head focused, head down and focus on the execution of the strategy that I just outlined.
Fair enough. Thanks, Lakshmi, for answering all the questions, and best of luck.
Thank you.
Thank you, Sanjesh. We will wait for a minute for the questions to assemble. The next question is from the line of Alia sgar Shakir from Motilal Oswal. Ali, you have been requested to unmute. Please go ahead and ask your question. Ali, you're not audible. Could you please check the tech at your end? We move to the next question. In the meantime, Ali can join the queue back again. The next question from the line of Mr. Pratap Maliwal. Mr. Pratap, you have been requested to unmute yourself. Please go ahead and ask your question. Pratap, please go ahead. Yes, Pratap.
Yeah. Thank you for taking my questions. I just wanted to have a bit of clarity around our cloud and security business. We've been seeing some good growth in that particular subvertical. Was there any one-off that we had in this particular quarter, and do we expect it to kind of reverse going ahead? Just a doubt I had that, is our cloud hosting and security more India-focused? Please correct me if I'm wrong there.
Hi, Pratap. No, there isn't any one-off as such. From an overall demand perspective, as I said, the cloud demands are still solid. From our, where we take this to market, our cloud offerings are focused on India, are either private cloud. We have launched specific solutions for the government community cloud, and we are serving very prestigious government institutions with our cloud. Similarly, we have launched a fin cloud that addresses financial services companies, that specifically with specific compliances of RBI and other latency requirements. We have the IZO Cloud that is running for other enterprises as well, where we are running variety of workloads on the cloud. It's scaled very well.
We compete strongly with public cloud players in that space because it's very unique, very differentiated, and gives the customers a level of flexibility and cost savings, and more predictable cost, that the customers are now beginning to look for. That's, that's largely targeted towards India market. Now, as far as security is concerned, that's more of a global offering. We have a variety of offerings in MSS. In the security, you know, one is largely about the network security, and that is a global offer that we do for customers. The other is, Cloud SOC, which is essentially to build a SOC for customers to deliver a managed detection and response capability. Cloud SOC was launched in India a year and a half ago, and it's seen a very rapid growth.
We have taken this capability selectively to other markets. We have launched that in UAE, and while we have not officially launched it in the European markets, there are already two, three customers in Europe who are using our Cloud SOC capability. Our security offerings is more global. Our cloud capability at the moment is largely in India.
Understood, sir. In our DPS portfolio of the four offerings, which one do we think can really move the needle for us when it comes to our international revenues? Which one are we really looking at for that growth trigger?
All of them. You know, no favorites. No, we'll be betting on all of them. All of them have good potential in the market. You know, each one of them have a different drivers for them. All of them have very good potential.
Okay, sir. Thank you. Thanks for taking my question.
Thank you, Pratap. The next question is from the line of Mr. Mihir Manohar from Carnelian Asset Advisors. Mihir, you have been requested to unmute. Please go ahead and ask your question.
Thanks for giving the opportunity. Sir, lastly, wanted to understand, you know, I mean, the Kaleyra acquisition that we have made, now, given the fact that that is like INR 2,700 crore-INR 2,800 crore kind of an addition, despite acquiring this business, are we still hopeful of maintaining 20%-25% margins from a long-term angle? This question is from a long-term angle, and just wanted to understand, if such a large business would get added to Tata Comm console, what will lead to release of margins in the balance part of the portfolio? Just wanted to have an understanding around that.
What can be the margin re-release, for us so as still to have 20%-25% margins, when we are looking the FY 2027, vision? I mean, just, That was the question. Thank you.
Sure. Thank you. Kabir?
Yeah. Look, I mean, Kaleyra is a listed company, I'm sure you can do the mathematics of what their last reported turnover and their profitability is. It indeed, when we close, it will have a dilutive effect in the immediate term. Our ambition for this business is to operate in the 23%-25% range. In the medium to near to medium term, we hope to get Kaleyra back. The business case already looks at the potential synergies that we will have as a result of the Kaleyra acquisition, plus the efficiencies that we will actually bring about, you know, as Tata Communications. The complementarities that we have, you know, from a customer perspective, the ambitions that we have from a product portfolio, you know, and capability and feature set, you know, perspective.
