Tata Communications Limited (TATACOMM) Q4 2022 Earnings Concall Transcript

Tata Communications Limited  (NSE: TATACOMM) Q4 2022 earnings concall dated Apr. 22, 2022

Corporate Participants:

Chirag Jain — Investor Relations

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

Kabir Ahmed Shakir — Chief Financial Officer

Analysts:

Sanjesh Jain — ICICI Securities — Analyst

Riddhesh Gandhi — Discovery Capital — Analyst

Nagraj Chandrasekar — Laburnum Capital — Analyst

Pranav Kshatriya — Edelweiss Financial Services Limited — Analyst

Presentation:

Chirag Jain — Investor Relations

Good evening, everyone, and welcome to the Tata Communications Earnings Conference Call for Q4 FY ’22. We are joined today by our MD and CEO; Mr. Amur Lakshminarayanan; and our CFO, Mr. Kabir Ahmed Shakir. The results for the quarter and full year ended 31st March 2022 have been announced yesterday and the quarterly factsheet 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.

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

Thanks. Good evening, everyone, and I welcome you all to the Q4 and FY ’22 earnings call for Tata Communications Limited. With the economy’s reopening and the government’s easing restrictions globally we are hopeful of our lives returning to normalcy with no future waves of COVID like the ones we witnessed over the past two years. Our offices resumed in the first week of April for return to office and it was a welcome change interacting with the teams and leadership in person. Not only that, we also resumed business travel globally, and I had the opportunity to meet some of our customers in person.

These in-office interactions have been no less than a delight especially because they reaffirm the faith our customers have in us in our capabilities to deliver the same. We are also watchful of the escalating tensions between certain nations globally though we have sufficient safeguards in place to protect our business and our customers’ interests. Over the last year we undertook multiple initiatives to strengthen our product and execution capabilities. While some of the short-term challenges continue to plague the industry in the form of global supply chain issues, elevated attrition and delayed business decision making, we continue to focus on growth.

On the back of these efforts, our revenues have witnessed a steady growth over the last three quarters. We are moving forward in the right direction. We continue to proactively engage with our customers. Our NPS score is at a record high and is amongst the best-in-class. We see a sizable market opportunity, which we will focus on. Our pipeline is better focused on the medium to large deals, as well as customer engagements which give us a higher fixed monthly charge against a usage-based revenue. Our win rates are improving and about 50% of our new funnel adds are the Digital platforms and services portfolio and our Incubation portfolio as well.

Our Media segment continues to see healthy funnel adds and has grown by 25% year-on-year. Our funnel in the MOVE segment has nearly doubled on a yearly basis. Though our overall funnel dipped in Q3 on account of attrition in the past quarters, we are hiring and on-boarding new talent and this is helping us to improve the funnel run rate on a Q-on-Q basis. Our Network Services continue to be our biggest portfolio, which provides high speed scalable and low latency services enabling our customers to maximize business efficiency and ensure business continuity. Our core connectivity business continues to engage with and on-board new customers through our dedicated network offerings and we are expanding our revenue 0.5% Q-on-Q and 1.4% on a yearly basis. As the demand for our network architecture grows globally we will continue to invest in augmenting our capacity in existing and new cable systems and provide the best-in-class services to our customers.

I would want to share that Tata Communications was recognized as a Leader by the Gartner Magic Quadrant for Network Services Global for the 9th consecutive year. As the need for digital transformation gains traction, our Digital platforms and Services portfolio continues to serve the ever-growing demands of our customers by allowing them to stay connected and collaborate seamlessly with a secure digital infrastructure. All our Digital platforms and Services offerings have shown a double-digit growth on a year-on-year basis, except for our Collaboration Services.

This is largely because of two reasons: firstly, you may recall that during the first half of FY ’21, our SIP revenues received a major boost as people migrated to a remote mode of working amidst the pandemic. As people continue to work from home, this traffic got distributed and moved towards channels like IP and our App-based calling. Secondly, the increased IUC charges for India termination imposed by the regulatory authorities adversely affected us and we witnessed some volume churn in enterprise voice, leading to a drop in traffic.

We continue to see the traffic being impacted due to fundamental shift being witnessed in SIP usage. We are working with our cloud providers, the CASPs and redesigning our product offering with the focus on innovation and flexibility. Our Microsoft Teams Solution, which utilizes the SIP as underlying infrastructure continues to grow at a rapid pace. The response for our Global Rapide Solution for Microsoft Teams deployment and management is very positive and we are on-boarding new customers on the platform, providing them with a suite of services.

These offerings allow integration across legacy systems and disparate platforms, creating an environment that users can easily connect, collaborate and share ideas across locations boosting organizations productivity. Our Teams offering has clocked another quarter of over 100% growth and is gaining traction. Overall, Collaboration and Managed CPaaS portfolio grew by 3% quarter-on-quarter, but declined 18.8% on a year-on-year business. Our Cloud Hosting and Security Services helped build an agile IT ecosystem with hybrid multi-cloud environments, security and network that our customers need globally thus improving productivity and efficiency.

