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Motilal Oswal Report
We estimate a 14%/20% compound annual growth rate in revenue/Ebitda over FY24-26.
Tata Communications Ltd. has set an ambitious revenue growth target of Rs 280 billion by FY27 in the digital portfolio, which will be supported by both organic and inorganic initiatives.
Net debt jumped 60% YoY to Rs 90 billion due to inorganic acquisitions. However, Tata Communications' strong free cash flow of ~Rs 20 billion annually would allow it to explore growth opportunities, while maintaining a healthy return on capital employed of over 25%.
At a price/earning of 23 times and EV/Ebitda of 9.3 times on FY26E, we see limited upside potential for the stock.
Margin improvement and data revenue growth should be the key catalysts for further valuation re-rating. Reiterate Neutral with a target price of Rs 1,950. We assign 10 times /three times Ebitda to its Data/Voice businesses.
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