When we look at from all of these angles, I think there is opportunity for us to get the business back to profitability, get the synergy benefits, and get back in. Exactly which year, you know, will it turn about? I can't, you know, say that to you. Yes, our ambition is definitely going to be operating in the 23%-25% range for EBITDA, with a short-term margin dilution as a result of all of these acquisitions, Switch and, you know, Kaleyra. We hope to get back to 23%-25%.
Thank you, Kabir. The next question is from Aliasgar Shakir from Motilal Oswal. Ali, you have been requested to unmute yourself. Please go ahead and ask your question.
Yeah. Hi, I hope I'm audible now.
Yes, Ali, please go ahead.
Yes, sir. Thank you so much for the opportunity. Congratulations for a pretty good set of numbers, especially the digital portfolio, which seems to be really pretty good in this quarter. Just a little more color, if you could share in the digital portfolio, you know, the collaboration and managed CPaaS segment has seen a pretty decent growth. You know, I think there are a couple of different what you can see within this. I think you also have the CPaaS as well as the DIGO and UCC businesses. If you could just share some color about how each one of them is doing or probably what is driving this growth and, you know, how they are sustainable trends going forward.
Similarly, the media segment, which, as you indicated, even excluding, you know, Switch over, it does pretty strong quarter growth. Understanding that. Just the last piece is on the, on the cloud and security, you know, which is language. Just share some details in each verticals. Thank you.
I think you are, you are fading away a little bit at the end, Ali, but I think the last question was more about cloud and security and how the future looks for that, if I'm right?
Yes.
Let me take on the collab, the collaboration portfolio. As I had commented earlier, we had pivoted that model from purely being a usage-based GCIP revenues to a more of a product and services portfolio by introducing GlobalRapide , which we introduced, and I think that helped us to stabilize the degrowth of purely a usage-based consumption model that we had. As people moved to using more of the applications, the UCaaS applications like Teams and Zoom and Cisco and others for their collaboration purposes. I think the products that we introduced helped us to stem the degrowth and stabilize it. What is driving the growth?
That in future, going forward, we believe that GlobalRapide has good potential for it to grow as well. The last two quarters, we introduced DIGO in the market last year. InstaCC, while it has been in the market for some time, we have expanded the InstaCC portfolio, which is a CCaaS offering. Combined, the InstaCC and DIGO is what we call as a customer interaction platform or a suite of customer interaction platforms. This has seen really good growth, and that is what has fueled the growth this quarter and last quarter as well. That's what you're seeing in that portfolio.
We believe as we continue to invest in, and that's the rationale for also investing in Kaleyra, it will further strengthen our position, the product and the presence in various geographies to help us to grow in this market. This is a very fast-growing market. A lot of movements happening in the market where people are looking at how to strengthen the customer experience, journey for enterprises. We think we'll be very uniquely positioned there to continue this forward as we bring the two companies together. On media, yes, I think media by itself is growing very well, and combined with Switch has good potential. I think it's a question of more disciplined execution in media.
We also, you know, a lot of new products from the digital side. We keep calling out the Media Edge. Our Edge solution, while we'll formally launch Edge for other horizontals and verticals, Edge is a solution which brings the cloud closer to the users, right? That is what Edge is designed for. This Edge capability that we have developed is being used by our media and is taken to market. There are many use cases that they are addressing in the world of media.
And this is getting very good traction because our Edge sits right on top of the video network that we have, brings a lot of capabilities, low latencies and a lot more abilities than what a public cloud or a public cloud Edge provides at the moment. So that is one of the key drivers for media, plus our deepening engagement with customers is also helping the media growth organically. And now with The Switch Enterprises LLC, it will only strengthen that more. Coming to the cloud and security, I think I already answered that question. Cloud is largely focused in India. Our IZO Cloud is a very strong proposition. We do compete with public cloud in that space.