Our cloud assured, cloud secured offering provide the agility, assurance and resiliency to grow and thrive in today’s digital-first world. We recently collaborated with Indian Telecom Industries Limited, ITI, a public sector undertaking of Department of Telecommunications for our Cyber Security-as-a-Service platform. It will enable ITI to secure its customers from external and internal security vulnerabilities and protect business-critical data by allowing secured access to company’s assets, all this while supporting compliance with relevant regulations.

Our integrated stack of multiple cyber security solutions will support their business goals of becoming a one-stop shop for cyber security needs of all PSUs and government entities in India. Additionally, their SOC operations are further strengthened with backup security services from our SOC solutions for disaster recovery. Our cloud hosting and security portfolio grew by 10.2% year-on-year but declined 1.7% on a Q-on-Q basis as it continued to support business requirements for our customers. Our next generation connectivity portfolio registered robust growth of 20.9% year-on-year and 20.5% on a quarterly basis.

We continue to focus on providing end-to-end solutions to our customers by bundling our offerings over our strong backbone. We were awarded the leader position by Avasant SD-WAN managed services space and Frost and Sullivan honored Tata Communications with Growth and Innovation Leader and overall leader position in APAC region for managed SD-WAN services in the market. Our Media segment has bounced back exceptionally well. We are excited and proud to be the official broadcaster connectivity provider of Formula One. Our global end-to-end managed network services for video distribution helps transform the experience for more than 500 million motor sport fans, a solution that enables Formula One to move live data analysis and video production away from each circuit to a centralized remote operation center, which has led to a 34% reduction in the sports traveling freight since 2020.

We’ve also partnered with Eclat Media Group to distribute their newly launched channels across Pan-Asia empowering them to broadcast more than 4,000 hours of content annually. Our Media Ecosystem coupled with Video Connect and Satellite Uplink services will allow commentators of these channels to overlay commentary in their local language, which will be added to their U.S. video feeds for relevant regions. Such reaffirmation in our services helps us remain excited about our progress and the tremendous opportunity we can address globally. Our Media portfolio registered an impressive growth of 37.6% on a year-on-year basis, though it declined by 4.3% on a Q-on-Q basis mainly on account of seasonality.

Our IoT and Mobility Solutions are being well recognized by the industry and we continue to provide a seamless cross-border connectivity to deliver international services effectively and efficiently. Our IoT platforms with plug and play enablement supported by dashboard and predictive business-driven analytics continue to transform enterprises. Our platforms are delivering tremendous value to our customers across automotive, industrial, logistics, media, healthcare and aviation sectors. We’ve added five new logos in the Incubation segment across our product offerings as customers look forward to automating and digitizing their operations.

We recently entered a strategic engagement in the Middle East to bring Smart City Solutions. Our IoT Ecosystem will serve as a one-stop shop to provide hardware platform application and insights, enabling us to remodel cities with smart street lighting, smart risk management, connected workplace, healthcare and connected cars. Overall, our Incubation portfolio grew by 67.6% year-on-year and 49.1% on a Q-on-Q basis. At Tata Communications having a diverse, engaged and productive workforce is an essential part of achieving our business strategy and we have put in place best-in-class people practices.

We continue to be recognized by Kincentric’s Best Employer in India for the sixth year in a row while we have been certified as a Great Place to Work and Best Companies to Work For across multiple countries where we operate. We have been recognized as Best Companies for Women in India by Working Mother and Avtar Institute for the sixth consecutive year. We are also being recognized for our efforts in fostering sustainability and community-linked initiatives. We were the winners of the Golden Peacock Global Award for sustainability for the year 2021 and were also recognized for by the Businessworld as Top 10 Most Sustainable Companies work in India.

Let me discuss a few highlights of our financial performance. Our full year consolidated revenue declined by 2.2% year-on-year to INR16,725 crores. The declining trend in Voice business continued. For FY ’22 this business declined by 18.1% year-on-year. Data business grew by 1.4% year-on-year and continued to grow sequentially for the third consecutive quarter. Our Data business grew by 2.1% Q-on-Q. EBITDA for the year was at INR4,227 crores and the profit for full year was INR1,482 crores. This translates to EPS of INR52 per share growing at 18.5% on a yearly basis. As an organization, we have taken various steps to improve our operational performance and bring efficiency into our processes.

On the back of these efforts, we have continued to deliver strong free cash flows and a healthy profitability and happy to announce that the Board has recommended a dividend payout equal to 40% of our consolidated PAT amounting to INR591 crores. Overall, we reported a steady and a positive data revenue growth for three consecutive quarters this year after declining trend we witnessed in FY ’21. Our improved cash flows and stronger balance sheet gives us the confidence that investing in Digital business while focusing on our customer engagement solutions is the right path.

We are working on multiple future technologies to provide our customers a transformative speed through our reliable and multipurpose network for their businesses. Our teams are working on PoCs relating to mobile video surveillance, wireless supply chain management and automotive solutions using 4G/5G network stacks. We will continue to invest in strengthening our ability to address the market opportunity ahead of us.

The reality that our customers around the world have been modernizing business processes at fundamental level and this will enable growth and competitiveness is driving greater demand and we feel good about the signals. We will focus on reinvesting our profits in our growth areas, deliver an improved customer experience, lower churn and drive healthy growth and at the same time be laser-focused on improving and simplifying our internal processes. As an organization, we will endeavor to deliver our reimagined strategy with financial fitness at the core of our decision-making.

