Hold Tata Communications; target of Rs 1590: Emkay Global Financial

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Emkay Global Financial's research report on Tata Communications

TCom has signed an agreement to acquire US-based Kaleyra (NYSE-listed) for USD100mn. Company made attempts to scale-up its CPaaS business using Digo, but saw limited success in overseas markets. The aforesaid deal now gives TCom scale and capabilities at the global level, mainly in USA, Europe and APAC. Though Kaleyra operates at lower margins vs. peers, acquisition valuation looks reasonable, with EV/Sales (CY22) of 0.76x on trailing basis. The acquisition is likely to help TCOM fulfill its ambition of doubling data revenue over FY23-27, though it may reduce FY25 EBITDA margin to 21-22% in the interim, assuming Kaleyra margin at 0-7%.

Outlook

Execution will remain key, given Kaleyra’s lower margin and ops across various geographies. Better execution may be value accretive for TCom. We retain HOLD, with Rs1,590 TP (10.5x Mar-25E EBITDA).

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Tata Communications - 30 -06 - 2023 - emkay