We believe the private cloud has a very unique place in the workloads of enterprise customers. It offers them a lot more predictability of costs. It lowers the total cost of ownership when you look at a three year horizon. It brings a lot more flexibility. We are able to offer, you know, better performance because our cloud in India is distributed in many locations, and therefore are able to offer a much better performance on this. We today run very prestigious workloads for government organizations. We are running workloads for major enterprises. It's a very proven platform that we have.
That is something that we believe will continue to go forward and drive forward as we bring more and more new capabilities for AI, ML, and AI, video object storage and other capabilities that we will add to our cloud capabilities. From our security offerings, security offerings are more global. In India, we have a little bit more wider offerings, but it is truly a global offering that we have. That, again, as you observed, is showing excellent growth for the past. It's got, you know, even greater potential going forward.
Thanks, Ali. The next question is from line of Nishit Rathi from Chanakya Wealth. Nishit, you have been requested to unmute. Please go ahead and ask your question.
Hello?
Yeah, Nishit, you're audible. Please go ahead.
Yeah. Just wanted to understand, the employee number seems to have gone up again by 250 employees this quarter. I assume there would be some addition because of Switch. Can you just break that up for me, please?
Yeah, you're right, Nishit. I think the employee count has gone up with Switch as well as some of the offers that we had made towards the back end of the last year also coming into play. Yeah, those are the reasons why it's going up.
Lakshmi, is it fair to assume that 100-150 employees would have been added due to Switch? That's the number we could find on the net.
Yeah, I think the precise number would be 128, but, yeah.
Okay, thank you. That is great. Secondly, you know, any comments on any particular reason why MOVE for this sequential softness? It's been growing really well, and it's a product which you've been pretty excited about. Just wanted to understand any, anything in particular to read, or it was just.
No, nothing particularly to read into it, Nishit. Like today, the MOVE platform different segments, right? They're addressing the MNOs, and a yet to be discovered segment is semiconductor, which we are really excited about. These are different segments. Each of these segments are in sort of different stages of maturity in our 1-3-30 model. As we navigate through these, we believe each one of these will scale. The softness that we are seeing is only transient. Having said that, you know, I want to emphasize that this is still in a, in a sort of, early stages of discovery, of use cases and so on. As we win customers, from a design win perspective, we will scale them to the next levels.
Is it fair to say that we were a fairly strong player in the auto connectivity part of it, as the connected cars keep on increasing, you could start seeing much better revenue traction in this portfolio?
Yeah. I mean, auto is one of the core segment that we are addressing because as you said, you know, the connected cars are reality. Connected cars is to deliver for the auto players, a better visibility of what is going on inside the car in terms of understanding how the car performs, give real-time feedback to engineering teams. All the telemetry data is what they are using. The second use case is more about, you know, how do I use it for passenger infotainment purposes so that passengers can have better experience riding the car? You know, delivering over-the-air updates.
As the cars themselves tend to have a lot more of compute capabilities, they have to be updated on a periodic basis, so the SOTA updates are gonna become a more of a feature. These are the key drivers of growth for the MOVE platform in that segment.
It will be both, we will participate in both the usage as well as a core fee, right?
Yeah, yeah, absolutely. This is a platform, right? We will be charging for the platform. There will be usage as well.
Perfect. That is perfect. One last question? Any update you would like to share on the land side? You've acquired two companies. You said you'll look to match that with the land.
Yeah. No, once we have, you know, something, we will announce. All the small land parcels on a very transactional basis, we are actually taking a call whenever we get the right value for it. The large parcels, you know, lot of work is needs to be done in terms of their title and, you know, and stuff like that. As and when we have news, Nishit, you will hear from us.
Thanks a lot. Thank you.
Thanks, Nishit. The next question is from Santhosh Sinha from Emkay Global. Santhosh, you have been requested to unmute. Please go ahead and ask your question.
Can you hear my voice?
Yes, Santhosh.
My question is again, regarding the margins. When we look at the underlying EBITDA margins, it is true that at 22.1%, that is still a decline of around 50 basis points quarter-on-quarter. What has led to this decline in margin on the underlying basis? If we look at the margin improvement going forward, which will drive more margin improvement for the company, is it The Switch or Kaleyra?
