Tata Communications' EBITDA jump came from smaller digital losses and a stronger dollar

Tata Communications sells network capacity, from undersea cables to links between data centres, alongside a younger set of digital services in cloud, messaging and connected devices. In the September 2026 quarter its EBITDA, profit before interest, tax, depreciation and amortisation, rose 21.2% from a year earlier to ₹1,422 crore. That matters because the company's guidance for this year, given in July, is double-digit growth in reported EBITDA. The more useful question for a holder is what the gain was made of, and the answer is mostly smaller losses in the digital business and a stronger dollar, with the network business still waiting to show faster growth.

The gain was much larger than the sales that came with it. Compared with the quarter before, revenue rose ₹105 crore while EBITDA rose ₹192 crore, calculated from the reported figures. The quarter before had carried a one-off charge on a customer programme, which flatters the comparison, but even with that charge put back the rise in EBITDA exceeded the extra revenue. A profit gain bigger than the revenue gain has to come from lower costs or a better mix of what is sold.

Management attributes the improvement mainly to the digital portfolio. Its negative EBITDA margin roughly halved between the quarter before and last quarter, so the loss shrank relative to sales while its revenue kept growing. Management credits revenue growth, a change in mix — net revenue rising relative to gross revenue, meaning the company keeps more of each sale instead of passing it on to suppliers — and, most of all, operating leverage. A higher ratio can also come from booking less pass-through revenue rather than from better products, so the margin gain is clearer than its source. Management says it wants the whole digital business to reach positive EBITDA as soon as possible.

The dollar did much of the rest. Data revenue, which combines the network and digital businesses, grew 12.2% as reported; adjusted for the stronger dollar the chief financial officer put the growth at about 6%. The chief executive made a similar point about profit: "You see that even in constant currency terms, our EBITDA has been around 10% on a year-to-year basis." Because the guidance was framed on reported figures, currency counts toward it, and first-half EBITDA growth of 14.8% is already above the mark. Growth in the quarter before was 8.2% as reported, or 12.7% before the one-off charge.

The network business, the group's most profitable, is where management has said growth should come from. In July the chief executive named accelerating it as the first priority. Its revenue growth had recovered from 0.9% a year ago, when cuts to Red Sea cables hurt traffic, to 5.7% in the quarter before. Orders point the right way: management called last quarter its best for the order book, built from many contracts rather than one large win. Revenue has not caught up. With the digital business growing at a healthy double-digit rate in constant currency and data revenue as a whole at about 6%, the arithmetic leaves little room for constant-currency growth in the network business. Asked when constant-currency data growth would reach double digits, the chief executive asked investors to wait one more quarter, saying he hoped the order book would convert to revenue.

Debt moved the other way. Net debt reached 2.17x EBITDA, back above the level the company had met its goal of getting under by March. The chief financial officer described the ratio as steady despite dividend payments, while cash spending on undersea cables and links between data centres rose.

The longer-term goals are due for an update in February: asked about longer-term targets, the chief executive said the company would discuss its longer-term growth at an investor call then. Last quarter's EBITDA margin was 21.3%, short of the 23–25% range in the longer-term goals the company first set in FY23 and restated in June 2025. Until then, the evidence shows a year on track for its reported guidance, built on narrower digital losses and currency, and a network business whose orders have yet to show up as faster revenue.