Stay 'Neutral' On Tata Communications Stock Maintains Motilal Oswal Post Steady Q2; Sees 10% Downside

NDTV Profit’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer NDTV Profit’s subscribers an opportunity to expand their understanding of companies, sectors and the economy.

Motilal Oswal Report

We currently model ~14% CAGR in digital revenue over FY25-28 and expect digital to account for ~54% of Tata Communications Ltd.’s data revenue by FY28 (vs ~49% currently). Acceleration in digital revenue remains key for re-rating.

Our FY26-28E revenue remains broadly unchanged and believe Tata Communications’ ambition of doubling data revenue by FY28 remains a tall ask without further acquisitions. Overall, we build in ~8% data revenue CAGR over FY25-28, with data revenue reaching Rs 246 billion by FY28 (vs Tata Communication’s ambition of Rs 280 billion).

We lower our FY26E Ebitda by a modest 1% while keeping our FY27-28E Ebitda broadly unchanged. We believe that margin expansion to 23-25% by FY28E could be challenging, given the rising share of inherently lower-margin businesses in Tata Communication’s mix amid weakness in core connectivity. Our FY28 margin estimate is ~21.3%.

We roll forward our valuations to Dec’27E (from Sep’27) and ascribe 9.5x EV/Ebitda to the data business and 5x EV/Ebitda to voice and other businesses.

We ascribe an Rs 37 billion (or Rs 132/share) valuation to Tata Communication’s 26% stake in STT data centers to arrive at our revised target price of Rs 1,750 (earlier Rs 1,685).

After the recent run-up (Tata Communication's: +15% in last five day), the stock now trades at ~12.5x one-year forward EV/Ebitda (~22% premium to the LT average).

We reiterate our Neutral rating as we await sustained acceleration in data revenue growth, along with margin expansion, before turning more constructive on Tata Communications

Click on the attachment to read the full report:

DISCLAIMER

This report is authored by an external party. NDTV Profit does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of NDTV Profit.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.