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 evening everyone and thank you for joining us on our Q4 earnings call. I’ll take this opportunity to go through our financial performance for the quarter in more detail. FY ’22 was a healthy year for Tata Communications marked by recovery across businesses. We continue to invest in the enhancement of our products and services to better enable our clients in their digital transformation journeys while simultaneously improving the health of our balance sheet.

Our Data business continue to grow for the third consecutive quarter signaling signs of recovery as the pandemic recedes and the world moves towards normalcy. Though there was certain element of softness in our data growth we were focused on our ambition of achieving double-digit revenue growth by continuously working on expanding our product offerings, increasing our customer outreach by adding more feet on the ground globally and strengthening our internal processes. Our full year revenue declined by 2.2% year-on-year to INR16,725 crores primarily driven by the decline in our Voice business. Data revenue for the full year has grown by 1.4% coming in at INR12,779 crores.

This growth is broad-based across all segments of our data portfolio except our collaboration usage based revenue, which has seen a decline. Revenue for the quarter is at INR4,263 crores, increasing by 1.9% Q-on-Q. Data revenue for the quarter is INR3,301 crores, which represents 2.1% Q-on-Q growth and third consecutive quarter of growth. Moving to subsidiaries, TCTS business was affected by some of the customer-specific contracts issues we had entered in previous years and higher operating costs. Starting FY ’22 we exited these contracts and worked on stabilizing the business, which impacted the P&L. FY ’22 at TCTS was focused on strengthening internal processes to drive business efficiencies. On quarter-on-quarter basis, revenue for TCTS has grown by 6.7% and reported a positive EBITDA of INR7 crores, thus signaling green shoots of recovery.

Full year revenue stood at INR1,312 crores. Our Payment business continued to be affected by COVID and with average daily transactions for FY ’22 being 15% lower than last year. As part of our strategy to focus on financial health and profitability we launched a franchisee model this year. Under the new model the response has been stellar and we have deployed close to 1,000 ATMs in FY ’22. This has led to a positive impact on overall profitability of the business although the base is low at present. Revenue for the year came in at INR165 crores with an EBITDA 9.1%. For FY ’22, our EBITDA was INR4,227 crores with a margin of 20.3% [Phonetic] expanding by 40 basis points versus prior year.

EBITDA for the quarter was at INR1,045 crores witnessing a 3.3% year-on-year growth over same quarter last year and declining by 3.4% on a sequential basis. This decline is due to increase in certain cost which are usually back ended to the latter half of the year. Despite these higher expenses, our margin for the quarter came in at 24.5%, well within our guidance. We continue to maintain a healthy profitability in our Data segment. As we step into FY ’22 we are hopeful of a pandemic-free year and a normalcy setting into the business environment with employees returning to office and management travel picking pace, we would see an uptick in our employee and travel-related expenses.

We are also making efforts to arrest the growing attrition due to the greater resignation and continue to invest in our employees and their capabilities. We remain committed to our strategic guidance of EBITDA at ’23 to ’25 although these costs will impact our profitability and we expect to operate at the low-to mid-part of this range for FY ’23. PAT for the year is at INR1,482 crores as compared to INR1,251 crores in the last year. This translates to an EPS of INR52 per share growing at 18% on a year-on-year basis. The current quarter PAT was impacted positively by some one-offs of tax refunds and related interest and some prior period adjustments on the tax line.

Adjusting for those the normalized PAT margin for the year is still 8.4%, which is a healthy increase of 110 basis points over last year. Capex for the full year stood at INR1,608 crores as compared to INR1,421 crores in FY ’21. This is in line with our decision of increasing our capex trends as we invest for growth and has been called out in our previous discussions as well. We will continue to invest in developing future capabilities and strengthening our existing ones. ROCE for the year is at 26% as compared to 24.6% in FY ’21. Net debt as on 31st March stands at INR6,744 crores. Reduction in net debt during the quarter was INR445 crores compared to Q3 and INR1,042 crores compared to the same quarter last year.

Net-debt-to-EBITDA is now at 1.6 times as compared to 1.8 times a year earlier. Our cash flow for the year stood at INR2,619 crores. We had outlined our finance strategy during our Annual Investor Day last year. We witnessed significant progress on our strategic pillars of it to compete and fit to grow by driving operational efficiencies, eliminating waste, simplifying processes and strengthening our capabilities. This has enabled us to continue delivering a strong bottom line and significantly improve our cash flow. All our financial metrics are tracking in the right direction and as a result, our balance sheet is in a much stronger and healthier state now.

At Tata Communications we are committed to our strategy of being a digital ecosystem enabler and help drive digital transformation of our customers and position us to consistently deliver growth for the long term. Other than for any exceptional circumstances we plan to pay dividends at between 30% to 50% of our underlying consolidated profit. We are committed to a sustainable dividend policy in line with our earnings and cash flow generation. For the financial year ending 31st, March 2022 the Board has proposed to pay dividends equivalent to 40% of our consolidated profits, which translates to a dividend of INR20.7 per share, reinforcing our commitment to shareholder returns.

To conclude, I would like to reiterate that we continue to deliver well on our finance strategy. Our balance sheet position is now stronger and allows enough headroom to invest for growth. The management focus is now solely on driving business growth and we are excited about the opportunities that lie ahead of us. This brings us to the end of our management commentary.

