Tata Communication Gets 'Buy' As JM Financial Initiates Coverage, Sees Over 35% Upside

JM Financial Institutional Securities initiated coverage on Tata Communication Ltd. with a 'buy' rating and a target price of Rs 2,030 apiece, implying a 35% upside. Tata Communications is strategically transforming into a communication technology business by developing its digital portfolio, integrating connectivity with digital services, the brokerage said.

Digital portfolio will be Tata Communication's long-term growth driver. Enterprises are transitioning fast to hyperconnected ecosystems. In this scenario, Tata Communication has posed itself as key enabler of digital transformation of enterprises, JM Financial said. For this purpose, the company is focusing more on cloud computing, security, mobility, and artificial-intelligence driven collaboration, it said.

Tata Communication has also set up an ambitious target for financial year 2027, based on digital transformation, the brokerage noted. This is achievable but with a year's delay. The reason for the delay is uncertain global macroeconomic impact on IT spendings of the company, it said.

The Tata group company aims to achieve data revenue target of Rs 28,000 crore by financial year 2027, which indicates CAGR of 33%, according to the brokerage. However, it projected 22% CAGR over financial year 2024 and 2027, factoring in the lag.

The Ebitda margin target is expected to be in the range of 23–25% by financial year 2027, which is achievable through investments, it said.

Tata Communication has its offerings divided into two broad categories: voice and data. While voice segment revenue is on a declining trend, the data segment is driving growth, as it has become increasingly relevant for connectivity needs of enterprises, the brokerage said. The data business is further categorised into core connectivity and digital portfolio. Core connectivity has continued to be the steady cash cow.

Tata Communications share price rose 4.75% to Rs 1,577.75 apiece before paring gains to trade 3.88% higher at Rs 1,564.65 apiece as of 1:39 p.m. This compared to a 0.40% advance in the NSE Nifty 50.

The stock has fallen 18.09% in 12 months, and 8.15% year-to-date. Total traded volume so far in the day stood at 3.2 times its 30-day average. The relative strength index was at 63.72.

Out of nine analysts tracking the company, six maintain a 'buy' rating, one recommends a 'hold', and two suggest 'sell', according to Bloomberg data. The average 12-month analysts' consensus price target implies an upside of 20.1%.