Tata Comm aims to double data revenue by FY27, analysts say too ambitious

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Network services provider Tata Communications aims to double its data revenue to Rs 28,000 crore by FY27, growing at 19 percent a year, the company said on June 7, against its previous guidance of simply "double-digit" revenue growth.

Analysts say the revenue target is ambitious, given the track record and price erosion in the industry. Tata Comm's data segment revenue has grown at 6.3 percent CAGR in the past four years, analysts at Kotak Institutional Equities said.

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In FY23, the segment's revenue was Rs 14,100 crore, while total revenue from operations was Rs 17,800 crore.

The company aims to achieve the target by strengthening leadership in India, growing wallet share through enhanced customer relevance and increasing international market share, it said during an analysts' meet .

The ambitious revenue target will also require higher capex and opex, analysts said. The management has guided for a $300-million capex in FY24. This will increase with a 10-12 percent capex-to-sales range beyond FY24, they said.

In the current financial year, the company's operating margin is also likely to dip below the lower end of the 23-25 percent guidance due to back-ended headcount additions and integration costs related to the Switch acquisition.

While the targets are huge, analysts at Motilal Oswal Financial Services believe many of the growth categories still remain in early stages with longer gestation periods. Real estate and voice solutions make for only 2 percent of the topline now.

MOFS has a "neutral" rating on the stock, with a target of Rs 1,350.

Analysts at KIE believe that the upside potential is limited after the recent run-up in the stock. Tata Communications is up 17 percent in the past month, while the Nifty has gained 3 percent.

"We would watch out for revenue growth trajectory in the next few quarters before we turn more constructive," said KIE analysts, who have downgraded the stock to "reduce" rating with a target of Rs 1,350.

On June 8, the stock ended at Rs 1,418, down 1.9 percent from the previous close.