Neutral Tata Communications; target of Rs 1450: Motilal Oswal

Motilal Oswal's research report on Tata Communications

TCOM witnessed a healthy recovery in its data business with 4% QoQ growth in revenue (in line). This growth was primarily driven by a significant 7% QoQ increase in data usage. EBITDA declined 1% QoQ (5% miss) due to the significant impact on its voice business, while the data segment remained a key driver for the company’s overall positive performance. Data EBITDA grew 5% QoQ (6% adjusted for Switch Acquisition). We have revised down revenue/EBITDA CAGR by 3% to 11%/7% over FY23- 25E, due to weak voice business; however, we maintain our data EBITDA estimate. The next few quarters might present some challenges for earnings as there could be margin dilution. However, it is encouraging to note that the management is making growth-oriented opex investments. We reiterate our Neutral rating on the stock and would monitor its growth trajectory.

Outlook

We maintain our Neutral rating with a revised TP of INR1,450, due to improved growth visibility, led by the acquisitions made (assigned 9x/3x EBITDA to the Data/Voice business). Sustained improvement in earnings growth visibility will be vital for valuation rerating.