Tata Communications CEO on falling margins, acquisitions & more

economictimes.indiatimes.com:

Amur S Lakshminarayanan, MD & CEO, Tata Communications, says “digital products and platforms came with a lower margin at the gross margin level and this was again as per the industry norm and this is to be anticipated and that mix effect as a proportion of core connectivity reduces and the proportion of digital revenue goes up, it puts pressure on the gross margin level.”Tata Communications’ margins have continuously been falling. From 25.5% which we saw about four quarters back, it is now down to 21.5%. Is that because of the Switch acquisition being incorporated in the books?No, the margin falling is not purely because of the acquisition.

In the last two-three quarters, the margin has been steadily falling even though we have been delivering a 10% growth quarter-on-quarter and finally we delivered 10.3% in the last financial year. As part of the strategy, we have called out that our base and balance sheet are quite strong and we have been investing in products in a smaller way. We wanted to accelerate growth which meant we had to make investments and those investments were in the form of expanding our footprint and strengthening our footprint in the markets where we serve, especially the international markets.

So, we hired a lot of people in sales and solutions in those markets and also for product development and other services. Last year, over 1,000 people were hired and that impact we saw through the course of last year towards the end and this year, we are seeing the full impact of additional hiring costs. As we move to the digital landscape, we are also in line with the market in terms of giving increments and so on and that has also played out in the quarter.