Tata Communications Q2 FY27 Earnings Call: EBITDA Crosses Rs. 1,400 Cr Record, Digital Nears EBITDA Breakeven (TATACOMM)

Record EBITDA Growth, Sharp PAT Jump, Cash Flow Recovery

• Consolidated revenue of Rs.6,688 Cr, up 9.6% YoY — Q2 FY 2026-2027; data revenue at Rs.5,810 Cr, up 12.2% YoY, though constant-currency data growth was ~6% YoY.
• EBITDA crossed Rs.1,400 Cr for the first time — Rs.1,422 Cr in Q2 FY 2026-2027, up 21.2% YoY, the highest ever achieved; H1 FY27 EBITDA growth was 14.8% YoY with margin at 21.3%.
• PAT after minority interest of Rs.341 Cr, up 86% YoY — driven by reduction in digital portfolio losses and capital efficiency focus; ROC at 15.9%, up 71 bps YoY.
• Free cash flow of Rs.212 Cr — a sharp improvement from negative FCF in Q1 FY 2026-2027; EBITDA-to-OCF conversion at 72%.
• Net debt at Rs.11,197 Cr; net debt-to-EBITDA at 2.17x — steady despite dividend payments; cash capex trended up in Q2 FY 2026-2027 for undersea cable and DC-to-DC network expansion.
• In-principle agreement reached with Canada Revenue Agency — on a tax matter; contingent liability as of 31 Mar 2026 was Rs.1,658 Cr, with terms under finalization (period unspecified).

Best Order Book Quarter to Date, But CC Growth Still Modest

• Q2 FY 2026-2027 was the best order book quarter to date — capping ~2.5 years of sustained double-digit order book growth; the CFO noted the book is well-diversified with wins across businesses against credible competition.
• Higher share of recurring business and network products — in the order book, per the CEO, with order book uplift noted in Q2 FY 2026-2027.
• CEO guided ~10% constant-currency EBITDA growth year-to-year for FY 2026-2027 — against the analyst-flagged ~6% CC data revenue growth in the quarter.
• Order book conversion expected to improve CC growth in the network business in coming quarters — citing investments in undersea cable and DC-to-DC connectivity and significant core connectivity demand.
• AI-led customer wins in Q2 FY 2026-2027 — including Tata Consumer and HDFC Ergo, plus a multi-million dollar data center deal secured during the quarter.

Unified AI Stack, Commotion Monetization, and the Inference Thesis

• Unified AI stack combining GPU infrastructure, Komotion (ontology/voice AI), security fabric, and voice network — enabling end-to-end enterprise AI solutions for customers like Tata Consumer and HDFC Ergo in Q2 FY 2026-2027; revenue from integrated deals is spread across multiple segments (voice, IoT, etc.).
• Recurring SaaS-based monetization model — platform fee plus usage-based consumables across network, GPU, and AI assets; management declined to disclose client numbers for the Commotion and Carrera AI platforms.
• Management projected 70 petabytes of traffic needed by 2036 — up from ~2–3 petabytes in Q2 FY 2026-2027, citing neo-cloud and hyperscaler wins driving connectivity demand globally across subsea, NLD, and metro layers.
• Management stated 60% of future infrastructure will go towards inferencing (period unspecified) — believing its global network strength positions it for the inferencing edge; the AI opportunity is global, not limited to India, with Commotion traction in the Middle East and Europe.
• Massive AI-led transformation of internal operations underway — spanning customer service, sales, delivery, and assurance using the same unified stack; further details promised for a future Investor Day (FY 2026-2027 guidance).
• India infrastructure cited as a foundation for AI opportunities — 80,000 km fiber and 118 data centers, with disciplined capex guided by customer demand.
• No specific AI revenue breakdown was provided — management framed the business instead as an integrated portfolio of connectivity, infrastructure, and platform layers.

Digital Nearing Breakeven; Core Connectivity Margin Held Sustainable

• Digital portfolio EBIT margin expanded 330 bps sequentially in Q2 FY 2026-2027 — with digital revenue up 18% YoY (18.6% per the results segment); management attributed the expansion to improving revenue mix (changing GRNR ratio) and operating leverage.
• Digital portfolio EBITDA margin improved to –3.6% — from –6.9% in Q1 FY 2026-2027, nearing EBITDA breakeven; management committed to turning the portfolio EBITDA-positive "at the soonest" via top-line growth, mix improvement, and cost discipline.
• Management guided to double-digit EBITDA growth for the digital portfolio in FY 2026-2027 — with H1 FY27 digital revenue growth of 18% led by 27% growth in next-gen connectivity and higher-margin AI platform wins.
• Core connectivity margin of ~45% achieved in Q2 FY 2026-2027 deemed sustainable — in the coming quarters (guidance for Q3–Q4 FY 2026-2027).
• Deliberate pivot to own cloud platforms (Vayu private cloud, AI cloud, sovereign cloud) — over third-party distribution to improve margins, even if top-line growth remains muted; growing order book momentum for cloud in India cited as a positive indicator.
• Media business improved profitability in Q2 FY 2026-2027 — with cost optimization underway; management is bullish, citing cyclical events like the LA Olympics (preparations in FY 2027-2028). Digital margins improved across all verticals, with the MOVE business showing substantial improvement.

Next-Gen Platforms Growing 27% YoY; No Revised Segment Guidance

• Next-gen connectivity platforms (MCC Flex, dynamic DC-to-DC) growing 27% YoY in FY 2026-2027 — versus the analyst-characterized historical 1–3% core connectivity growth (prior to FY 2026-2027), which management acknowledged was impacted by cable cuts.
• MCC Flex is live for major global banks and connects to 80% of global cloud locations — management stated the company is the only global provider of deterministic latency paths for DC-to-DC connectivity, and in India operates the only high-quality B2B network free of B2C traffic.
• AI-led east-west traffic growth and demand for 500 Gbps connectivity cited as key future demand drivers — including a recent win with a neo cloud operator in India requiring end-to-end metro and subsea connectivity.
• Management guided that infrastructure leadership plus platform innovation will drive future business expansion and sustain profitability — but did not provide a specific revised numeric growth guidance for the overall core connectivity segment for FY 2027-2028.

Profitable Growth Commitment; Longer-Term Roadmap Deferred to Q3

• Management confirmed delivery on its profitable growth commitment with 15% EBITDA growth in H1 FY27 — and reiterated commitment to absolute EBITDA growth, with the digital business to be made EBITDA positive in the coming quarters.
• Longer-term growth opportunities to be outlined at the Q3 FY27 investor call in February — citing momentum across network, cloud, and interaction fabric segments.
• More details on business mix and profitability targets to be shared on Investor Day — alongside further detail on the internal AI transformation.
• Execution discipline and profitable growth remain the key focus — management noted the "color of growth is changing" towards AI-led demand and profitability; the full leadership team is in place, with Narottam Sharma joining as Chief Transformation Officer to lead enterprise-wide digital transformation.
• Voice business resurgence from AI agents driving increased voice calling deemed too early to call material — as of Q2 FY 2026-2027.