Tata Communications Aims To Deliver Profitable Growth; Margin Expansion Goal Remains A Tall Ask— Motilal Oswal

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Motilal Oswal Report

We currently model a ~12% CAGR in digital revenue over FY25-28 and expect digital to account for ~51% of Tata Communications Ltd.’s data revenue by FY28 (vs ~48% in Q4 FY25). An acceleration in digital revenue remains key for re-rating.

Our earnings estimates are unchanged. We believe Tata Communications would still fall short of its ambition of reaching Rs 280 billion in data revenue in FY28 without further acquisitions. Overall, we build in a ~9% data revenue CAGR over FY25-28, with data revenue reaching Rs 250 billion by FY28.

We continue to believe management’s expectation of returning to 23-25% Ebitda range over the medium term remains a tall ask and build in a more gradual margin expansion to ~22% by FY28.

We ascribe nine times June27E EV/Ebitda to Tata Communications' data business and 5X EV/Ebitda to voice and other businesses. We ascribe an Rs 30 billion (or Rs 104/share) valuation to Tata Communications 26% stake in STT data centers.

Our SoTP-based target price remains unchanged at Rs 1,660.

After significant time correction (5% return since 2023 analyst meet), the stock currently trades at reasonable 11.3x one-year forward EV/Ebitda (~10% premium to LT average).

We reiterate our Neutral rating as we await acceleration in data revenue, along with margin expansion, before we turn more constructive.

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