Neutral Tata Communications; target of Rs 1660: Motilal Oswal

Motilal Oswal recommended Neutral rating on Tata Communications with a target price of Rs 1660 in its research report dated April 23, 2025.

Broker Research

April 24, 2025 / 13:39 IST

Neutral

26 Aug, 2025 12:21

Volume

Todays L/H

Motilal Oswal's research report on Tata Communications

Tata Communications (TCOM)’s 4Q results were once again a mixed bag, as ~17% YoY revenue growth in the Digital portfolio was offset by a sharp ~125bp QoQ contraction in consolidated EBITDA margin. TCOM’s consolidated EBITDA came in ~8% below our estimate on account of weaker gross margin and rising salience of the lower-margin digital business. Management indicated that following a strong 1HFY25, the order booking pace has normalized in 2H. Further, given the global macro uncertainties, there is an elevated level of caution among customers, which has led to a deferral of some deals from 4QFY25 to 1QFY26. Management remains committed to doubling data revenue to INR280b by FY27 and improving margins to 23-25% over the medium term. However, we build in ~9% data revenue CAGR over FY25-28, with data revenue reaching INR262b by FY28, and believe the ambition of doubling data revenue by FY27 would be a tall ask without further acquisition. We cut our FY26-27E EBITDA by 3-4% as we now assume a gradual margin expansion to 21.5% by FY27..

Outlook

We value TCOM’s data business at 9x EV/EBITDA and voice & other businesses at 5x EV/EBITDA. Our SoTP-based TP remains unchanged at INR 1,660 as our EBITDA cut is offset by the roll-forward of the valuation base to Jun’27 (from Mar’27). We reiterate our Neutral rating on the stock. Acceleration in data revenue growth along with margin expansion remains the key to re-rating.

For all recommendations report, click here