Buy Tata Communication; target of Rs 1840: ICICI Securities

ICICI Securities research report on Tata Communication

We upgrade Tata Communications’ (TCom) two notches to BUY (from Hold). TCom’s stock price has plunged notably beset by near-term revenue weakness – making the company’s revenue guidance seem rather ambitious. In our view, this presents strong upside potential and compelling risk-reward. In FY24, TCom was wosrn by a cable cut in the Red Sea and weak order book (OB) growth. With the Red-sea issue now behind and double-digit FY25–TD OB growth, TCom’s data revenue growth will likely swell. We believe TCom’s strong digital product portfolio aside, Street is yet to bake in INR 33bn of FY27E FCF generation (EBITDA minus capex) in core connectivity (7.2% of EV). Notably, TCom has launched many products serving cloud ecosystem – shall benefit from its adoption. Also, TCom has been agile in embedding AI in internal process/services – these upfronted investments/potential are undervalued.

Outlook

We arrive at an SoTP-based TP of INR 1,840; our estimates remain unchanged. We assign 11x FY27E EV/EBITDA to its core business (implies 7x EV/EBITDA for core connectivity and 2x sales for digital services). At CMP, we believe, TCom deserves a double upgrade to BUY.

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