Let me answer the first part. Look, as I mentioned, there are quite a bit of drivers that you need to organically understand, you know, for the company, and some of them play in the quarter-on-quarter, you know, variance, some of them play in the year-on-year variance. Let me explain the three holistic, you know, drivers. One is the mix effect that we actually have as we drive the digital portfolio harder. They are currently coming at a lower margin. You know, even though we have margin accretion there at an absolute level, but that still as a weighted average, you know, will play out as a negative mix. We need to understand that element structurally. The second one is we have actually, as I said, added, you know, P&P costs and, you know, those come in.
That's there in the year-on-year, but not that much in the quarter-on-quarter. I also explained that this quarter we have spent, you know, on the M&A related expenditure, all the due diligence and investment banker fee and strategic advisor fees that we had leading up to the decision that we made to enter into a definitive agreement with Kaleyra. Those are all the things that have, you know, impacted us, and we have been clear. Let me reiterate that both in the Investor Day and in the last few quarters, we have been transparent with the street, with the investors and the analysts about what our outlook on margin and what our approach to margin is.
Our ambition is 23%-25%, if there are strategic reasons why we need to depart, we will, you know, we will take that call. However, we will, our return on capital employed and the return, you know, on that will be a robust, you know, greater than 25% is what, you know, we would like to aim at. Again, you know, when we have some huge investments, you know, coming in, if, again, that dips, you know, a little bit here or there's a lot of headroom, you know, available there. Even that happens, I think structurally, we are a much, much healthier business, and we will continue to retain the focus on a healthy balance sheet. I don't want to, you know, kind of speculate on whether it's Switch or Kaleyra.
It's like, you know, each of them have their own, I would say, demand drivers. Each of them have their own positives that they actually bring, you know, to Tata Comm, and the synergies have a different gestation period and a different dimension to it. I wouldn't compare, you know, between Switch or Kaleyra. I think all of them part, sit part of my, you know, digital portfolio and have a very strategic role, you know, as they do. The mix of what is having a higher net revenue margin, you know, and LOB costs or what is the capital, you know, that each of the business demands, that will vary, you know, depending on the nature of the business.
I wouldn't really take a judgment of the business on looking at just one KPI in isolation. It needs to be looked at in totality.
Thank you, Kabir. The next question is from Urmil Shah, from Ageas Life Insurance. Urmil, you have been requested to unmute yourself. Please go ahead and ask the question.
Oh, am I audible?
Please, go ahead.
Yeah. Thanks for the opportunity. Two questions. First is, as regards our strategic roadmap regarding M&A, we have two acquisitions already been done, and Kaleyra being a sizable one. Would it be reasonable to assume that from the next, you know, four to six quarters point of view, you would first look at integrating and taking the synergy benefits from it, or you still are seeing M&A opportunities at the marketplace? This is the second part, again, on the margin front. While from our outlook on, in the medium term for 23%-25% EBITDA margins, the organic business will have to, you know, offset the impact of the M&A.
Would it be reasonable to assume that at least for FY 2023 and 2024, this is the period where you would still continue to invest both in the organic business and, you know, consolidation of M&A, and our EBITDA margin range would be achievable from FY 2025 and beyond? Those were the two questions.
Let me take both of them. Look, there were many M&A opportunities that we have passed, you know? There is no target or a goal seek, you know, that we have. We have clear operating principles as to how we look at M&A. We explained that in our Investor Day, let me repeat, it has to have a strategic fit for us. It needs to create value for Tata comm and all its stakeholders, you know, therefore we will, you know, act responsibly. We knew, you know, back then when Lakshmi talked about strategy on a page and called out financial fitness, you know, as an important lever, because unless and until we got our balance sheet in order, I don't think we would have been able to participate in the M&A game.
We were a mere spectator in the past. Today, we are actively participating. There is a separate engine, separate, you know, side of the business, which is continuously evaluating these targets, and they will, you know, they will bring those targets, you know, to us, and we have a governance mechanisms where these targets are evaluated and then looked at. Of course, there are many factors that go into play. Our ability to acquire, to fund it, our ability to execute and integrate. There are a lot more factors that go into, you know, in the place. I can't tell you that for the next few quarters, we will not do it or do it. I, you know, I can't have, I don't have a definitive answer.
