Tata Communications Limited (TATACOMM) Q3 FY23 Earnings Concall Transcript

Tata Communications Limited (NSE: TATACOMM) Q3 FY23 Earnings Concall dated Jan. 24, 2023

Corporate Participants:

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Kabir Ahmed Shakir — Chief Financial Officer

Analysts:

Sanjesh Jain — ICICI Securities — Analyst

Shubham Shukla — Voyager Capital — Analyst

Pratap Maliwal — Mount Intra Finance — Analyst

Aliasgar Shakir — Motilal Oswal — Analyst

Vinit Manek — Karma Capital — Analyst

Neel Nadkarni — Dalal & Broacha — Analyst

Presentation:

Operator

Good afternoon, everyone, and welcome to the Tata Communications Earnings Conference Call for Q3 FY ’23. We are joined today by our MD and CEO, Mr. Amur S Lakshminarayanan, and our CFO, Mr. Kabir Ahmed Shakir. The results for the quarter ended 31st December 2022, has 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 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.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Thanks, Chirag. Good afternoon, everyone. I welcome you all to the Q3 FY ’23 earnings call. And wishing you all a very happy New Year. Coming to the results of Q3 FY ’23, we witnessed another healthy quarter, reflecting strong growth momentum in our data revenues and our profitability continues to be robust.

Our YTD PAT is up 31.6% and ROCE 28.4%. Our results reflect the disciplined execution of our reimagine strategy. Focus on deeper with fewer and our abilities to impact both the cost and the revenue side outcomes for our customers with our new portfolio of products. Our products, the platform shift increased investments in the front end sales, particularly in international markets and building new capabilities across the portfolio has helped data revenues grow by 11.1% year-on year again this quarter. To add more color to our data growth, we’ve added INR948 crores of incremental data revenue in FY ’23 till-date against an incremental revenue addition of INR903 crores in FY ’21 and FY ’22 combined.

Our continuous investments in our core infrastructure and digital capabilities, give us the confidence to efficiently cater to our customer’s evolving digital transformation needs. We continue to be a leading player in India’s large enterprise B2B segment and are continually investing in our undersea cable assets, which form the backbone of our suite of offerings. Almost 30% to 40% higher versus our closest competitor over the last few years.

Growth in international markets continues to show encouraging trends and is steadily progressing towards our long-term ambition of improving the international revenue pie[phonetic] Large deals, order book and enterprise segment has exceeded the full-year FY22 performance and funnel additions in enterprise segment have improved significantly, both from in India and international market perspectives. With our media business, making strong strides we announced our intent to acquire the Switch Enterprise LLC for a consideration of $58.8 million.

With this transaction, we will gain a strong foothold into the Americas media and entertainment market. They have an established leadership in global sporting events catering to a global audience. This acquisition will help us strengthen our region-to-region, as well as the region-to-global play in the live sports industry bringing these sports closer to the global audience, not only this upon completion of the acquisition it will also open gate for us to live production business which will complement and further strengthen our offerings in the media portfolio.

These synergies will help uniquely position us as an end-to-end media ecosystem player and the entire content development value chain globally and deepen our modes[Phonetic]. Moving to our performance for the third-quarter of FY ’23, our data business remains instrumental to our overall revenue growth momentum, it improved sequentially by 2.9%, coming in at INR3,593 crores. Our digital platform and services revenues stood at INR1,056 crores which has seen a healthy growth of 17.2% year-on year and 5.8% Q-on-Q.

Our Q3 consolidated revenue was INR4,528 crores improving by 8.2% year-on-year and 2.2% Q-on-Q. EBITDA for the quarter stood at INR1,077 crores, while EBITDA margin stood at 23.8%. The profit for the quarter was INR394 crores, flat on Y-on-Y basis.

Let me talk about our margins and the aspect shaping EBITDA trajectory. We are making planned investments in platform portfolios, and also sales and marketing, particularly in international markets. Our investments in enhancing our talent and tools are in-line with our strategy and we will continue to stay invested. These investments coupled with our product mix plays a part on our margin profile in the given growth — in DPS given that the DPS growth is higher than the core connectivity segment. We had some headwinds of inflation as well which has resulted in some near-term volatility in our margins. That said, we intend to stay the course as we continue to sharply focused on exiting putting our strategy. We are seeing good traction across the DPS portfolio and a good pipeline sales funnel.

We have a good pipeline of new products and future releases in the coming months. From a medium to longer-term perspective, we will see benefits [technical issue] sharp focus and investments in our product to platform shift. More importantly each part of our data portfolio is riding[phonetic] stickiness, deepening our modes[Phonetic] and will help us to improve our yields in the median term[Phonetic].

Let me give you some more details about our data portfolio. One key essense which is heartening is a huge transformation that is happening with the way our GPM is being approached. We also have customer discussions and move beyond connectivity to those factors that affect them which are cost efficiencies as well as helping the revenues to grow through our secure and intelligent digital fabric. Let me spend some time talking about strongly growing incubation portfolio. The incubation portfolio progressed multifold growing by 125.3% year-on-year and 1.1% Q-on-Q.

Our Connected Solutions, which is the MOVE platform is a sophisticated platform delivering connectivity management and data enablement with APIs across the globe. Our MOVE business continues to grow strongly and expanded by more than 2.1x compared to last year. Our on-campus connected solutions opportunity is driven by our IoT offerings that we cater to both enterprises and smart cities. This quarter we completed our first international order of smart street lighting solutions, which has opened up opportunities in international markets. Our core connectivity services grew by 6% year-on-year and 1.7% Q-on-Q. We will continue to invest in the core capabilities that is transforming our networks to be smarter and more agile to cater to the new market needs.

