Good afternoon, everyone, and welcome to the Tata Communications Earnings Conference Call for Q2 F.Y. 2024. We are joined today by our MD and CEO, Mr. Amur Lakshminarayanan, and our CFO, Mr. Kabir Ahmed Shakir, and our Head for I.R., Mr. Rajiv Sharma. The results for the quarter ended 30th September 2023 have been announced yesterday, and the quarter 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 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, and good afternoon, everyone. I welcome you all to the Q2 F.Y. 2024 earnings call. We're very pleased to inform that the integration of The Switch with our media business is progressing as per strategy, and we are excited about the combined opportunities that we see in the market. We are realizing early deal wins across customers through our joint offerings. Next, I'm also happy to report that the accelerated closure of Kaleyra deal is much before the expected timelines. We will now shift focus to ensuring the right synergies are playing out between Tata Communications, DIGO, and Kaleyra, thus enabling our combined offerings to position us as a formidable player. We will build intelligent, intuitive, and innovative multi-channel communication solutions and create a category of Customer Interaction Suite that helps us to scale growth in line with our ambitions.
The customer interaction market is expected to grow at a CAGR of more than 25%, thus creating a market opportunity to the tune of $27 billion. To sum up, Switch and Kaleyra integration will set us up for a robust growth trajectory. Additionally, I'm excited to share that we are in discussions with NVIDIA to build a state-of-the-art AI infrastructure in India. Today, we offer infrastructure as a service solutions and several PaaS services while enabling enterprises to do data analytics. The logical next step for us was to enable enterprises to do AI and machine learning. This is an exciting opportunity, and we shall keep you posted as we progress. Moving to our overall performance, our consolidated Q2 reported revenue was INR 4,872 crores, improving by 10% year-over-year and 2.1% Q-on-Q.
Our reported data revenues stood at INR 3,995 crores, growing strongly by 14.4% year-on-year. Our underlying data revenue growth, which is excluding Switch, came in at 10% year-on-year. EBITDA for the quarter was INR 1,015 crores, with 20.8% EBITDA margins. PAT was INR 221 crores. ROCE came in at 23.3%. Our India revenues continued to grow strong double digits. Our international revenues continued to gain momentum steadily as we strengthen our offerings and footprint across the global markets. We witnessed another quarter of a healthy funnel and order booking growth. However, the order booking acceleration is lesser than our expectations because of uncertainties in the macroeconomic and geopolitical scenarios. We see greater caution globally and slower decision-making.
Despite this, our engagement intensity with our customers and prospects are increasing. Our recent product rollouts, including IZO Multi Cloud Connect, DIGO Engage 2.0, and AI-based cloud analytics, reflect the strong conviction we hold about the growth opportunities ahead of us. Now, let me dwell on the investments we've been making and how you should look at our profitability going forward. We continue to invest in our underlay capabilities, both submarine and terrestrial, in terms of augmenting capacity and new routes, and we're also investing to make them more intelligent and programmable. On top of this, we are building a strong digital portfolio to deliver a global digital fabric suitable for enterprises. Over the last three years, we have invested in people and platforms which have yielded positive results. Our incubation revenues have tripled.
Cloud and managed hosting, next-gen connectivity, and media businesses have grown by over 50% in this period. Additionally, we've invested in inorganic competencies to bridge certain gaps. Because of all these investments, digital portfolio will be contributing upwards of 40% to our data revenues soon. These investments in organic and inorganic capabilities come with a cost, which will have a dilutive impact on both margins and ROCEs in the near term, before they move upwards in the medium term towards our ambition of 23%-25%. Our core business, excluding the subsidiaries, the performance is as per plan. However, our subsidiaries, which account for roughly 8% of our reported revenues, continue to have dilutive impact on our core EBITDA margins. Another factor affecting the EBITDA margins is a change in revenue mix. Our digital portfolio has a different margin profile.
