Neutral Tata Communications; target of Rs 1750: Motilal Oswal

Motilal Oswal's research report on Tata Communications

Tata Communications (TCOM) delivered steady 2Q, with ~7% YoY (~1% QoQ) growth in data revenue and 145bp data EBITDA margin expansion. TCOM’s consol. EBITDA grew 4% YoY (3% QoQ), but came in ~3% below our estimate as margin expanded by a modest 17bp QoQ to 19.2% (75bp miss), due to a sharp ~28pp contraction in TCR margins (linked to implementation of new incentivized payout structure). Management indicated that the order book was stable in 1HFY26 (on high base of 1HFY25) as healthy deal wins in Enterprise were offset by headwinds in service provider segment. The funnel remains robust, with a 60% contribution from the digital portfolio.

Outlook

We roll forward our valuations to Dec’27E (from Sep’27) and ascribe 9.5x EV/EBITDA to the data business and 5x EV/EBITDA to voice and other businesses. We ascribe an INR37b (or INR132/share) valuation to TCOM’s 26% stake in STT data centers to arrive at our revised TP of INR1,750 (earlier INR1,685).