Now coming to our digital platforms and services portfolio, it has grown by 17.2% year-on-year and 5.8% Q-on-Q. Our multitude of offerings in the digital platforms portfolio are intended to consistently deliver more holistic solutions, stitching multiple products together for our customers ecosystems. Our digital fabric helps create a robust mode around increasing customer stickiness and insulates us from structural pricing declines seen in the business. The portfolio grew broad-based across all offerings.

Our collaboration portfolio grew by 8.8% year-on-year and 6.2% Q-on-Q. We continue to benefit from an increasing customer interest in our new offerings, namely Tata Communications GlobalRapide [indecipherable] and Tata Communications DIGO. DIGO continues to grow in capability as a customer interaction platform where it focuses to unify all customer interactions. In our augmentation strategy, we now integrate seamlessly with other CX ecosystem players like InstaCC platform, Salesforce, and more to enable contextual omnichannel interaction capabilities for businesses.

Further, we have partnered with Meta as business solution partner and with Google as Google communication partner which enables us to add more channel to our omnichannel offers globally, Whatsapp, global business messaging, RCS and more. Besides the rich set of connectors we would also launch this quarter to engage 2.0 beta version that can enable the marketing campaigns.

Moving to cloud-hosting and security. This portfolio registered a growth of 23.7% year-on-year and 8.8% Q-on-Q. In Q3 FY ’23, we are focused on increasing customer experience with digital onboarding, automated provisioning, and transparent billing through our TCX portal. We also created a single pane of glass for multicloud management using our cross product integration, which is cloud, security, and network.

We have created several up-sell opportunities in our premium customer base contributing to higher gross revenue growth. The global cyber security threat landscape continues to make them and as a result, we are seeing good traction for our security offerings and solutions, especially among enterprise customers looking to strengthen [indecipherable] with our threat management solutions. We have been continuously expanding our threat management platform with new use cases and playbooks to ensure that they can help our customers faster detect threats as well as respond to them.

Coming to our next-generation connectivity offerings. This increased by 26.8% year-on-year and by 5.5% Q-on-Q. The increasing adoption of the Internet and the shift to cloud is helping us drive growth in this segment and expand our market share. Our offerings such as ISO WAN and ISO SD-WAN are gaining traction with our enterprise customers as we enable them with our simplified and cloud-like solutions to aid them in their network transformation journey. Our media services revenue grew by 17.1% year-on-year and declined marginally by 0.9% Q-on-Q. We are witnessing a sustained push towards a digital services, more focused on cloud and edge-based workflows for better performance and user experience in our media business.

To sum up, as a digital ecosystems enabler we remain committed to building innovative and scalable platform to entire enterprises. And with that, I would like to invite Kabir to give an overview of our financial performance. Kabir?

Kabir Ahmed Shakir — Chief Financial Officer

Thank you, Lakshmi. Good afternoon, everyone. I’ll take this opportunity to greet you all to the highlights of our financial performance for the quarter. Q3 of FY ’23, continued to witness a healthy growth momentum. Our consolidated revenue for the quarter stood at INR4,528 crores, improving by 8.2% year-on-year and 2.2% on a sequential basis. Data revenue for the quarter stood at INR3,593 crores, improving by 11.1% year-on-year and by 2.9% on a quarterly basis. The reported revenue numbers this quarter, like the previous quarter, continues to have certain forex benefits accruing from a strengthening dollar.

Our EBITDA for the quarter stood at around INR1,077 crores, reporting a margin of 23.8%. Our YTD PAT is up by 31.6% and our PAT margins for the quarter stood at 8.7% and YTD is at 11.1%. Last quarter, we revisited our deferred tax asset recognition policy. With our international operations becoming profitabile it is allowing us to utilize our [indecipherable] helping us to drive a healthy balance sheet and maximize returns. ROCE up at 28.4% and is up by 3.6% year-on-year with an ROCE guidance of 25% to 30%. Net debt for the quarter stood at INR6,270 crores, net-debt to EBITDA is now at 1.4x, compared to 1.5x last quarter. Most notable part is that our debt has been consistently coming down.

Our cash-flow generation continues to be healthy reporting a free cash flow of INR335 crores this quarter. To sum-up, I’m quite delighted that our fit to go strategy is coming to life as both the healthy balance sheet and financial prudence has allowed us to fund inorganic growth opportunities and the acquisition of Switch is an outcome of our broader finance strategy.

Let me now talk a little bit about our consolidated EBITDA margins which have declined 170 basis-points this quarter to 23.8%, our YTD EBITDA margin stand at 24.7. Both the current quarter and the YTD are in line with our EBITDA margin guidance of 23% to 25%. This fiscal we have laid strong foundations for achieving our growth ambitions to deepening customer engagements and investing in expanding our global sales and product organizations to address emerging market opportunities. With pandemic receding COVID benefits we had are no longer there.

Today, our revenue mix is driven by a higher growth in DPS, where margins are lower versus core connectivity. Though these factors may build in some volatility in our quarterly margins we will continue to operate within our margin guidance of 23% to 25% for the full year. We have always maintained that there will be times we will operate at the lower end and there will be times when we operate higher end. We been operating at a higher end of the range for the past several quarters. And that said, if you have the right proposals from the business to fund the customer success we will stay the course and fund those opportunities.

At the same time, we are focused on levers which has sharpened our modes and help us improve our trajectory in the medium-term. Cash capex for the quarter stood at INR440 crores though our approved capex is close to INR500 crores. This is due to delayed deliveries and better payment terms.

