Motilal Oswal's research report on Tata Communications
Tata Communications (TCOM) reported a subdued quarter with revenue/ EBITDA of +2/-1% YoY (in line). Data segment saw a 2% drop in EBITDA, primarily due to client churn in its key vertical, CPAAS. WC too surged due to VIL’s high receivables. Management's endeavor to drive growth has diluted margins, including the loss-making acquisitions. However, the long-term focus on margin-accretive growth remains intact. We have built in revenue/EBITDA CAGR of 18%/ 5% over FY23-25E. We reiterate our Neutral rating on the stock. We would closely monitor the improvement in earnings growth trajectory.
Outlook
We maintain our Neutral rating with a revised TP of INR1,630 due to the improved growth visibility led by the acquisitions (assigned 10x/3x EBITDA to the Data/Voice businesses). Sustained improvement in earnings growth visibility will be the key for valuation re-rating.
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