The calibrated increase in digital revenues, thus changing the revenue mix, comes with an impact on EBITDA in the near to medium term. However, each platform has a profitability glide path, and we are sharply focused on, and are confident for the businesses to operate in the 23%-25% medium term. I did mention about the subsidiaries having a drag on the core margins, and we will be initiating and undertaking a strategic review of these. Before I dive deep into a detailed discussion of the quarterly performance, it is important to emphasize on our medium-term structural growth drivers. This includes maintaining our India market leadership, emerging as a strong challenger in international markets from a peripheral player today and to become a strong challenger.
With Kaleyra and Switch, we see this becoming more of a reality as we have scale now in the U.S. to accelerate and bring more credibility in the market. These possibilities are driving our conviction and our continued investment in capabilities. Lessons from tech industry are loud and clear. Investments in one capability never create sustainable competitive advantage, and it is always about a network of capabilities which develop a source of competitive advantage, and that's exactly how we are focused. Now, coming to our segmental performance, digital portfolio, which is DPS plus the incubation combined, the revenues stood at INR 1,457 crore, growing healthily at 30.2% year-on-year and 3% Q-on-Q. Underlying digital revenues, excluding Switch, grew at 16.4% year-on-year this quarter.
Our core connectivity business revenues grew by 6.9% year-on-year and 1.6% Q-on-Q, and reflect robust execution and initiatives around price erosion and churn management. Now moving to the digital portfolio. Our collaboration portfolio grew by 7.5% year-on-year and declined 7.4% quarter-on-quarter. I would not read much into the sequential decline, as these volatilities are due to specific customer implementation contracts and engagements we executed last quarter. H1 FY 2024 revenues for Collab portfolio have improved by 13.4% year-on-year, largely driven by our CIS portfolio. Going forward, the integration with Kaleyra will accelerate the growth momentum. Media business revenues, including revenues from Switch, were sequentially up by 4.9% quarter-on-quarter and 107% year-on-year. Excluding Switch, media business revenues were up 3% year-on-year.
The sequential decline is on account of lesser events this quarter. With the combined capabilities of Switch and our media portfolio, we are witnessing a healthy order pipeline, higher ACV deals, and possibly better revenue conversions going forward. The momentum around joint customer wins and more business from existing customers is positive and in line with our strategy. Our next-gen connectivity offerings revenues increased by 15.4% quarter-on-quarter and 46.9% year-on-year. The growth has been broad-based across the portfolio, with our IZO WAN and IZO SD-WAN growing strongly. We successfully delivered our largest SD-WAN deployment of 5,000 sites for one of the India's leading banks. Our new offerings, like Managed Wi-Fi and IZO Multi Cloud Connect , Flex SD-WAN, gained solid traction with enterprises.
Moving to cloud hosting and security, this portfolio registered a growth of 6.3% Q-on-Q and 24.4% year-on-year, successfully delivering some large deals. We continue to witness increasing engagement from small and large enterprises on cloud and cybersecurity deployments for ensuring consistent user experience and all-round protection from cyberattacks and flexibility to scale. With regards to cloud adoption in India, we see continuing momentum on the adoption of multi and hybrid clouds. The incubation portfolio grew by 3.8% Q-on-Q. However, on a year-on-year basis, the performance is subdued. MOVE has grown over 40% year-on-year. We continue to engage with enterprises for our IoT and MOVE offerings, and are excited with the opportunities that we can tap in this market.
To summarize, we believe that our global digital fabric is a powerful concept which enterprises, especially in the international markets, are beginning to realize. Our digital portfolio has the capability to address holistically the needs of the enterprise customers, and we will continue to invest and drive relevance with these enterprises. To add to this, we have invested in inorganic opportunities from a capability as well as market access lens, and now the focus will be on accelerating the value creation process. We are confident about the larger opportunity, and with this strong conviction, we will continue to improve and derive value of these investments and continuously augment our capabilities. With this, I will now request Kabir to share the financial highlights.