Moving to subsidiaries. We see a steady improvement in TCTS. TCTS revenue improved by 6.6% year-on-year and 3.7% sequentially coming at around INR333 crores. EBITDA for TCTS stood at INR15 crores for Q3. Our payment business continues to make positive shifts as we expand our portfolio under the franchisee model. Revenue for the quarter came in at INR50 crores and an EBITDA of INR2 crores. As on-date we haven’t added close to 2,800 franchisees ATMs to our portfolio and working steadily on increasing this further.

Our continued focus on delivering best in class bespoke solutions is enabling us to drive both the cost side and the revenue side outcomes of our customers and this will help us in a long way in being a strategic partner to the digital and network transformation journey of our customers. Our new positioning with our digital fabric, combined with our strong balance sheet and healthy operating performance gives us the headroom to invest both organically and inorganically, innovate and grow and align with the evolving needs of our enterprises. I will now ask Chirag to open the forum for Q&A. Thank you for your attention.

Questions and Answers:

Operator

Thanks, Kabir. [Operator Instructions] The first question is from the line of Sanjesh Jain, ICICI Securities. Sanjesh, you have been requested to unmute. Please unmute yourself and ask your question.

Sanjesh Jain — ICICI Securities — Analyst

Thanks for taking my question. I got a few of them. First let me touch up on the revenue side of the question. Lakshmi can you help us understanding how the order book and sales funnel, has seen a trajectory in this quarter? And how is this new sales effort is helping us to drive that faster? That’s number one. Number two, on the enterprise I think this is the fastest ever growth in last many years that I have seen where we have seen enterprise revenue growing by 20% Y-o-Y in fixed percent quarter-on-quarter, while the wholesale business which is service provider is seeing a decline, it is a conscious effort where we want to change the revenue mix or just a coincidence to see and what is driving the strong enterprise revenue. That’s the second one. And the third one on the collaboration side of the business. This is probably first-quarter on a Y-o-Y basis. We have seen growth after many quarters. Can you help us understand within the collaboration, the three new products, which touched upon which is rapid, InstaCC, and DIGO, DIGO is growing and where are we in terms of drag from the [indecipherable]. These are the questions. Thank you.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Sanjesh, what did you say, where are the drags you said.

Sanjesh Jain — ICICI Securities — Analyst

Yeah, the SIP was a drag on us right on the collaboration business. Is that over we are growing there or it is still remains declining for us.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Okay, thanks, Sanjesh. Let me take each of those three questions. The first one relating to order book and sales funnel. I think I have been maintaining that our order book is getting better every quarter and our sales funnel is improving. I think it’s interesting to see the mix in our funnel, as well as quite healthy. In terms of digital platforms is much higher in our sales funnel compared to core connectivity, which is in line with what you would expect, in line with our strategy to grow the DPS and incubation portfolios.

In terms of what is driving that. I sort of alluded to that there are two, three things I would want to point out. One is they are able to have a more engaging conversation with enterprise customers at senior level beyond connectivity. So we are able to go and talk. We are able to meet with not just the head of network, but meet with CIO, COO and CMO, for examples, and even sometimes we held the half day workshops with CEOs. Because the positioning that we have as a digital fabric when we tell them that hey car is nothing but another node in the network and all the way to what happens in the factories with Industrial Connectivity as a service, which is part of our Connected Solutions and then say how we can help them to connect various personas, branches to the network. And transforming the network with Internet and software-defined plan, but also software defined lands and branches, taking them all the way to the cloud and between the clouds, how we connect. And also address, some of their customer experience problems through our customer interaction platforms and so on.

We are able to have a more of holistic conversations with customers. So that is one I would say where we feel that that’s something that I call internally as relevance quotient is increasing with our customers.

The second is, and as a reflection of that we are able to have better pipeline and as we improve our footprint in terms of our coverage in the markets the funnel is growing. We are also seeing that our win rates are inching slowly forward, not as rapidly as I would want, but it’s definitely improving and inching better which is helping us to convert the deal. So that’s the sort of the color and flavor I would like to give on the order book and the — and the sales funnel.

In the — to youtrsecond observation that enterprise is seeing the fastest growth, is it a conscious effort. I mean, exactly that’s the — all our narratives on our strategy, if you saw, it is all tuned towards enterprise, so service provider is an important segment. But that’s — we buy from them, they buy from us, it’s more of a trading relationships that we have. It is still a significant segment and we continue to address that segment, but the core of the growth and core of whatever we have articulated in our strategy, the new platforms are all addressed towards the enterprise segment. So it is a conscious effort and that is what is bearing fruits.

Kabir Ahmed Shakir — Chief Financial Officer

If I may it also includes the reclassification Sanjesh we have done especially, primarily in the Macau region where we don’t have a license that we will have to go through some of the service providers hitherto we were classifying that as service provider revenue. Now looking at kind of revenue it is pure-play connectivity, which is resolved by them and as Lakshmi said by himself, that continues to be service provider. But if the end-customer is actually an enterprise and that’s what we doing and we are using the service provider to reach them then we have re-classified that, that impact is about 2.9%, so it still doesn’t take away the point that Lakshmi is making. Our strategy is on enterprises, that is where do we do our coverage, that’s where our feet on-street investment is also going and that is bearing fruit. But, I will quickly if I do not mention that there has been a reclassification in this quarter also, sorry, Lakshmi, go ahead.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Fair, fair. And the third-part of the question on the collaboration Sanjesh yes I think collaboration I think we have been we talked a lot about this in the last few quarters and this particularly was a large part of our digital platforms and solutions, and as it started going down we had an impact, even though there are other parts of digital platforms that are growing. I’m glad to see that overall collaboration is back on the growth trajectory. There has been a significant effort in terms of pivoting the segment away from purely depending on the usage-based to a more [indecipherable] plus the usage kind of a model that we are going with the GlobalRapide.

