Tata Communications Q4 Results Review: Motilal Oswal Maintains 'Neutral' Rating Post Mixed Earnings

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Motilal Oswal Report

We currently model ~13% CAGR in digital revenue over FY25-28 and expect digital to account for ~54% of Tata Communications Ltd.’s data revenue by FY28 (versus ~48% in Q4 FY25). An acceleration in digital revenue remains key for re-rating.

We raise our FY26-27E revenue by ~1-2%, but we believe Tata Communications’ ambition of doubling data revenue by FY27 remains a tall ask without further acquisitions. Overall, we build in ~9% data revenue CAGR over FY25-28, with data revenue reaching Rs 262 billion by FY28 (versus Tata Communications’ ambition of Rs 280 billion by FY27).

We lower our FY26-27E Ebitda by ~3-4% each as we build in a more gradual margin expansion. We now assume the FY27 Ebitda margin at ~21.5% and believe that margin expansion to 23-25% by FY27 could be challenging, given a rising share of inherently lower-margin businesses in Tata Communications' mix.

We ascribe 9X 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 as our Ebitda cut is offset by the roll forward of the valuation base to Jun’27 (from Mar’27 earlier).

The stock currently trades at 10.7 times one-year forward EV/Ebitda (~5% premium to long-term average). We reiterate our Neutral rating as we await acceleration in data revenue along with margin expansion.

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