Thank you, Lakshmi. Good afternoon, everyone. I'll take this opportunity to discuss the highlights of our financial performance for the quarter. Our data revenues continued their double-digit growth momentum, both from a reported as well as an underlying perspective. Our reported revenue for the quarter stood at INR 4,872 crores, improving by 10% year-on-year and 2.1% on a sequential basis. The reported number this quarter continued to have some forex benefits, accruing from a strengthening dollar. Normalizing for this, our consolidated revenues grew at 7% year-on-year and 1.9% quarter-on-quarter, and a positive impact on consolidated EBITDA margin is seen at 30 basis points. Data revenue for the quarter stood at INR 3,995 crores, growing at 14.4% year-on-year and 2.1% on a sequential basis.
The underlying data revenue growth stood at 10% year-on-year. Revenue growth from our digital portfolio stood at 30% year-on-year and 3% quarter-on-quarter. Moving to margins. Reported EBITDA margins for the quarter came in at 20.8%, and the underlying EBITDA margins were 21.7%. Our core business margins, excluding subsidiaries, were at 23.7%. ROCE for the quarter is at 23.3%, and sequential decline is an outcome of lower EBIT and higher net debt because of the dividend payout this quarter. Cash CapEx for the quarter stood at INR 587 crores, and this ramp-up is attributed to payments coming up from CapEx projects committed in the prior year, as suggested previously.
Lower profitability, higher cash CapEx, and adverse working capital movement, a large part of which is seasonal, resulted in a muted FCF for the quarter at negative INR 61 crore. PAT for the quarter stood at INR 221 crore, and the margin were at 4.5%. Net debt stood at INR 6,963 crore, and net debt to EBITDA is at 1.68x. Our debt levels continue to be at a comfortable gearing and well within our ambition. Moving to subsidiaries, our payment, you know, business continues to make positive shifts as we expand our portfolio under the franchise model. As on date, we've added close to 4,300 franchise ATMs to our portfolio and working steadily to increasing this further.
TCPSL's revenues declined by INR 6 crores this quarter on account of lower transactions, as well as closing of a sizable number of our company-owned, company-operated ATMs. TCTSL revenues improved by 4% sequentially due to improving customer engagement and better pricing. Let me spend time on our EBITDA margin trajectory. Aside ongoing focus on cost management and financial prudence, there are three important levers of margin performance: organic mix, impact of M&A, and the operating leverage. Organic mix will continue to be a drag on our overall EBITDA margins. This is obvious, given our stated ambition to rebalance our revenue mix more towards digital portfolio, which not only has a lower margin profile today, but will also remain to have a, you know, lower margin profile versus our core connectivity business.
The acquisitions were made in the recent past, make a lot of strategic sense for us, but in the short term, they have a negative impact on EBITDA as they are loss-making. This will also have a drag in the short term. In fact, as we consolidate Kaleyra results next quarter, our EBITDA will be below 20%. Even ROCEs will dip below 20%, as both Kaleyra and Switch are not profitable and will gradually improve as they turn profitable. However, each of these business case has a path to breakeven and destination margin attainment. On operating leverage, we should see a steady improvement, you know, every quarter as each of these business attains scale, and we progress towards our ambition of doubling data revenues.
The sum total of these three drivers mean that in the short term, they will put pressure on our margins, but as the strategy plays out, we are confident they will attain the ambition margin of 23%-25% for EBITDA and greater than 25% for ROCE. We have a glide path of profitability, which is periodically monitored at a product level with a razor-sharp focus on drivers. I want to assure all of you that our margin performance is exactly as planned and as per our expectations. Investments in both organic and inorganic opportunities is a conscious and a strategic choice we made, and accelerated closure of Kaleyra comes with near-term implications in reported KPIs. Our core business, excluding subsidiaries, has been performing as per our laid-out strategy in its expected margin profile, considering the impact of our portfolio mix, investment in people, and M&A-related expenses.