InstaCC, which has seen not just our own InstaCC platform but also partnering with the Genesis and AWS to deliver a holistic solutions in the area of contact center as a service. All of that is helping to put this back on the growth track. So with respect to your question on GSIP. Yeah, we are betting less and less on that. So while we would want to keep it steady. Slowly, our dependence on that is going away, but we would like to see that stabilize soon, it is stabilizing, but the dependence on that is not that much as we were few quarters ago.

Sanjesh Jain — ICICI Securities — Analyst

Thank you Lakshmi. Thanks for all the answer. The second is on the acquisition. What is the synergy I know we have given the potential revenue which they do. But want to understand more how much will it contribute to the profitability and what is the synergy from TATACOMM to Switch and from Switch to TATACOMM and our entity can deliver a much better if at all there is a probability for that and once merged will be EBITDA accretive or initially would be that we are not looking and some data and we take it to more profit making.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Let me talk about the synergies and invite Kabir to talk a bit about the margins. I mean firstly, all these acquisitions that we do as we had said that we will do the initial capability or regional and customer reach and they have to make financial sense so that having said Switch particularly very interesting because they are one of the leaders in the US market, taking a lot of regional sports and taking through regional US audiences.

If you look at our media business, which I briefly commented in my — in my statement, our media play has been largely what I would call as global to global play, we take global events and take it to global audience and that is where our strength to us and we are one of the strongest players in that space. The other two segments, if I were to call is a region to global play and the region-to-region play and in those places it’s like a regional sports taking into like maybe the the cricket would be a good example that is a regional one, but it’s got — while it’s got some global appeal it is not as global appeal as in terms of number of countries and audience reach-out.

So those are the three place that we see the global to global, region to global, and region-to-region, we are pretty strong in the global to global. We have some play in the region to global. What Switch does is helps us to strengthen the region-to-region in the US, which is a large market. It also helps to take that region-to-region to region to global through our global footprint. So that is one synergy. The second synergy that we see is they have a product for production which, we do not have at the moment and that production capability enhances and will enhance our product offering once we merged and we can take that offering to our other global customers. So these are broadly the synergies from markets and product perspective and how we see the segment’s in our minds.

The third question regarding the margin-accretive, Kabir do you want.

Kabir Ahmed Shakir — Chief Financial Officer

Yeah, look with first year being integration and it is with ED dilutive Sanjesh but as Lakshmi mentioned with all the synergies that we actually see and that business case and the rationale. Overall, we do see that the overall margin portfolio for media business will definitely be helped by Switch and we are able to pencil more — we are able to give more value to our customers and in the medium-term that EBITDA will pickup in the first year, it’s all about integration and about things that will be a bit [indecipherable].

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

I think if you take the PMI costs out it is actually okay. But as a business, we are very clear that it will be margin.

Sanjesh Jain — ICICI Securities — Analyst

Got it, got it. Last question on the cost inflation. Are we behind in terms of [indecipherable] inflation would be more stable, because this quarter we have seen almost INR102 crores of cost getting added to the total operating cost are we behind in terms of the majority of the cost investment which we intend to do?

Kabir Ahmed Shakir — Chief Financial Officer

Let me, untie that for you Sanjesh. For example on hiring. I think now we are being the full impact of the hiring come through. In fact, we did not see that full impact in Q1 and Q2, as we still had. I would say, attrition, along with the hiring now that attrition is stabilized, it is behind us and I’m assuming things will probably reverse with all the layoffs that we actually see so that the pressure on that side on talent market should come down and we see the full impact of that — of that staffing cost increase come through this quarter. There are other elements of inflation, that will continue to be there, which Energy for example.

If you actually see there are a lot of energy costs that impact our power and in top locations across the world, both Europe and U.S. That — I don’t think I can put a finger on it and say when that will come down. I don’t think anyone can say it in both in Europe and in the U.S., the energy crisis that we actually see today. We are — in some places where we have the ability to pass on the price, we will do that, but there are a lot of longer contracts, which we have. Where we don’t have the ability to pass on the price, we will have to take that hit and manage in our P&L overall. So that’s how I would put both of these together, plus one of the reasons, as I mentioned, is also the COVID benefits, which we’ve always called out. We used to have about INR50 crores of benefit every quarter. That benefit is no longer there this quarter, as we are resumed to, I would say, 100% normalcy. We are back in office, travel started. We’re spending on marketing. We are going to events. And that’s all coming back to normalcy.

Sanjesh Jain — ICICI Securities — Analyst

Just on the power cost, I think this peak inflation is behind. I don’t think anybody is anticipating the power cost to go up from here. I know a decline is something we cannot expect also from inflation perspective, we are done, right

Kabir Ahmed Shakir — Chief Financial Officer

I hope so, but the impact of it will trickle in, Sanjesh, because not all of that has also been coming for us because we also had contracts and stuff like that.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

And the last Y-on-Y, Sanjesh is also the staff cost, and I think we had called out, as early as last time we said we’re going to start investing in the front end of the sales and marketing. We also said that we would add to our products and platforms in developing new capabilities. So I think the INR150 crores that you are talking about year-on-year, a fairly large part of it is also the staff cost. And as you know, in specific digital skills and so on, there was a wage inflation and retention schemes that had to be put in place. So there are many factors that went into it. So we’re just — as a Y-on-Y, the staff cost is a fairly significant part of the increase that you see.

Sanjesh Jain — ICICI Securities — Analyst

Got it. I have few more questions, but I better come back-in the queue. But it looks like we are in an interesting journey and I hope all the best for your guys in the coming quarter. Thank you.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Thank you.

Operator

Thanks, Sanjesh. The next question is from the line of Shubham Shukla from Voyager Capital. Shubham you have been requested to kindly unmute yourself. Please unmute and go ahead and ask the question.

