Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil A1+' rating on the commercial paper programme of Tata Communications Limited (TCL).

 

The reaffirmation factors in sustenance of TCL’s strong market position, its diversified and healthy business risk profile, robust financial risk profile aided by strong cash accrual and healthy liquidity, and enhanced financial flexibility arising from the ultimate parent, Tata Sons Pvt Ltd (Tata Sons; ‘Crisil AAA/Stable’). These strengths are partially offset by the large capital expenditure (capex) requirement and susceptibility to regulatory and technological changes.

 

Operating revenue grew nearly 10% year-on-year (y-o-y) to around Rs 23,197 crore in fiscal 2025, from Rs 21,204 crore in fiscal 2024, driven by the data segment, which has grown from Rs 17,161 crore in fiscal 2024, to Rs 19,513 core in fiscal 2025, representing growth of 13.7%. The data segment is expected to record a compound annual growth rate of 11-13 % in medium term. Operating margin has been stable around 20% in fiscal 2025 (vis-a-vis around   20.4% in fiscal 2024). The acquisitions made during fiscal 2024, primarily in the data segment, are still margin dilutive, owing to the cost of integration. The margin should sustain and improve further over the medium term, led by synergies from acquisitions. That said, TCL remains exposed to risks related to integration of large acquisitions.

 

The financial risk profile has improved during fiscal 2025, with net leverage reducing to 2.3 times from 2.5 times in fiscal 2024, on the back of strong cash accrual. Leverage may come down gradually to below 2 times over the medium term, aided by revenue growth and enhanced profitability. TCL plans to undertake capital expenditure (capex) of around Rs 3,500 crore per fiscal over the medium term, including for acquisitions, with focus on new-age technology solutions providers and maintenance capex for undersea cables. Capex is likely to be funded through a prudent mix of internal accrual and debt such that the net debt to Ebitda (earnings before interest, tax, depreciation and amortisation) ratio remains stable and reduces gradually to below 2.0 times in medium term

 

Crisil Ratings has taken note of the potential liability on TCL, with respect to the adjusted gross revenue (AGR) dues. While TCL believes it has a case to defend, it has paid Rs 379.5 crore to the Department of Telecommunications (DoT) under protest in fiscal 2021. The company also reported Rs 9,896 crore as contingent liabilities for the year ended March 31, 2025, with respect to AGR dues related to its national and international long distance licenses, for which appeals remain subjudice. Furthermore, on March 31, 2021, the DoT issued a notification to amend the internet service provider (ISP) licenses granted in 2002 and 2007. This amendment was challenged in the Telecom Disputes Settlement and Appellate Tribunal by two ISPs, and an interim stay was granted to all similarly placed license holders. Crisil Ratings will continue to monitor the developments around these subjudice matters. Any material deviation in the total liabilities of TCL will be a key rating sensitivity factor.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of TCL and its operating subsidiaries and associates. Crisil Ratings has applied its parent notch-up framework to factor in the extent of support available to TCL from its ultimate parent, Tata Sons.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Strong market position with global presence and diversified business profile: TCL owns the world's largest submarine fibre network — more than 500,000 kilometre (km) of subsea fibre — and more than 210,000 km of terrestrial fibre. Over 70% of the world's telecommunication (telecom) companies use TCL’s networks to deliver mobile services to customers. Around 80% cloud giants are connected to their businesses through TCL and over 25% of global internet routes are on the networks of the company.

 

Operations of TCL are diversified across the data business, and include cloud, digital collaboration and security services, apart from the core connectivity services. Being an integrated solutions provider, and with a strategic shift to being a platform-based service provider, TCL has no direct end-to-end competitor in India or overseas. The established network, with unutilised data traffic carrying capacity, should help the company counter any competitive pressures, as demand for the cables is expected to increase.

 

Healthy operating performance, largely aided by data business: Revenue has grown by around 10% y-o-y to around Rs 23,197 crore in fiscal 2025, driven by the data segment, which has grown by 13.7%, to Rs 19,513 crore in fiscal 2025, from Rs 17,161 crore in fiscal 2024. Ebitda from data segment stood at Rs 3,652 crore (margin of 18.7%) crore for fiscal 2025. Share of the data business has increased significantly over the years and it formed nearly 84% of total revenue and around 79% of consolidated Ebitda in fiscal 2024. Contribution from the voice segment has reduced over the years, and it generated revenue of Rs 1,633 crore and Ebitda of Rs 383 crore (margin of 23%) during fiscal 2025.

 

The margin is likely to improve further over the medium term, owing to synergies arising from acquisitions. That said, TCL is exposed to risks related to integration of large acquisitions.

 

Healthy and improving financial risk profile: The financial risk profile is backed by healthy cash accrual, adequate liquidity and comfortable debt protection metrics. Net leverage has reduced to 2.3 times as on March 31, 2025, from 2.5 times a year. Interest coverage ratio stood at 6.4 times in fiscal 2025, compared to nearly 7 times in fiscal 2024. Despite high capital intensity expected over the medium term, net debt to Ebitda ratio should remain below 2 times in medium term, supported by sufficient cash accrual. Interest coverage ratio should remain healthy too, at 8-10 times over the medium term. Any sizeable, debt-funded acquisition or capex, impacting the financial risk profile, will remain a key rating sensitivity factor.