The subsidiaries' margin profile continues to be a drag on the core business. We've been separately reporting margins for all the business, and we believe you'll be taking cognizance of this while forecasting and modeling, you know, for core business profitability. Underlying core business margins were at 23.7%, and a 40 basis points sequential decline in margins is purely on account of revenue mix and planned investments in new products. Over the last few years, we have focused on changing the texture of the business and ramping up our digital offerings. We believe that this will help us improve the customer relevance quotient and drive sustainable and profitable growth. Our finance strategy of Fit to Compete and Fit to Grow helped us improve our balance sheet, which allowed us to invest in organic capabilities in inorganic capabilities to improve our market offerings.
Inorganic investments in Kaleyra and Switch will raise the share of digital revenues upwards of 40%, and this will only ramp up further as the integration picks up. We are in an exciting phase of driving growth through investment for Tata Communications. The financial fitness we have attained in the recent past has given us the elbow room to fund the next phase of our journey while remaining financially fit. As a management team, we are acutely aware of the acceptable margin drop we are willing to take to drive growth and capture the market potential and position ourselves as a global Comtech player. To sum up, our KPIs are likely to see short-term volatility. We will continue to invest in building capabilities, which help us strengthen our moats and strengthen our long-term ability to create longer-term value for our shareholders. I will now ask Chirag to open the forum for Q&A.
Thank you, Kabir. We will now open the queue for Q&A. Please raise your hand and ask your question. We will unmute you accordingly. We will wait for a minute for the queue to assemble. The first question is from the line of Sanjesh Jain from ICICI Securities. Sanjesh, you have been requested to unmute yourself. Please unmute yourself and go ahead and ask your question. Sanjesh, please go ahead and ask your question.
Hello?
Sanjesh, we can hear you.
Sorry. Yeah, good afternoon. Thanks for taking my call. I got a few questions. First, on the order book, Lakshmi, can you give us more color? Because it appears like digital services, which has grown at 28% ex Switch last quarter, this quarter, the growth on a year-on-year basis is 16%. There is a material deceleration. Was it one-off, or you're also seeing some headwind as most of the I.T. companies have highlighted? Are we seeing any challenges? We had a strong order book booking earlier, and we thought that easing of the chipset will allow us to grow for a lengthier period of time. This quarter looks like subdued. Any comments and outlook on how does the order book looks like?
Yeah. Sanjesh, on the order book, you know, we had a good order book in H1 of last year, and while the funnel was improving, there was a slowness in the bookings towards the end of last year. We are seeing that play out in the digital. But I think I wouldn't read too much into... I think all of the digital portfolio, which includes our, you know, DIGO and others, and media also is included in this, and this quarter, I explained on the media side, because of lower events, we have a lesser revenue. It's very difficult to read into a quarterly trend because each one of them have a different profile.
Overall, what I'm seeing is, yes, there is a caution with customers, and therefore, there is a slowness in the decision-making. As I called out, our funnel actually is improving, and it's a function of the fact that we have now invested in more salespeople, especially in the international markets, and that's helping us to add the funnel. The funnel is quite healthy. I also called out that our order booking in H1 of this year has improved, even though it's lower than what we would like it to be. There isn't much to sort of read into the deceleration in which it's still a very, very good percentage issue, which you see.
The other data point that I would look at is, which I mentioned in my speech, is the level of interactions that we are having with customers, the workshops that we are conducting on a more broad-based global digital fabric, is happening more and more day by day. We are conducting more workshops with our customers. Customers are interested in engaging. Our engagement intensity with customers are improving, which gives us the confidence that whatever we are putting out there as a digital fabric is resonating. In terms of conversion to revenue, there will be some fluctuations. Overall, I'm quite pleased with the 10% growth that we saw this quarter.