Shubham Shukla — Voyager Capital — Analyst

On the debt level of our company, so like the debt has like reduced from INR6,400 crores to INR6,270 crores, which is good, but our finance cost has gone up like 25% quarter-on-quarter, like from INR98 crores to INR153 crores. Just want to understand what the reasons are like it. Can only be due to like — is it only because of the increase in cost of borrowings or like there’s something missing?

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Well, Shubham, I’m sure you’re seeing the news as much as I do. You see the Fed hikes that has happened since March onwards. Even in this last quarter, there were three hikes that have happened in September, in November and in December, 75 basis points and 50 basis points, respectively.

So I would say it’s great that we’ve been able to do the cash generation that we have been doing for the last two years, and it reduced our debt significantly in the last two years. Otherwise, our interest cost would have been a lot higher than what you currently see in the P&L. So it’s completely the Fed taking the interest rates up, which we see. All the economies also responding but for us, a lot of our — in fact, I would say most of our debt is dollar denominated and it is real tough and the base rates going up.

Shubham Shukla — Voyager Capital — Analyst

Okay, okay. So like my second question is around the other income, like if you could give some color on like what it includes? And is it like — it is at its lowest like in last four to five quarters, which also affected our margins for this quarter.

Kabir Ahmed Shakir — Chief Financial Officer

Well, see, I would say other income is — has its bakeries in it. When we have income tax refunds and then the interest component of the income tax treatments that come through, I can’t give you an idea on the projections because these are related to old cases. And again, I would say, I would really like to thank the cross-functional teams in tax and regulatory and treasury, who actually are putting their mind behind in, clearing up all these old deals. So we’ve collected quite an amount of all of those refunds of the past. And I — this is not predictable, Shubham, so I wouldn’t know as to when the order is going to get passed and when the case will come up for hearing and when will we actually get. So this — the other income gets impacted largely because of the interest income that we received for the refunds that are due from the authorities.

Shubham Shukla — Voyager Capital — Analyst

Okay, fair. Thank you.

Operator

Thanks Shubham. The next question is from the line of Mr. Abhishek. Abhishek, you may now go ahead and ask your question. Yes, you are audible please go ahead.

Unidentified Participant — — Analyst

Hello.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Yes, Abhishek. Please go-ahead.

Unidentified Participant — — Analyst

Okay. Sir, my question, what is EBITDA margin of Switch Enterprises, LLC? And second question, company has grown at 6.5% Y-on-Y nine months. So what is the follow-up of the company that the growth should be come in double digit?.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Well, we have not spoken about the EBITDA margin of Switch, and that’s one of — the part of one of the portfolios within DPS, within data. So we are restricting to and answered on how you would like to the margin progression of our data port. I wouldn’t want to go into [technical issue] talking about the profitability of that. We looked at the merits of the whole acquisition and it makes strategic sense for both Tatacomm and for the Media Services portfolio, and that’s the reason why we are quite optimistic about this opportunity, and we have like to have as part of our portfolio. There is some background noise somewhere. [technical issue] Abhishek, I think we’ve already answered the growth and quite extensively in the previous ones in terms of funnel pipeline. We are quite encouraged about what we see as opportunities.

Operator

Thanks, Abhishek. The next question is from the line of Pratap Maliwal. Pratap you may unmute yourself and ask your question.

Pratap Maliwal — Mount Intra Finance — Analyst

Hello, am I audible.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Yes Pratap.

Pratap Maliwal — Mount Intra Finance — Analyst

Thank you and thanks for taking my questions.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Pratap can you please be a little louder.

Pratap Maliwal — Mount Intra Finance — Analyst

Yeah. Sure, is this better?

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Thank you so much.

Pratap Maliwal — Mount Intra Finance — Analyst

So I just wanted to ask the share of EBITDA by segments, the breakup of the data segment into core connectivity, the DPS and incubation. It was given last quarter, but I don’t think it’s there in the present fact sheet. Can we have those numbers, please?

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Pratap, we’ve taken a call that — and I’ve said it about the last three, four quarters when these questions have been asked saying that we would like you to look at our data business as a whole because there are vagaries that happen. These are all at various stages of evolution. We are investing in platforms. We are investing in capabilities. And some of them need upfront investment. Some of them are design wins where we invest and we learn from it, and then we scrap it and then we reinvest again. So there are multiple elements that actually go in. And sometimes, quarter-on-quarter, these tend to — without context, if these numbers may give a wrong picture. And that’s the reason why we’ve taken a call to take this off. And I would encourage you to look at the overall data portfolio, which probably gives a little bit more stability and a little bit more clarity from a future growth perspective as well. So that’s one of the reasons, and we don’t intend to give those breakdown anymore, Pratap.

Pratap Maliwal — Mount Intra Finance — Analyst

Okay. Sure, sir. Now you just said about the TV acquisition, I think a previous participant had asked, not the margin, but the potential revenue. Can we please have that number, the revenue base?

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Yes. We have already mentioned the revenue. It’s about $80 million of revenue last fiscal of this business, yes.

Pratap Maliwal — Mount Intra Finance — Analyst

That’s $80 million, 8-0, right?

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Eight zero.

Pratap Maliwal — Mount Intra Finance — Analyst

Yes. Okay. And you just said that there were some forex benefits that we got for our margins. So can we quantify that? Because of the stronger dollar, can we quantify the forex benefits, please?

Kabir Ahmed Shakir — Chief Financial Officer

On margins, it’s a very — it’s a small portion. On revenue, it was still material. But on margins, it’s a very minor portion benefit that we’ve got on, on dollar.