I’ll now ask Chirag to open the forum for Q&A. Thank you for your attention.

Questions and Answers:

Chirag Jain — Investor Relations

Thank you Kabir. [Operator Instructions] The first question is from the line of Sanjesh Jain from ICICI Securities. Sanjesh, you may now ask your question.

Sanjesh Jain — ICICI Securities — Analyst

Yeah, thanks.

Chirag Jain — Investor Relations

You may go ahead and ask your question.

Sanjesh Jain — ICICI Securities — Analyst

Yeah. Thank you. I think it was muted. Thanks for taking my question. Few — first on the data revenue growth, even this quarter if I look at Y-o-Y basis we are still on the net revenue basis.

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

We are unable to hear you Sanjesh.

Sanjesh Jain — ICICI Securities — Analyst

Can you hear us? Hello? Can you hear me, please?

Chirag Jain — Investor Relations

Sanjesh, just allow us a second. You may now go ahead and ask your question.

Sanjesh Jain — ICICI Securities — Analyst

Can you hear me, Chirag? Am I audible?

Chirag Jain — Investor Relations

Yeah, Sanjesh.

Sanjesh Jain — ICICI Securities — Analyst

Okay, thank you, thank you. Sorry, I think.

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

Sorry for the glitch.

Sanjesh Jain — ICICI Securities — Analyst

No, no, good afternoon, everybody. Few questions from my side. First, on the data revenue net basis, even in this quarter we are at 5% and quarter-on-quarter growth of 0.7%. The double-digit growth guidance look far reach for us. What gives us the confidence that we will be able to achieve that in the next two years? That’s number one. And how is the sales funnel and order book looks like for this quarter? Last quarter it was quite muted. Are we into the double-digit growth, which gives us the confidence that FY ’23 could be a much better year than FY ’22 on a revenue growth? That’s my first set of question.

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

Yeah Sanjesh, thanks for the question. On the data growth, as I called out the two, if you can unpeel that, the core connectivity is one part, which we have said that has grown at 1.4%. Within that, India has grown quite well, it’s year-on-year as we had called out mid-single digits or high-mid-single digits, it’s in that region. And international there has been a decline, largely because of the VPN declines, which is the trend that we had called out as well as some of the price erosions so that’s largely on — overall it came at 1.4%, which is sort of in the low- to mid-single digits growth.

Whereas on the Digital platforms and Services mainly on the usage is where we have had an impact and barring that usage, if you look at the fixed, all the fixed portfolios that we charge on a fixed basis that has grown about 22% year-on-year. So on the — and again, on the usage basis the issue has been largely on the SIP trunk and the other one is to MMX. These are the two things. We think on the SIP being a usage — usage being usage, it’s difficult to really forecast very accurately. But given all the indications that we have we think we can arrest the further decline.

Now, whether it’ll pick up growth, we’ll have to wait and see. We are picking up some new customers on the usage side but the usage will be on a usage basis. But today the usage is about 34%, 35% of the entire DPS. So that is one data point. From a confidence about the future, I think on the network side, the next-generation connectivity is growing. This year also it’s grown. I think we are betting on it to grow significantly next year as well with our — the new ISO variant products that we are piloting with our customers and there is going to be a formal launch in this coming quarter.

That will be a re-launch of all our ISO variant products. So that is something that we are betting on to grow for next year. Similarly on our cloud and security as well, the cloud on a standalone basis has grown. The cloud and security also would grow this year. And as I said, the funnel add for the Digital platforms and services has been quite good.

I called out the Media as well as on the Incubation, the MOVE funnel has increased. So all of these are giving us the confidence that the funnel is fairly healthy. I did mention that Q3 we had a drop. But Q4 it’s bounced back after we started putting feet on the ground, hiring people in the international markets and we are continuing to hire people in the international market. So hopefully that will help. It will have a lag effect but the funnel will continue to grow. Conversion to revenue from the funnel to the order booking and to the revenue, again I called out in my commentary, there is some slowness in decision-making.

Order book is sort of flattish to marginal increase in Q4 but we are anticipating Q1 we should improve on that order booking status. Partly the delays in the decision-making are due to the supply chain, the CP, availability is a problem and therefore I think when it plays on the customer mind saying that if you’re anyway going to deliver after nine months, 10 months after they place the order, why not delay the order, could be one of the things that is delaying because we are seeing some of our conversations with our customers in advanced state but not getting closed. But having said that, I think all of them, I believe are only temporary glitches and in the long run, when you ask the question in a double-digit growth in couple of years, we are quite confident of that.

Sanjesh Jain — ICICI Securities — Analyst

Thanks. Thanks Lakshmi for the elaborate answer. Two things, one on MMX side, I think one of our competition is doing very well on that platform, surprising to hear that we are lagging in that. Number two, cloud security and hosting, that particular segment now looks like it’s quite decelerating and I thought this was the segment where we were very confident on delivering the growth. I think these are the two things if you can address how do you think the things will change in FY ’23 for each of them?