Fair enough. One, an extended question on the collaboration and CPaaS side. That appears to be very volatile in last two years and has been the single source of digital performance drag if you see. Last quarter, we saw an encouragement there of at most 14% growth, but again, this quarter, that Y-o-Y growth has dropped to 7%. What's not working in our favor in collaboration? What are we missing there? Will acquisition of Kaleyra help us to fix that?
You know, if you look at the collaboration portfolio, it consists of what we used to call as GSIP, which was a plain GSIP offering that we had. That suffered a huge decline. If you look at the collaboration, in fact, even today, the collaboration is the biggest portfolio on our digital portfolio right now, and being the biggest portfolio, and as you rightly point out, having a slower growth does have the impact of having a drag on overall digital growth as we report. That is one. Within the collaboration portfolio, GSIP was one. GSIP suffered a big decline as customers moved to more app-based communications, and we came out with a GlobalRapide offering to provide more managed solution for our customers that arrested the degrowth.
The GlobalRapide, what we offered with Microsoft in partnership, is growing, but it's still coming off a small base, and is growing well, but it's not enough to compensate on the degrowth that we had on GSIP. We have arrested the, largely arrested the degrowth. I mean, even there might be a marginal decline, but it's not declining as much as it did in the previous years. The second point I would call out in the collaboration is the entire CIS Customer Interaction Suite , which consists of the DIGO platform that we launched only last year, and the InstaCC, which is our offering to take the contact centers to the cloud for our customers.
These two put together is what is our Customer Interaction Suite . Customer Interaction Suite has been growing quite well. But since these are smaller relative to GSIP, and GSIP is at best flat, we are seeing this slowness and sluggishness in the numbers in the collaboration. Now, coming to your point on Kaleyra. Yes, that's exactly the reason why we launched the DIGO product last year, and we're very pleased in the very first year of the launch. We have acquired, you know, several customers in India and Asia Pacific markets, and very substantial customer as well, and it's accelerating growth. Combined with Kaleyra, we think that we bring stronger synergies, because Kaleyra comes with...
While we have to build out a lot more things on DIGO, Kaleyra comes with a solid platform and a set of very good customers in the international markets, particularly the U.S. and in Europe. As we play out the synergy and synergize our products and take to market, we believe that acquisitioning will definitely help us in the growing market of customer interaction space.
Fair enough. Lakshmi, now is more than a quarter for us. How has been our initial experience with the Switch team? Are we able to retain the entire team? What is the synergic benefit? Any example of a large customer who is now looking to either share more validate or just completely come on us? Any initial thoughts will be very helpful.
Yeah. I think the integration is proceeding extremely well. I think the teams are gelling together very well. You know, from a technology standpoint, the technologies that we were using for our Video Connect and Video Connect+, and the technologies that Switch is using in the U.S. are almost identical, so there's a lot of synergies there. In addition, you know, Switch comes with a U.S. market access that our media team didn't have. I mean, a lot of our strengths came out of Europe and APAC for our media business, so that is also very synergistic.
Certainly, the fact that they have the production capability, and now we have a very impressive production facility in the West Coast, which many of our customers are truly amazed when they see that. That production capability, combined with our existing media capability, are definitely resonating with our existing customers. We've had a good amount of wins in existing customers as well as newer customers. I think, you know, while one month doesn't make a huge difference, but September, we saw a very good conversion and the best ACV we've had in the media business so far. It's only a month. But we are very pleased with the integration process that is going on`.
Thanks. Thanks, Lakshmi. One, two bookkeeping questions for Kabir. The direct cost in Data has gone up by 200 basis points, from 31% to 33%. I don't think there is any material change sequentially. What is leading to this increase in the direct cost by 200 basis point? Number two, on the working capital, again, there is a sharp jump in the 1H. There has been an outflow of close to INR 10 billion. What is leading to that? Number three, last year, you positively surprised on tax rate, but I think this year it's all eating into it. We thought 22% was what we're looking for this year, and in the first half, it's almost 26%. Any change there?