All I can only tell you is that M&A plays a very, very strategic and an important role in our growth aspirations, and that will continue to be so. As far as EBITDA margins are concerned, look, again, I don't want to tell you what will be FY 2024 or FY 2025, right? I don't know. It'll be six to nine months, maybe sooner, that we will be able to, you know, close the Kaleyra acquisition and integrate that. As we do that, you can do the mathematics as to what will be the impact on EBITDA, on PAT.
You know, for us, as a whole, it will have a dilutive effect for the, you know, one or two years until we, you know, get the entire synergy benefits kicking in and restore Kaleyra back to its growth, you know, trajectory, and convert that into a, into a profitable business. The existing business, I wouldn't make that assumption that it needs to make up for it. Existing business, on its own, has its margin drivers, has its own, you know, plan on how to improve profitability, how to drive overall, you know, success for that, you know, portfolio, both top line and, you know, margin progression. That will, that will continue and just because we have an acquisition doesn't mean someone else needs to overcompensate. That's why we talk about being responsible.
Every element of the business needs to reach its potential and, you know, deliver to the best of its potential. That's how we will actually manage, and I wouldn't want one to be compensating, you know, for the other, which indirectly then means that those businesses are then starved of the investments they otherwise, you know, deserve. That's how I would actually sum up, you know, my response to your question.
Thank you, Kabir. The next question is from Mr. Saurabh Sadhwani from Sahasrar Capital. Saurabh, you have been requested to unmute. Please go ahead and ask your question.
I just wanted to understand one thing. For the long term, let's say four to five years, what are our expectations for revenue and the revenue mix?
Saurabh, I think we said that we want to double our data revenues in four years' time.
Data revenue is still 80% of the portfolio, right? 80%, 88%, 85%.
Correct.
What about the other things?
Other thing is only voice, no?
Yeah.
Sell of data is only voice is a declining business. What exactly is your question? When you talked about aspirations, I want to talk about aspiration, especially aspiration for growth. The aspiration for growth comes from the data business, the data business will double. Within that, the digital portfolio will have to grow at even greater pace. That is why, you know, we are looking at strengthening all the digital portfolio, whether it is Connected solutions or connected experiences or the entire connected digital infrastructure that we have. Those are the portfolios that we are investing in and strengthening in order to be part of the digital transformation of our customers.
In four years' time, we said that we want to evolve from not just being a platform player but to become a digital fabric for the enterprises. These are the aspirations that we have laid out, which we discussed in the Investor Day quite extensively.
Also, the data revenue would be at the same percentage of the overall revenue then.
No, it will not. It will not. As the data revenue grows, then the voice, looking at the current trajectory, the voice is declining. I haven't worked out then what percentage will data be. See, largely, when we talk about the strategy, the voice, everybody knows is a declining business, and data is the business that we are focused on. When we talk about our strategy, we largely are focused on the, on the data side.
Sure.
All of our articulation of our strategy is in line with that aspect of how we want to grow the data business.
Yeah.
I encourage Saurabh, that you know, probably look at our Investor Day presentation, which is uploaded on our site. You know, have a look at this. I think probably these are all questions that have been already answered in our presentations available.
Thank you. Thank you very much.
Thanks, Saurabh. This brings us to the end of the Q&A session. I would now request Lakshmi to share his closing comments.
You know, it's been truly a very exciting quarter. We call it a pivotal quarter in Tata Communications. The growth in the data, growth in the digital portfolio is phenomenal. The major announcements that we made of completing the Switch transaction is truly a landmark event in our media business. The announcement of Kaleyra is another important milestone in this growth journey. We are very excited about the future and excited about the fact that we are becoming more and more relevant through the digital transformation of our enterprise customers. Thank you.
Thank you, Lakshmi. This brings us to the end of the call. In case of any queries, please write to investorrelations@tatacommunications.com. The recording will be available on the website in the next 24 hours. You may please disconnect now. Thank you.