Pratap Maliwal — Mount Intra Finance — Analyst

Okay. Sure, sir. And just one last observation I had that. I think you’ve addressed this in the previous quarters from other participants as well. But regarding the DPS segment growth that we’ve had, 6% increase in growth, but there’s been a decline in the net revenue. So what was it about the product mix? Because I think we had good growth in a lot of our DPS products. So what is actually driving that?

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Yes. It is — as you rightly said, it is largely mix, which is contributing to it. Plus, there are some upfront costs and certain deal-specific vagaries that probably explain DPS. But I’m less worried about it because these are the right things — each and every individual proposal is the right thing for us to do. So I wouldn’t worry about quarter-on-quarter vagaries, about net revenue. I think our focus is on improving the mix of our business more towards DPS versus core connectivity. So while we do that, there will be headwinds on margin that will come through overall at a company level because of the shift between DPS and core connectivity. And that also has in the short to medium-term headwind between products within DPS as well. But I think that’s the right thing to do, until we gain scale in each of these products. And therefore, that is the right bill.

Pratap Maliwal — Mount Intra Finance — Analyst

Okay sure, sir, thank you and thanks for taking my question.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Thank you.

Operator

Thanks Pratap. The next question is from the line of Aliasgar Shakir from Motilal Oswal. Ali you have been requested to unmute yourself. Please go ahead and ask your question.

Aliasgar Shakir — Motilal Oswal — Analyst

Yeah, hi, thanks for the opportunity. I hope I’m audible.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Yes. Ali you are.

Aliasgar Shakir — Motilal Oswal — Analyst

Hi, So quite a detailed explanation on the revenue funnel and the trajectory. I just wanted to look at it in the context of your cost increases. So I mean, Kabir, you’ve been mentioning in the past that we are investing for growth, both on the capex and on the opex side. So in that context, as we’ve seen some increase in cost in this quarter, could you share some visibility in terms of this is — this increase in cost is related to any specific projects that we are foreseeing given the point that I see Lakshmi also explain in terms of the funnel looking strong? So how should we see this cost? Should we expect growth to inch up? And are there any specific projects that we are seeing that should come by in the near term?

Kabir Ahmed Shakir — Chief Financial Officer

Yes. Thanks, Ali, for that question. So I’ve kind of said it in bits and pieces, but let me summarize for everyone. It’s at various levels that we actually see the margin explanation. At the net revenue level, as I explained, it’s largely mix, which has resulted in the net revenue fall. If I go below net revenue to EBITDA, these are cost increases that we actually see. Majority of the cost increases is staffing cost increase that we have at this quarter compared to last and compared to last year as well and that is something which we have called out earlier. You can see now in our factory number of employees increased that we actually have this quarter roughly about 1000 odd. All of that, and as Lakshmi also alluded earlier we are increased that we had to give and return some bonus that we have to for retaining our people plus also the talent that we saw two quarters ago, the great attrition which was occupying all our vocabulary all of that so we had to kind of retain and attract the right talent in our organization. So that was one plus, not just, I would say, on the product and engineering side, but also investment on [indecipherable] investment and largely shifting towards the international geographies where the cost is higher, as you can imagine, of an FTE out there.

But these are the places where we are also seeing the benefit already come through. When you are investing in those geographies, when we are getting sales coming in international geographies, and they become profitable, and I’m sitting with NOLs in those geographies, they actually utilize faster, and our PAT is up. So EBITDA may still be lower because they may not be getting full there. But as they become profitable, because I’m even adding a little bit of revenue to what I have, I’m seeing a PAT level that is being accretive. So staffing cost is one big element. The return to office and the COVID savings going away is the other element. And there are minor things, like energy costs that I talked about. In relation to these two, that is minor, but on its own, it’s still a material amount. So I would say these are the three broad elements on cost that is there and combined with mix explains the margin profile, none of which is something which we did not know, none of which is something is — we did not plan for.

And this is the reason why two quarters ago, when I talked about, as Lakshmi did say that, look, we will operate at the low to mid part of our guidance range in the year. And in the first two quarters, we had the benefit on the market shift that came in the voice business, which, again, I talked about last quarter as well. So to that extent, our consolidated EBITDA actually had a benefit and a bump-up, and the erosion got delayed a little bit in the first two quarters we did not have. That’s — so we benefited from that, which also was transparently shared with all of you in the last quarter call as well. So that’s how I would sum up, Ali, with all the drivers for — not just for you, but for everybody in the call as well who may have no further questions on.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Let me just expand on one element of it. I think Kabir talked about, and I — in my opening remarks said that all these are planned investments. And I emphasize that a lot of sales and marketing investments are going in international geographies. And we had said that as part of our strategy because the — while we are a market leader in the segments that we choose to operate in the B2B segment in India, in international markets, it’s a huge market. And our market share, that is still not what it can be potentially. So I’ve been saying that the network is a $1.5 billion market in India, whereas it’s a $145 billion market in the international market, right? So we are — there is much more upside to be had with the right products, the right solutions, which we are investing in. I think we have to invest in the right sales and marketing capabilities in those regions, which is what we have begun to do and which is also why we are beginning to see some of the results come through. So those investments, in our opinion, have to be done, and we will stay invested in both those aspects of sales and marketing as well as in further enhancing our product and platform capabilities.

Aliasgar Shakir — Motilal Oswal — Analyst

Got it. This is very, very detailed and — only point that I wanted to just clarify, so I understand these are planned investments. But given that we are adding a lot of resource, we should expect the growth to inch up in the near term with whatever new funnel of — I mean, order book that we are seeing.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

No. I think these resources did not materialize just this quarter. We’ve been talking about this for the last three, four quarters. And gradually, the people have come in. And with that is what you see the results.