Yeah. Let me answer each of them. I think the direct cost is basically a mixed issue, Sanjesh. When we take some non-recurring revenue deals, I mean, these are normally packaged, you know, in such a way that we take the, you know, either a hardware or a license resale, and then we add services on top. When we recognize that upfront, and they normally come at a lower margin profile than, you know, what we have. We had about a couple of lumpy deals in this quarter, which has actually resulted into the higher direct cost because of the lower NR margin profile that they bring. That's just a, you know, deal-specific, you know, issue, nothing organic about it. On working capital, look, there are, you know, three reasons.
I mean, two major reasons are, you know, one of the large customers in our subsidiaries... You know, their, you know, outstanding grew to a alarmingly high level. As they are securing their funds, and we got reassurance that that will be, you know, it will be cleared quite soon. We already saw, you know, quite a few amounts cleared in the first week of October. What we are acutely watching that. The second one was, again, a sizable amount because of the government shifting the TDS, you know, return filing by about 15 days. Therefore, a lot of the returns were by our customers who actually that TDS were not, you know, filed, and therefore we couldn't take credit of that in our books.
That also there has been a, you know, way in which we've signed a lot of things which were not due yet. I believe that all of the working capital movements are seasonal. That's what I pointed out in my speech as well. This should reverse in the following quarter, so I'm not acutely worried about it. On tax rates, look, we had taken last year as our international subsidiaries start becoming profitable. We took the deferred tax asset, you know, last year. I called it out very specifically as well, you know, that that deferred tax asset is, you know, subduing, you know, our, you know, tax rates.
Once we had a policy, and as it fit into the policy that consistently, once it started taking, you know, growing profitably, you know, we had to recognize that deferred taxes. Now that is in our base. 12 months have, you know, elapsed. It's now part of our base, and therefore that's how you're actually seeing the tax rates kind of climb up. I think this is fallout of a good performance. You know, that you're doing well in international geographies and therefore you're seeing this, but nothing, none of them, you know, I would worry about.
Great. Great. One last question. What is the CapEx outflow this year anticipated?
Well, I'm still sticking to the range of INR 200 billion-INR 300 billion, you know, per se. You know, organically, we are slowly inching up. As I mentioned earlier, our cash CapEx will be higher than the approved CapEx because of the catch-up effect from last year. That aside, you know, fingers crossed, and I don't, you know, want to run the gun. You know, Lakshmi mentioned it, you know, NVIDIA deal, for example, we are trying to think the specifics and the details. What they will come up with, what is the size of it, what is the timing of it? A lot of them are in the air, right? I would probably maybe treat them separately as one-off whenever they come up because they'll be backed by a solid business case with a good IRR, and I know, I assume. Otherwise, I am sticking in the $250-$300 range, I know, as I had mentioned earlier.
Great. Thanks, Lakshmi. Thanks, Kabir, for answering all my question, and best of luck for coming quarters.
Thank you.
Thanks, Sanjesh. The next question is from the line of Santosh Sinha from Emkay Global. Santosh, you have been requested to unmute. Please unmute yourself and go ahead and ask your question.
My question is regarding Kaleyra. What kind of saving exercise do you plan to take for Kaleyra? Also, company has high ESOP expenses. Would company want to tweak that ESOP expense for Kaleyra?
Look, the Kaleyra business case has detailed out synergies both on the revenue side and on the cost side. We will, we will address that, you know, appropriately. For me, the biggest strategic, you know, reason of acquiring Kaleyra is the product strength and, and portfolio that they actually bring to the table. The complementarity of our go-to-market, you know, offerings, where they are strong and where they are, you know, present, and the ability to cross-sell to Kaleyra customers and then to Tata Communications customers, you know. All of them are super exciting. You know, I want to mention that upfront first, because I don't want people to listen in, that we are only driven by cost. Having said that, there will be cost synergies that will come out. Kaleyra is a listed entity when we acquired.
