Hold Tata Communication; target of Rs 1,855: ICICI Securities

ICICI Securitie's research report on Tata Communication

Including Switch and Kaleyra acquisition, data net revenue has increased 3.7% QoQ/7.9% YoY to INR 29bn. Data revenue was partly hurt from a cable cut at Red Sea, which led to core connectivity revenue dipping 0.9% QoQ/ +2.5% YoY. Digital revenue was impacted from slower order book in FY24; however, sales funnel and order book have shown an improvement in Q1FY25. Digital services are 59% of order book, and more revenues to be booked from usagebased billing. Core connectivity is 41% of order book. TCom remains confident of acceleration in revenue with an improving order book, rising opportunity and growing relevance of its products for customers.

Outlook

Tata Communications’ (TCom) Q1FY25 revenue print was muted with just 0.8% QoQ growth in the data business; however, TCom has shown a sharp improvement in its consol. EBITDA margin at 20% (up 140bp QoQ) aided by the data segment’s EBITDA margin improving 90bp to 19.3%. TCom is guiding to at least maintain EBITDA margin at 20% for FY25, anticipating benefits to still flow in from TCTS (70bp margin benefit from deal exit; Q1FY25 saw fruition of 10bps only), synergies from acquisitions and operating leverage. Order book has grown in Q1FY25 with a few deal wins, after a soft FY24, providing some visibility on revenue growth acceleration. We have tweaked our FY25–26E EPS slightly, and our TP reduces to INR 1,855 (from INR 1,870) based on an unchanged FY26E P/E multiple of 30x. Maintain HOLD.