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Motilal Oswal Report
Tata Communications Ltd. reported 16% QoQ growth in revenue (inline) and 12% QoQ growth in Ebitda (9% beat). Cost synergies after the integration of the Kaleyra acquisition led to a beat in Ebitda. Adjusting for the acquisitions, revenue/Ebitda were flat QoQ.
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Tata Communications' management's endeavor to drive growth has diluted margins, including the loss-making acquisitions. However, the company has reiterated its longterm focus on margin-accretive growth. We have raised our estimates to factor in a higher Ebitda run rate from the acquisition and now expect revenue/Ebitda compound annual growth rates of 15%/16% over FY24-26.
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At price/earning of 23 times and enterprise value/Ebitda of 8.5 times on FY26E earnings per share, we see limited upside.
We reiterate our 'Neutral' rating on the stock.
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