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

Yeah, so on MMX front, you’re right. Largely we have been addressing — our MMX has been as a wholesale play selling to service providers as well as to a couple of large OTT players is where we [Indecipherable]. We have started pivoting into selling MMX into the Enterprise segment quite recently and that is still underway. So we are piloting our MMX’s A2P messaging but above that to get to CPaaS play is what we are working on. We have a few pilot customers and that’s what will help us to accelerate the growth in the MMX and the CPaaS business in the coming years, right? On the cloud and security, I think I briefly mentioned to you. Within the cloud, we have done quite well.

I think we have launched some new products as well in the Fin cloud where we picked up now a couple of customers and we are bringing variants for Developers community and others. So on the cloud we are definitely enhancing our products as well as expanding and that is growing. On the security side, while in India, we have done reasonably well, in the international market it has definitely slowed down. And again, we attribute that decline to the feet on ground attrition that we have had. And secondly, largely the security in the International business has been on the network security. So as we grow the network business the securities is an up-sell to those deals, particularly in the European market. We are seeing once again a build-up of the funnel there compared to last year, so it should recover in the coming quarters.

Sanjesh Jain — ICICI Securities — Analyst

Fair enough. Again, is that International segment muted growth is largely because of the feet on the ground? We were also betting particularly on an SI partnership date. How are they helping us in scaling up the International? Does that partnership paying us off?

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

I think the partnership I wouldn’t say it has delivered fabulous results. It has definitely got us into conversations and helped us in the pipeline. But despite those partnerships, if things are not closing, it is just attributable to the environment that the customers are in and the priorities they attribute or accord to a network transformation versus the others because in some of these areas our partners are the main players in those accounts. And despite that, if there is a struggle to close it that’s the only reason I can attribute and that is largely in line with what we are seeing in other places where we are going alone by ourselves as well. But we are focusing on, we are doubling up on those efforts with the SI partners in this year. So if nothing our pipeline should be healthier and as and when it’s the right time, we should be able to take advantage of that.

Sanjesh Jain — ICICI Securities — Analyst

Got it. And the International segment muted performance is largely the feet on the street kind of a situation.

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

Largely that as well as on the usage side also on the international side as well we have had. I mean both India and internationally we have had the impact, but on the international side has been a higher impact on the usage side. And feet on street is the other problem.

Sanjesh Jain — ICICI Securities — Analyst

Incubation has done very well for us in last few quarters. We are almost doubling the revenue on a Y-o-Y basis. Is it largely MOVE-IoT or we are also seeing NetFoundry attributing growth to the year? And how does FY ’23 looks like for this services?

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

So, as you know, we are not segregating the Incubation. Basically, we have the connected solutions of IoT and MOVE and the NetFoundry. We will need to give more time to NetFoundry, because I think that’s picking up. We are getting customers but as I said, they are pivoting from a world of Enterprise Zero Trust to also IoT Zero Trust. So we’ll allow them more time to see which of those use cases can really scale with the customers. But they are getting a lot of good design wins but the main weight for us is to see which pattern will pick up and scale in the market.

As far as the connected solutions are concerned, it’s grown quite well. I think it’s at a very decent run rate getting close to about 29 million this year. And we anticipate that growth will continue. We have a good pipeline in some of these areas. So that’s — as you called out, that’s doing very well. I think we’ll have to make sure that in those areas we continue to invest and again look at the — both the product we need to continue to sharpen to stay relevant in those areas as well as invest in sales in those areas [Indecipherable].

Sanjesh Jain — ICICI Securities — Analyst

Got it. NetFoundry was very — had a hard push even from the public cloud service provider. Is that side of solution architecture not helping the NetFoundry to scale out faster?

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

No that’s, I don’t know when you say cloud. I mean one of the use cases was for cloud.

Sanjesh Jain — ICICI Securities — Analyst

Public cloud connectivity, right, cloud migration.

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

So the specific use case that we had done with a couple of customers were cloud migration. So whenever people are migrating cloud rather than having a private network established just for the sake of migration the use case was to see how they could transfer data using Internet. Somehow that has just not — we have had good customers and the design wins, but that has not scaled as much as we would like to have seen.

Sanjesh Jain — ICICI Securities — Analyst

Got it. Last to Kabir, what’s our capex guidance for FY ’23 and will the fiber replacement or reinvestment which Lakshmi spoke in his initial remark will start from FY ’23?

Kabir Ahmed Shakir — Chief Financial Officer

We are looking at — I mean, I had mentioned before that we would up our total capex to somewhere close to INR300 million in that range, Sanjesh. This year although our approved capex has been higher our spend capex was lower because of all the supply chain issues that Lakshmi alluded to earlier as well. So I don’t know how that will unfold, but at least I mean from a business case perspective, we would like to increase our capex to close to INR300 million to INR325 million that ballpark, that range and of course, supported by good business cases to start with. Our subsea cable investments hasn’t payment scheduled, that’s already started in this year and we will continue as a payment schedule on a — for the next couple of years. So it will flow through next year as well so I’ve included that in our INR300 million to INR325 million that range is what our total capex will look like.

Sanjesh Jain — ICICI Securities — Analyst

Got it. And this should be fair range for next few years, right, Kabir?

