Buy Tata Communications; target of Rs 1167: Emkay Global Financial
Emkay Global Financial is bullish on Tata Communications has recommended buy rating on the stock with a target price of Rs 1167 in its research report dated January 20, 2021.
January 25, 2021 / 05:02 PM IST
Emkay Global Financial's report on Tata Communications
As expected, TCOM posted a 10% qoq dip in operating profit in Q3 – a quarter marred by seasonality and weak deal conversion. Yet, it was another quarter of healthy cash generation (Rs7.1bn) and reduction in net debt (down Rs6.6bn qoq). Despite the normalization in costs and deferral of network costs from Q2, operating costs were down 2% qoq and 8.4% yoy (due to cost-optimization efforts). Covid-19-related savings should continue to moderate from Q4 with spends required for revenue growth. The deal conversion has been impacted in the last few quarters, while management alluded to early signs of recovery. The consistent focus on trimming debt, revenue recovery and stronger deal conversion going forward are key monitorables.
Our revenue and EBITDA estimates remain largely unchanged while earnings upgrade is driven by lower ETR. We continue to be constructive and maintain Buy rating with a revised SoTP-based TP of Rs1,167 (FY23E) vs. Rs1,073 earlier (Sept’ 22E).
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