Kabir Ahmed Shakir — Chief Financial Officer

And it is already — Ali, it’s already visible in the last two quarters. Last two quarters is when we’ve started touching our double-digit growth ambition. And double-digit growth ambition is what we will continue to push for. So this investment has already started seeing benefits and fruits in the last two quarters. And as Lakshmi said, we are committed to it, and we will stay on course.

Aliasgar Shakir — Motilal Oswal — Analyst

Correct. Just a second question on the 5G investments that the other two telcos have made, and they’ve been quite vocal in basically their offerings in the enterprise side. We have not spent on spectrum. But of course, our offerings are well understood. So do you think the competition with — from these two telcos will increase? Or are you seeing anything on the ground? Or do you think the capabilities can increase with this spectrum? I mean, your thoughts there?

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

No. So our strategy with respect to 5G is very, very focused on the private network that they can enable for enterprises. We have built our capabilities quite strongly to be able to compete in that space. We announced the launch of our lab and our stack of solutions on 5G a quarter ago. It’s in Pune. We have had several customers use the lab as a service to trial the use cases. And we’re also taking these capabilities to the international market where we are addressing in this space. So we are just not focused on 5G. We have a pedigree with our IoT fabric solution. And we want to offer this truly as an IoT fabric, regardless of the technology, whether it’s Alora, whether it’s WiFi 6, unlicensed LTE or 5G or, in future 6G, we will have an Industrial Connectivity as a Service and IoT fabric capabilities that we have built. And we are already selling that capability in multiple forms with various customers. And with 5G, whenever the — we are waiting for DOT to sort of announce the — firming up what they have announced in terms of the opening up for the enterprises to set up these captive networks. And we are all set to grow when that happens. And as I said, this capability is not just for India, but you’re also talking to international customers to take and deploy this capability.

Aliasgar Shakir — Motilal Oswal — Analyst

Are we seeing intensity from the competition also growing?

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Yes, of course. I mean they have invested in spectrum. They are — I mean in every sphere there is varied competition right, so even our — if we talk about DIGO as a product that we launched, yes, there are competitors. We talk about MOVE there are competitors. So I think that is not the concern.

I think we are very focused on our customers, understanding what they seek and want. We want to be a lot more technology-agnostic, OEM agnostic solution. Our MOVE solution is intended to make our customers more M&O agnostic, if you will, right. So we are not M&O player with mobility spectrum even on the 4G or 3G or 2G for that matter. And MOVE still delivers our connectivity management solutions for our customers. So we come at it from a different angle. I’m sure there will be competition in all the spaces, but we are quite confident of what we are building and we aim to deliver value to the customers.

Aliasgar Shakir — Motilal Oswal — Analyst

Got it. This is very detail. Thank you so much for this.

Operator

Thank you, Ali. The next question is from the line of Mr. Vinit Manek from Karma Capital. Vinit, you may now go ahead and ask the question. [Operator Instructions].

Vinit Manek — Karma Capital — Analyst

[Technical Issues] question. But just wanted to check one thing with you that on the increased interest cost quarter-on-quarter, there wasn’t any element of ForEx — change in the ForEx that might be impacting it to us because our payments would be presumably and the interest payments would be in terms of the US dollar. So was there any impact of that available during this quarter or maybe in the last two quarters?

Kabir Ahmed Shakir — Chief Financial Officer

It’s very, first of all, you’re absolutely right, it’s dollar. So there is hardly anything and there is very minor impact at all. So it’s — I would rather say there is hardly any impact from ForEx on the interest cost.

Vinit Manek — Karma Capital — Analyst

Okay. And any other line item has been impacted because of the change in the foreign exchange happening above that or…

Kabir Ahmed Shakir — Chief Financial Officer

I did mentioned in my speech that our revenue has been positively impacted like it’s been there for the couple of quarters with the strengthening dollar. Revenues is more material. The profit is also positively impacted, but not that much material.

Vinit Manek — Karma Capital — Analyst

Okay. Got it. Thank you.

Kabir Ahmed Shakir — Chief Financial Officer

Foreign currency translation reserve and then, and the net worth all of those in the balance sheet does get impacted because of ForEx movements.

Vinit Manek — Karma Capital — Analyst

Yes, but no major impact on the income statement side largely except the revenue, which is a positive effect.

Kabir Ahmed Shakir — Chief Financial Officer

Yes.

Vinit Manek — Karma Capital — Analyst

Okay. Thank you.

Operator

Thanks, Vinit. The next question is from the line of Mr. Neel Nadkarni from Dalal & Broacha. Looks like Neel has dropped off. Sanjesh Jain from ICICI Securities, you may join the queue again. Sanjesh you may go ahead and ask the question. We’ll unmute you now.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Sanjesh are you there?

Sanjesh Jain — ICICI Securities — Analyst

Yes, hi. Sorry, I couldn’t find that unmute button. Apologies. I hope you can hear me now?

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Yes Sanjesh we can.

Sanjesh Jain — ICICI Securities — Analyst

Yes. Just one follow-up on the revenue side, which we spoke earlier, considering the sales funnel as well as the order book we see today, are we reasonably confident in terms of growing 20% CAGR for next few years? It’s not a guidance, just wanted to understand is it possible for us to grow at 20% CAGR in the DPS portfolio or do you see any challenges for that?

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Okay. Question is on the digital portfolio. I think it is possible. I think in order for our data revenues to grow consistently at double digits, we need to have our digital portfolio, and sometimes I — makes digital portfolio and I include the incubation in there together has to grow at that level. So that’s clearly our ambition. That’s definitely possible and that’s what we would be aiming for and targeting.

Sanjesh Jain — ICICI Securities — Analyst

But is our order book and sales funnel as it is building gives that confidence that it is quite achievable?