Kabir Ahmed Shakir — Chief Financial Officer

Yes. This should be fair range for the next few years. But as I said, as we drive growth, almost 50% of our capex is customer success-based capex and therefore you should be able to draw correlation with growth and capital. And that part of my capital, I really do not want to have any budget at all. I’m speaking the same language that I speak internally outside as well. As long as we are able to get growth and help our customers drive their digital transformation and we will therefore invest in those things because each and every individual business case then pays for itself. So that element is definitely unconstrained. Within the ambit of our strategic plan and the vision that we actually have in terms of our double-digit growth, INR300 million to INR325 million looks well. If our capex number grows and so will our growth go up.

Sanjesh Jain — ICICI Securities — Analyst

Got it. Got it. Just one last on the dividend payout, sorry for this. We are at 30 to 50. Our net-debt-to-EBITDA range looks much more comfortable today. Do you think there could be an upside risk to the payout in the future?

Kabir Ahmed Shakir — Chief Financial Officer

Sorry, upside risk, did you say?

Sanjesh Jain — ICICI Securities — Analyst

Yeah. Upside risk as in paying more than 30 to 50?

Kabir Ahmed Shakir — Chief Financial Officer

Well, we believe 30 to 50 is certainly the right level for the medium term, I would say Sanjesh. So we hope to operate within that particular range going forward. Earlier, we’ve not had a formal documented policy. Now with two years of improved profitability, a good balance sheet shape the Board was comfortable to formulate this policy and propose a higher dividend this year and which also gives visibility for us as a management, and also to you as investors that we are confident on our earnings and our cash flow generation. But for now, I would say 30 to 50 is a good range to go for in the medium term.

Sanjesh Jain — ICICI Securities — Analyst

Got it, got it. Thank you. Thank you for all the answers and best of luck for the coming quarters.

Kabir Ahmed Shakir — Chief Financial Officer

Thank you Sanjesh.

Chirag Jain — Investor Relations

Thank you Sanjesh. The next question is from the line of Riddhesh Gandhi from Discovery Capital.

Riddhesh Gandhi — Discovery Capital — Analyst

I just wanted to understand for a number of quarters now including your last Analyst Meet we’ve been guiding towards the revenue growth actually kicking in and effectively has been delayed by a quarter, 6 months, 9 months, a year and it just seems to be keeping and I understand that there are certain amount of headwinds, certain amount of tailwinds, which are there. Just wanted to understand from you, what is the reason why I mean is it that we had not foreseen any of this? Is it that because we are new management in the company, we are still sort of figuring exactly where the guidance should be?

Because given the organic complexity in the business and the number of products and services that we offer and still we do depend a reasonable amount on the guidance that we provided and the revenue specifically has been very, very strong actually underperformance compared to at least what our expectations were. So just would be great to understand the reasons behind why we were unable to anticipate what actually ended up happening? And whether in SIP trunking etcetera, if we are seeing, we are leveraging bottom in terms of the outside and we upside going on from here?

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

Yeah. Riddhesh, thanks. See I think, first of all, we haven’t specifically given any guidance. In our strategy, we called out our aim to reach a double-digit growth in data. And we have called out the opportunities ahead of us and we’ve called out what we will do for that in order to hit those growth. Specifically, in terms of — if you see the last three quarters, I think the growth is coming back, whether it’s at 2% or whatever. I think the growth is coming back in the last three quarters. Having said that, I think the complexity, as you call out is mainly and I’ve mentioned this about in the usage area and also the reasons I have called out in the usage as to what those reasons are.

In terms of SIP particularly, we feel that it is bottoming out but we will wait for a couple of quarters to really make that call on that, but it is bottoming out. On the fixed side, I think the various portfolios have performed in different ways. I think the previous question I answered about whether it’s a cloud or the NexGen connectivity has grown quite well and each of these portfolios are performing at various levels. And my summary to that question about the future potential that exists in each one of them, we think it is quite a strong potential and we are revamping, as I said our A2P messaging and the CPaaS as well.

We are on the GSIP as well we are looking to what innovations can be brought about and working closely with other cloud providers of solutions like the CISCOs, and the Microsofts and Zooms of the world to provide them a service with our SIP trunk. So we are working on this product changes. But largely, those would be my answers. I would say that in all of the portfolio, the NexGen connectivity we think our strategy is still solid. We are developing that capability. On the SD-WAN we had two product portfolio, we are expanding that to a multi-product portfolio. Similarly on the cloud we are launching different variants of those.

So we are strengthening definitely our products. The international market, the feet on street was an issue with the attrition that we had and we’ve also had a change in management in the international. All of our regions — all the regional leads been changed in the last — between — in one year, some of them as recently as five, six months ago. So that revamp is happening and there will be a lag in these markets as the new team comes in to understand the portfolio and build those relationships to build up the funnel. But fundamentally, what we said in our Annual Analyst Meet about our confidence in the product portfolios that we have, the opportunities ahead of us, nothing has changed.

Riddhesh Gandhi — Discovery Capital — Analyst

But given all of the ambiguity and the new headcount and certain amount of headwinds which we had an anticipated, etcetera, actually, I mean what is giving us that confidence going ahead that this double-digit data growth is actually going to come through and that it isn’t going to be — actually at a slower growth that we’ve been seeing over the last, let’s say five, six quarters?

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

The opportunity we believe in is because the market is there.

