Buy Tata Communications; target of Rs 1850: ICICI Securities

ICICI Securities research report on Tata Communications

Tata Communications’ (TCom) Q1FY24 data and digital services revenue (organic) grew 14.2% and 28% YoY, respectively, which is significant acceleration vs consensus estimates. It believes the growth is likely to sustain, and remains committed to achieving INR 280bn revenue by FY27E in data services. Though underlying data EBITDA margin has improved 60bps QoQ, reported EBITDA margin has been impacted by acquisition-related costs. We continue to like TCom’s determination to become a strong digital services player, which we believe may drive significant value creation. However, EBITDA margin can remain sub-optimal for 1-2 years due to merger of loss-making entities The Switch and Kaleyra. TCom remains committed on turnaround of these businesses, and potential synergy benefits to services offering. Maintain BUY.

Outlook

Accordingly, our target price has increased to INR 1,850 (INR 1,810), valuing the company at 24x FY25E EPS (unchanged). Maintain BUY.