Our priority is to retire debt and reduce interest cost

Written by Nikita Upadhyay | Nikita Upadhyay | Updated: May 28 2011, 08:21am hrs
Tata Communications, MD & CEO Vinod Kumar, who joined the company in April 2004 and took up the current position this February, has his task cut out. The company, which has a $1.4 billion debt on its books, is looking at borrowing more this year, and Kumar will have to look at retiring a part of it. In a conversation with FE's Nikita Upadhyay, Kumar speaks about the company's growth strategy and entry into new business segments. Excerpts:

Tata Comm has been reporting losses and your results are expected next week. How do you plan to tackle this loss

These are planned and inevitable losses. When you are investing heavily in a business, then it comes with a gestation period. Our business has been building momentum in the right services, right segments and product mix. Now the time has come to put the business on a steady path quarter on quarter. The key for us is to reach profitability and to keep growing consistently.

Neotel is weighing down on the company's financials. When do you see your South African venture bear fruits

South Africa for us is a very important developing market. Think about building a telecom service right from the scratch in a country which is almost 1/3 more of India. We are wiring the entire country. When you are building infra, you cannot monetise those assets unless they are complete. Having said that, let me also tell you that our SA business is 12 months behind plan. We wanted it to be profitable during the course of this year. However, we will be ebitda positive in FY2011-12 but profitability at PBT and PAT level will come only by next year.

Has not winning the wimax spectrum changed your business strategy

Consumer broadband won't be a focus area for us. Wimax prices zoomed and we think no one can make money on that if used it for consumer broadband. We made a wise decision to leverage the capabilities that we had built in Tata Comm Internet Services unit and targeted small and medium businesses (SMB).A combination of market size, lower deployment of technology but higher propensity to adopt new technologies are perfect for players like us. We have 100,000 business customers in the SMB segment. Revenue from this segment can double every year for the next five years. It is a big market and highly fragmented.

What is your growth strategy

For us our growth depends clearly on three pillars emerging markets, managed services and IP and cloud-based services. The challenge here is not to be profitable or to gain market share, but to keep redrawing the addressable market size. We currently have two home markets - India and SA and we have a goal to add a new home market every two year. Also every year the traffic on networks grows by 50-60%, while at the same time, prices go down by 30-40%. We are always on a look-out for businesses which give us stickier and higher margin revenues.

Are you looking at retiring debt with equity or fund growth

We have been building services with cash that we had on books and internal accruals. But since last two years, we had to borrow to fund growth. We are not complacent with our losses. If we raise equity, we can reduce debt. Our priority is to retire debt and get the interest cost out. That will get me to PBT positive. Our interest and depreciation cost is pulling us down. Today, the cash that we generate contributes about 50% to our capex requirements. Additional equity can help us solidify our position as a specialist in emerging markets.