Riddhesh Gandhi — Discovery Capital — Analyst

Okay. So it’s an execution issue right now, which we are fixing, is it?

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

It’s an execution issue which we called out some macro issues because of the supply chain issues and the CP availability OEMs are delaying, some of them as much as 9 months so when the customer says why give an order now if the equipment is going to be available only after 9 months. These are the things that could be playing in customers’ mind and I called out why there is a delay in translating the order book to the revenues or even translating the funnel into order book.

Riddhesh Gandhi — Discovery Capital — Analyst

Got it. And just last — it’s more of a suggestion was that look like given effectively speaking the slight complexity in the business would just suggest like a little bit incremental actually clarity on the IR front? I know you lost your Head of IR. And there has been a slight rollout here even — now after the quarter end and the year end we don’t even have an investor presentation to look at in terms of the call. So, which we can digest beforehand, so would just request if we can just sort of pay a little bit of incremental attention towards our investor relationships just to sort of give us incremental clarity and understanding of where we are in the business and our path going ahead?

Kabir Ahmed Shakir — Chief Financial Officer

Riddhesh, the investor presentation is normally publically now uploaded after the call is there. So you be rest assured that none of the things that you used to get will be compromised or delayed because of this vacuum. So, that will continue to be there so not to worry at all. The investor factsheets and all the things that we’ve been doing in the past are continuing to being done so.

Riddhesh Gandhi — Discovery Capital — Analyst

Got it. No, no, it’s just the incremental level of granularity. Look, earlier we had a contact we could speak to and get a reasonable degree of clarity and the presentation is also ahead of the call are obviously helpful so that some of the questions aren’t repeated and we have an understanding incrementally as to what’s happened in the quarter, etcetera, I mean, ahead of the call. Typically, that’s what we see in the most of the companies. But understood, all right, thank you.

Kabir Ahmed Shakir — Chief Financial Officer

Chirag is available. Please you can reach out to him as the first point of contact.

Riddhesh Gandhi — Discovery Capital — Analyst

Sure. Okay, thank you. That’s all from me. Thank you.

Chirag Jain — Investor Relations

Thanks Riddhesh. The next question is from the line of Nagraj Chandrasekar from Laburnum Capital. Nagraj, you may go ahead and ask your question.

Nagraj Chandrasekar — Laburnum Capital — Analyst

Hi, thank you. You mentioned a weakness in the core connectivity portfolio outside India, and at the same time we’re also seeing strong growth in NexGen connectivity, SD-WAN. Just wondering, is it just cannibalization you’re seeing from SD-WAN replacing VPN across portfolios both in India and abroad? And if so, this INR2,000 crores VPN portfolio we used to have as of FY ’21 when we used to split it out within the INR9,000 crores or core connectivity revenue, how much of that is India and how much of that is outside India?

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

Yeah, the weakness in coal connectivity in the international market I had called out. And at the same time there is a NexGen connectivity, which is growing very fast. So to answer your question the whole NexGen connectivity is based on using Internet as opposed to VPN, even though some of the hybrid connectivity, which is part of the NexGen connectivity that we provide a combination of solution, which includes Internet and MPLS as a hybrid solution. So definitely VPN to some extent is getting cannibalized and replaced by our ISO Internet VAN propositions. But the opportunity that we see ahead of us is definitely going into incumbents, customers and offering our portfolio because our presence in those markets in VPS is much, much smaller than the incumbents in these large markets. So that is the opportunity that we see ahead of us.

Nagraj Chandrasekar — Laburnum Capital — Analyst

I think Vodafone business has a very similar sort of business plan model given the small enterprise space in their markets. They have the same sort of goal. Just want to understand is that hard to do because we don’t have the existing sets with the customers? Can those be reconfigured to change over to SD-WAN more easily when you’re already with the customer and so is that an issue? And this INR170-odd-crores of SD-WAN revenue, NexGen ISO revenue, it’s grown to a very good run rate but is that mostly India or is it mostly 60-40 India, outside is rest of the data businesses?

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

On the NexGen connectivity, the ratio between International and India. Okay. I’ll answer the other question, in terms of see when there is an incumbent, Nagraj of a provider who has got a private circuit, and when customers are thinking about an SD-WAN journey there are multiple scenarios. One is whenever they think about SD-WAN they also think about how to transform the underlay and when transforms the underlay via combination of existing MPLS less Internet solutions, right? And when we are thinking about the transformation they will look at new vendors, but obviously the incumbents will have certain advantage. But they will look for new vendors there for the underlay part.

The overlay part, which is the SD-WAN part, that again what is playing out in the market is sometimes the underlay players and the overlay players are the same, getting bundled and sometimes the customers are preferring to unbundle it in the international markets. And that is what we see. So I don’t think, particularly an incumbent would enjoy huge advantage, but they definitely have an advantage because they know the customers’ landscape. And to answer your question on the SD-WAN revenues, it’s a split of roughly 50-50 between India and International.

Nagraj Chandrasekar — Laburnum Capital — Analyst

Got it, got it. And just couple of questions. you mentioned a 34%, 35% usage based slip mix, does that only within what you call UCC or is that within all of the DPaaS? It is a bit confusing.

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

Usage is largely in the collaboration business. It’s a combination of SIP and MMX mainly.

