Tata Communications’ Vinod Kumar is Betting on Data to Change Firm’s DNA
Tata Comm’ Vinod Kumar is looking to change his company’s perception to a new age data carrier.
Tata Communications has just come off a nearly $900 million non-core asset sale, and its Managing Director and Chief Executive Officer Vinod Kumar is looking to change the business metrics of the company from a voice carrier to a data carrier.
Data Carrier Company
Kumar told BloombergQuint in an exclusive interview that his company is no longer a voice carrier. Data accounted for 78 percent of the earnings before interest, tax, depreciation and amortisation and 56 percent of revenues for the company, in the first quarter of financial year 2016-17, he said.
In his opinion, Tata Communications is wrongly perceived as a voice carrier, given that revenues are largely driven by data and data management services. The company has seen its voice segment tapering despite generating cash worth $70 million. He hopes the perception will change as the data segment starts generating free cash flows. The data segment generated cash flows for the first time this quarter, Kumar added.
Capital Expenditure
The company has been spending over $250 million in capital expenditure every year. For this year, Tata Communications has guided for a capital expenditure of $250-300 million, which amounts to nearly 10 percent of its revenues. Nearly 60 percent of this expenditure will be used for expansion of the existing network, to generate revenues for this financial year. The company will use 40 percent of the remaining capital expenditure to develop new products offerings.
Focus on Returns
The company is looking at increasing return on capital (ROC) for the shareholders. Kumar says. It has increased the ROC to 10 percent this year from 6 percent last year. He is hoping to take this ratio to 15 percent by March 2018.
Debt Reduction
After ending the year with a debt of $1.43 billion, the company has a debt-to-EBITDA ratio of 3.1, and is comfortable servicing this debt, Kumar said. It has undertaken nearly $900 million of asset sales in the last financial year. It sold South Africa’s Neotel for $450 million. This transaction, expected to be completed by end of the financial year, will reduce debt to the extent of $450 million.
The company also sold majority stake in its data services business to Singapore’s STT. The deal will bring in nearly $450 million in cash and would be partly used to pay for the NTT DOCOMO liability and pare debt.
New Opportunities
Kumar said companies are increasingly looking at digitising their platforms to woo their customers, and this is throwing up opportunities for his company. Artificial Intelligence, big data are increasingly being sought by Chief Information Officers of the companies. The company spent $20 million in acquiring a minority stake in Sentient Technologies, a company working in the area of artificial intelligence. The company is also closely watching market prices, and price erosions, which remain the biggest challenge for the industry, he added.
NTT DOCOMO
The company has transferred Rs 1,058 crore to Tata Sons, as its share to acquire Tata Teleservices Ltd. from NTT DOCOMO. The payment will not impact its growth plans. Tata Communications generated Rs 670 crore in cash flows this quarter, and this trend will continue, Kumar said.