They have just been recently delisted a couple of days ago from the New York Stock Exchange, and they are no longer an SEC-regulated, you know, company. Therefore, as a result of that, there will be naturally, you know, cost savings that will flow. That has already been built into the business case and, you know, our assumptions when we talked about getting Kaleyra to break even and getting to destination margins in the medium term. Therefore, we are quite, you know, quite aware of that, but at the same time, I am excited about the go-to-market and the revenue, you know, synergies and the combination of DIGO and Kaleyra put together. The promise that we can offer to the market, create a new category entirely of a Customer Interaction Suite . That's the strategic rationale with which we, you know, acquired this business, and we are completely committed to that strategic rationale.
Thank you. Thanks for answering my question.
Thanks, Santosh. The next question is from the line of Mihir Manohar from Carnelian Asset Management. Mihir, you have been requested to unmute. Please go ahead and ask your question.
I just wanted to understand on the margins front timing. Are you still looking at the similar margins, 23%-25% margins? You mentioned that you provided clarity on the Kaleyra part. Just wanted to understand out of this improvement, which will be there, what would be the organic and inorganic contribution, and what will exactly lead to this margin improvements? I mean, just some three, four steps around it, that will be helpful.
Yeah, committed to 23%-25% range for this company, the way in which the current, you know, mix stays. If you look at in the last, you know, two years, there have been many quarters where we have delivered more than 25%. Even then, we have said that 23%-25% is the right range that we need to operate in. We also called out as to why we have over-delivered. There were COVID-related savings, there was great attrition, and we were actually sitting with a lot of vacancies, you know, and therefore, not the right amount of spend in our staffing costs. These are not healthy, right? Now we are getting to a more normative levels where, you know, COVID is hopefully, you know, behind us.
Travel has started. Our marketing spends are back to normal, normal levels. Our, you know, not only have we arrested attrition, but we've actually gone ahead and invested, you know, in more people. About 1,500 people is what we have added in the last, you know, 18 months, if you see. All of those costs, you know, have come in. Coupled with that is the inorganic, you know, activity that we have done, both Switch and Kaleyra. Switch, we have detailed out what the margin dilution is. Kaleyra is a listed entity. The financial is available in the public domain. You can do the maths yourself as to what, you know, it will result into. I've also called out that next quarter we will be mathematically, you just add that in, and we do no change to our core business.
Mathematically, when I add Kaleyra's, you know, quarterly numbers, we will be below 20% in, you know, EBITDA. I want to reassure, you know, all of you in the call and the wider investment, investor community as well, that this is a conscious and a strategic choice that we have done. We have improved the financial fitness, both in the P&L and the balance sheet. Only we have scaled, you know, to only to leap forward, you know, and drive growth, you know, for this business. For the next few quarters, you know, we will be below our ambition of 23%-25%. The three levers that I called out, organic mix, the impact of M&A, and operating leverage.
Aside the ongoing focus that we have on efficiency, on cost management, war on waste, those are my day jobs, and I'm not going to repeat that. The uber levers are these three levers, and I've just given a color of how these three levers will behave. Some of them, you know, will continue to have a drag, some of them will slowly improve, some of them will improve slightly faster. The sum total of all of them means that in the near quarters, there will only be a drag. As you know, we get out of it and, you know, in the short to medium term, this will start becoming positive and help us to get to 23%-25%. That's the color that I can actually give you.
I leave it to your, you know, ability to model it as to when that will happen. As we have always, you know, done in the past, our endeavor is, and as a management team, to be responsible enough to accept acceptable margin drops that we would willing to take in order to drive the growth and investment, you know, for our businesses, and to get back to the 23%-25%. Again, when we get back to 23%-25%, you know, I mean, I can't tell you what more, you know, organic value investments that we need to make, what more attractive inorganic opportunities that will come our way, right? We will evaluate that on a case-by-case basis and take the right action for a sustainable and a profitable growth for Tata Communications.