Nagraj Chandrasekar — Laburnum Capital — Analyst

Got it. It’s just a bit confusing there. And just last question, the DPaaS segment margins came off this quarter sequentially to around 15% compared to sort of mid-20s the last couple of quarters. Just wanted to know if there were any one-offs here or was it a mix issue and what really is the margin one should expect within the segment? Thank you.

Kabir Ahmed Shakir — Chief Financial Officer

Yeah, I mean I think I have eluded earlier, Nagraj. I mean we want to play the portfolio as a whole here and we are looking to reinvest our gains to drive growth. Yes, there were a little bit of one-offs in [Indecipherable] and corrections, plus we are also done some investments in some technology consulting and in some of our portfolios as well, which has resulted into this dip. And all of these are to drive growth. If we start then micro-managing, then we will not be able to reach our ambition of double-digit growth faster. So, as a management, we will pull levers to take margins from one part of the business, reinvest into other part of the business which needs that growth momentum and growth push. So that’s what has happened in Q4.

Nagraj Chandrasekar — Laburnum Capital — Analyst

Growth is the utmost priority. I agree there. Thank you.

Chirag Jain — Investor Relations

Thanks, Nagraj. Since we are nearly out of time the last question is from the line of Pranav Kshatriya from Edelweiss Financial Services. Pranav, you may now go ahead and ask your question.

Pranav Kshatriya — Edelweiss Financial Services Limited — Analyst

Yeah, thanks for opportunity. I just have one question regarding the EBITDA margin guidance what has been given. So, typically what we see in telecom companies as the revenue continues to grow operating leverage sort of starts coming in and that typically drives EBITDA margin upwards. But from what you said about that — the margin should be at the lower end of the 23% to 25% band. So just trying to understand that what exactly is causing these margins? And how should we see this margin over a medium- to long-term? If you can give some color on what should be the incremental EBITDA margin over a longer term that will be useful?

Kabir Ahmed Shakir — Chief Financial Officer

Yeah, I think I need to take you a few quarters back to — so that there is continuity in what we’ve been saying and consistency in what we’ve been saying. Our EBITDA margin range last year was 22% to 25%. As our performance was improving and we had more certainty on our P&L, we tightened that range to 23% to 25%. We stay committed to the range of 23% to 25% for the medium- to long-term. So that is something we have stated consistently for the last few quarters. And even going forward into FY ’23 we stay committed to the range of 23% to 25%.

Now the reason why we were operating in the upper end of the range or exceeding that guidance in the last, I would say, seven, eight quarters is because we had COVID-related benefit and there were some time last year, in order of magnitude about INR50 crores a quarter as our offices were shut, travels were all come to a standstill. All of that savings were baked into the P&L, and we saw the benefit in our higher profitability. As the world opens up now, we are having our employees returning to work, management travel is going to pick up.

We are obviously prioritizing customer-facing travel and we also had the benefit this year with the, I wouldn’t call it a benefit, actually it’s an under-spend of our staffing cost because we had lot of attrition in this year. We hope to arrest that attrition. We also hope to put in retention measures for our teams and also increase our feet on street and product and engineering talent in next year. So combination of these three things, return to office, travel and marketing spends, coming back to its normalcy levels and increase in our headcount and arresting the attrition are the reasons as to why we will see those costs coming back up and why we believe that we will operate in the low- to mid-part of our strategic guidance, which still remains the same at 23% to 25%.

Pranav Kshatriya — Edelweiss Financial Services Limited — Analyst

Sure sir, but any color on longer term, I mean should we expect incrementally margins to move up as the revenue growth starts coming in and you hit the double-digit revenue growth number or?

Kabir Ahmed Shakir — Chief Financial Officer

See, for the medium term as I’ve stated before, we would like to reinvest those to strengthen our capabilities, both internal capabilities and customer-facing capabilities and the agility of our processes and automating our front-end processes. So therefore, very clearly any operating leverage that we will get and which we will get eliminating waste, simplifying our processes, all of those have already given as benefit this year itself, quite a bit. Every line above EBITDA and below EBITDA has performed to our expectations already this year. That performance we hope to continue, but we will choose to reinvest those savings, those benefits back to drive growth and that’s the reason why we are continuing to guide at 23% to 25%.

Pranav Kshatriya — Edelweiss Financial Services Limited — Analyst

Sure sir, thank you so much. That’s it from my side.

Chirag Jain — Investor Relations

This brings us to the end of the call. I would request Lakshmi to share his closing comments.

Amur Swaminathan Lakshminarayanan — Managing Director & Chief Executive Officer

Yeah. Thank you, Chirag. As I mentioned, the return back to sequential growth in the last three quarters, I definitely see that as a green shoot in the — amongst the headwinds that I had mentioned. Our continued performance on financial fitness at the EBITDA level as well as the balance sheet strengthening is really, really good. That gives us the confidence that we can invest and which we are investing. The markets, the opportunity ahead of us is something that we believe in. So in the long term, as I mentioned, we are working towards a growth and we are quite confident of getting that. With that, I would like to thank you all. Be safe. Thank you.

Chirag Jain — Investor Relations

Thank you Lakshmi. Thank you everyone for joining. You may please disconnect the call. The recording will be available on our website by end of day. Thank you.