 

Strong linkages with Tata Sons and healthy financial flexibility: Panatone Finvest Ltd (Panatone; ‘Crisil AAA/Stable/Crisil A1+’) holds 44.80% stake in TCL, while Tata Sons holds 14.07%. Panatone is a wholly owned subsidiary of Tata Sons. Thus, Tata Sons is the ultimate promoter/parent entity of TCL with a total shareholding of 58.86%. Accordingly, financial flexibility of TCL has improved as this transaction will enable the company to raise equity as and when required.

 

Moreover, Tata Sons holds management control in TCL and views the latter as an integral part of its telecom strategy. With healthy cash accrual expected over the medium term, TCL may not require any major support from Tata Sons. Nevertheless, TCL will continue to receive need-based support from Tata Sons.

 

Weaknesses:

Capital-intensive operations: Core assets of TCL — under-sea cables — entail huge capex for layout and replacement or upgrade at the end of life. This requires continuous maintenance and monitoring as cables remain susceptible to damage that could cause connectivity losses till repair. This risk may persist though it is mitigated by availability of alternative cables for most locations.

 

TCL has already undertaken large capex for laying cables. Over the next few years, the company may not undertake any fresh capex for laying cables, other than maintenance capex, but the company plans to step up capex for incubation/growth businesses, with focus on new-age technology solutions providers. Larger-than-expected capex, weakening the financial risk profile, remains monitorable.

 

Exposure to regulatory and technological risks: Regulatory and policy changes have played a central role in defining risk characteristics of the telecom sector in India. The sector is structurally dynamic, and therefore, remains exposed to risks stemming from regulatory intervention. Moreover, presence in multiple geographies exposes TCL to international regulatory risk. The telecom sector remains susceptible to technological changes too as newer technologies could necessitate sizeable fresh investments or overhaul of the current networks.

Liquidity: Strong

TCL held cash and liquid investments of around Rs 1,500 crore and unutilised fund-based limit of nearly Rs 400 crore as on March 31, 2025. Expected net cash accrual of Rs 4,000-4,500 crore per annum will more than suffice to cover yearly interest and amortising principal obligations over the medium term.  Strong parentage and financial risk profile should help the company refinance at favourable terms. Planned capex of around Rs 3,500 crore per annum will be funded through a prudent mix of debt and internal accrual.

 

Environment, social and governance (ESG) profile

Crisil Ratings believes the ESG profile of TCL supports its already strong credit risk profile.

 

The telecom sector has an impact on the environment because of the electricity requirement for network infrastructure with increasing data consumption. Telecom companies are also exposed to regulatory and operational risk involved in handling data. Moreover, the systemic importance of telecom services to the society and the economy underscores the importance of a resilient and accessible network to the widest number of users. TCL has continuously focused on mitigating its environmental and social risks.

 

ESG highlights

• The company has undertaken various sustainability initiatives and set targets to optimise its performance on various environmental and social key performance indicators
• TCL has set a target to achieve net zero by 2035 and carbon neutrality by fiscal 2030. Renewable energy formed around 34% of the energy mix in fiscal 2025, which is below the previous target of ~49%
• Additionally, it plans to reduce water consumption by 20% by fiscal 2030, against te fiscal 2020 baseline. It has also set a target to achieve zero waste to landfill by fiscal 2027. 
• Further, the company has developed a sustainability-linked loan framework to align its debt financing with its environmental commitments and has raised USD 200 million under this framework in fiscal 2025
• On the social front, TCL targets to ensure diversity to 27.5% by fiscal 2026. In line with this target, its diversity in fiscal 2025 stood at 23.8%
• Further, with respect to data protection and privacy, the company reported zero data breach incidents in fiscal 2025, in line with its target
• The governance structure is characterised by 63% of the board comprising independent directors, 13% women directors, and extensive financial disclosures. Further, it has also formed a Corporate Social Responsibility, Safety and Sustainability committee of the Board to oversee and monitor ESG initiatives

Rating sensitivity factors

Downward factors

• Large, debt-funded capex/investment or crystallisation of contingent liabilities, leading to net debt to Ebitda above 4 times
• Decline in revenue and profitability, lowering cash accrual.

About the Company

Incorporated in 1986, TCL is a leading global communications company that offers voice, data and value-added services to enterprises, carriers and retail consumers. It is among the world’s largest providers of wholesale international voice services and operates one of the biggest global submarine cable networks.

Key Financial Indicators

Particulars	Unit	2025	2024
Revenue	Rs crore	23,197	21024
Profit after tax (PAT)	Rs crore	1,837	970
PAT margin	%	7.90%	4.60%
Adjusted debt/adjusted networth	Times	NM	NM
Interest coverage	Times	6.44	7.04

Note: These are Crisil Ratings adjusted figures.

NM: Not meaningful because adjusted networth is negative on account of intangible assets.

PAT for 2025 includes exception gain of Rs 691.5 cr

Any other information: Not Applicable