Thank you.
Sure. That's it from my side. Thank you.
Thank you so much . The next question is from the line of Namit Arora. Namit, may I request you to first introduce yourself and then go ahead and ask your question?
My question was around sort of slightly medium term. You know, your space is very dynamic. Do you foresee disruptions, you know, fundamentally, when you talk to customers and some of your partners? What are the kind of investments you are doing in R&D, sort of forward-looking investments from a more medium-term perspective to handle any disruption that may come by in your business?
Yeah, Namit, that's an excellent question, Namit. I think the space has always been disrupted. You know, pure core connectivity was disrupted with, you know, everything becoming software-defined with SD-WAN. Now that gave rise to a lot of network security and newer companies, as you will, like, you know, the Palo Altos and the Zscaler. Today there is a talk about SD-WAN and all of these coming together and converging to become a secure service edge at the edge. Similarly, we see the convergence of the LAN, which is becoming more software-defined with Wi-Fi 6 and others that will come into the market. That, converging with the wide area network, will make the LAN and the WAN to be able to seamlessly operate it.
The cloud itself is giving rise to a completely new category, which is where we have invested to deliver the ability for applications to give superior and more deterministic performance as they connect to multi-cloud. Within networking space, the Multi Cloud Connect is emerging as a category by itself. All of these areas and more with AI and what we are attempting to do in MOVE essentially is like an IoT SASE , where while we don't own any spectrum, we still connect multiple millions of devices and several connected car solutions that we offer without being an MVNO ourselves, right? We are delivering the platform. If you see even in some of the examples that I've given, these are ongoing disruptions that are happening.
We have been very aware of these disruptions, and these are exactly the spaces where we have been investing to make sure that we can strengthen ourselves, and this is where we saw the opportunity for us to go and disrupt incumbents in established markets, in international markets. Those are the areas we have invested, and we will continue to invest. There are many, many more. You know, we have talked about the AI and our participation in that, in AI cloud. We've been talking about AI embedding in our products. MOVE, for example, can now tell exactly what is the best time to deliver a software or AI update. These are all part of the investment.
You know, we have a very active team, a very solid framework on innovation, what technologies are emerging now, what technologies are likely to emerge. We have a program to see how we invest early in them, and then we take decisions on how and where we need to accelerate our investments. Even in our IoT business, we are setting out to build solutions around video analytics. We are in very early stages of those video analytics and capabilities, and we already have several trials with customers that we are executing on. There are many, many areas that I can talk about. We have, you know, very calibrated investments in all these areas.
Our innovation teams are in discussions with research institutions in academia. We are talking to several startups. Our own digital fabric, we are opening up to innovators to come and innovate on top of our fabric. So, on the innovation topic and on areas, where we are making early investments, there are a number of programs that we are doing all with very calibrated investments at this stage and as we see the opportunities, and it gets into stage one; in our stage 1/3/30 process, and that is when we will determine whether any of these requires accelerated investment, so we can capture the market. So, we have a very solid framework, and we are following a well-defined process and strategy to track all of these and execute all of this.
I've got it. This is very helpful. Thank you for the very detailed response, and all the best to the entire team. Thank you.
Thank you.
Thanks, Namit. This brings us to the end of the Q&A session. I now ask Lakshmi to share his closing remarks.
Thank you, all. You know, as I said earlier, we are quite excited, and I think we are in a very, very good place. Our traction with our customers and engagement intensity is improving as we position our full portfolio of digital fabric. There might be slowness because of the macroeconomic conditions, but you know, we feel very confident because of these engagements with customers. We think that we are executing on our strategy very well to integrate all the acquisitions and inorganic investments, and we will continue to execute on this precisely to the plan. 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 our website in the next 24 hours. You may please disconnect now. Thank you.