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

I mean that gives, it gets close to the guidance, then. All I would say is, that’s what I’ve been saying Sanjesh that we are investing in all these places, these products and platforms and they are getting stronger. Yes, there is a good momentum in terms of the funnel buildup. And I think I also mentioned that if you look at the color on the funnel that is more in DPS in the funnel than in the core connectivity. So that makes it already positive there. So I think that’s the best color I can give. I think we have to execute on those and definitely we will aim to push the DPS growth to that higher trajectory.

Sanjesh Jain — ICICI Securities — Analyst

A small request. It would be great if you can call out order book so that gives us the confidence and visibility in terms of how the revenue is stacking up. We did this in between but again I think we pulled it out but this is an humble request from our side, if you can now include that, that would be very helpful.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

So we’ll try and look at whatever indicators that are helpful to you. I think we pulled it out three years ago because the one is the color of the business had a lot more of usage and when we talked about order book, one assumes a certain degree of usage and say that’s the order book, but the usages are never sort of guaranteed and either it comes off or it doesn’t come and there were a lot of fluctuations as a result.

In the last two, three years, we have been trying internally to work out the algorithms that we can get right. So the predictability on the usage based contracts we can get it right. I would say we still haven’t got it absolutely right. So anything that we give could be misleading as well. So we hear you, I think we would give it out at the right time. We understand the reason why you’re asking as well. So we will start to give at the right time. They are beginning to give more and better color through words but as figures we will start to do that whenever the time is appropriate.

Sanjesh Jain — ICICI Securities — Analyst

Thanks, Lakshmi. Thanks very much and that’s it from my side.

Operator

Thank you, Sanjesh. We’ll take one last question from the line of Neel Nadkarni. Neel, we will unmute you now. Please unmute and you may ask your questions. Neel you can ask your question now.

Neel Nadkarni — Dalal & Broacha — Analyst

Yes, okay. My question is again on the margins. So sorry to bother you in that. But what I get from the call is we have done material investments on improving our funnel, our sales mix, et cetera. And so is it fair to assume that we are at — this is the bottom end of the margins, while we have indicated that we want the margins to be between 23% and 25%. But is it fair to assume that from here on the margin should going forward, primarily because the thinking goes that if the the funnel is looking better, if the execution is going to be better and the operating leverage should kick in and given the business model it should kick in a very big way. So is it fair to assume that the margins from here on should actually start improving?

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Well, I would say ’23 to ’25 and I’ve been saying that consistently for the last two and half years now. And there will be times when we will be at the lower end, there’ll be times we’ll be higher end. And because of COVID, because of lots of other I would say tailwinds that we actually got, we’ve been operating at the higher end of the range. For us going outside of this higher end will be irresponsible, because then we will be choking the right investments to make and setting high bars especially in digital platforms and services areas where you need to allow for experimentation, you need to allow for POCs to come through and then identify the use cases.

So we do have a one B/30 [Phonetic] approach for our innovation programs internally. And these needs that right level of support at every place. So I cannot answer the question in yes or no whether this is the bottom, or whether this will go up. 23%, 25% is the range. Our endeavor will be, and if for example, in one quarter it goes below 23%, I am not going to sweat myself, because we have made a right investment decision for our products. And these markers are good markers for us to guide as to how to run the business, but if these markers go away for a quarter for the right business reasons, I think we are not worried as management and you as investors should not be worried either. So, to your other point Neel, a lot of while we are seeing the growth in each of the portfolio whereas the connected solutions or in collaboration with DIGO or even GlobalRapide, these are only getting started now. So I think — and they are a mix of a platform plus platform as a services play. So I think it will be — we have to continue to invest and we are upgrading these products and launching. So GlobalRapide we are launching a GlobalRapide 2.0 with a new set of tools and services capability. So each one of them have a different profile and trajectory. We are continuing to enhance these products and do that. So I think for a while longer I think we would be continuing to invest and it’s not of the scale where when you talked about the operating leverage should be kicked in a big way, these are multiple products at varying degrees of investments with a combination of product and with the combination of services play attached to that as well.

Kabir Ahmed Shakir — Chief Financial Officer

And I would also encourage you to look at holistically, the business in totality, look at the operating performance of the business, not just as EBITDA but look at PAT, look at free cash flow, look at our ROCE, look at our reducing debt. Despite the increase in interest cost that couple of you have asked our PAT has actually gone up right. So all of those levers these are all giving us the elbow room, the headroom to actually make the right investments in the business.

So after a point in time one shouldn’t get fixated about numbers in the middle and do what is the right economic value that actually drives. And frankly that has been a guiding force in the last two years for this particular company to change the trajectory and get onto this particular path. And I fundamentally believe in Lakshmi and my other colleagues in the GMC are completely committed to this rationale and that’s how we have actually driving the business and we believe drives long-term value to all stakeholders in the business.

Neel Nadkarni — Dalal & Broacha — Analyst

I appreciate. I think fairly good reply. So, all the best. All the best. Yes.

Kabir Ahmed Shakir — Chief Financial Officer

Thank you.

Operator

Thank you. I would now request Lakshmi to share his closing comments.

Amur Swaminathan Lakshminarayanan — Chief Executive Officer, Managing Director, Executive Director

Thank you everyone. I think we are very, very delighted in the progress that we’re making in the overall strategy execution. We are making good progress in the platforms to — in the shift, and many of these products are beginning to get good traction in the market. And as I said, we will continue to stay invested in both the talent and building the talent to help us shift to the digital play and also invest in the products and platforms. And the most encouraging thing is the kind of conversations that we are able to have with our customers is really encouraging to see. So, thank you very much for all patient hearing. Thank you very much.

Operator

[Operator Closing Remarks]