Motilal Oswal's research report on Tata Communications
Tata Communications (TCOM) reported 16% QoQ growth in revenue (in line) and 12% QoQ growth in EBITDA (9% beat). Cost synergies after the integration of the Kaleyra acquisition led to a beat in EBITDA. Adjusting for the acquisitions, revenue/EBITDA were flat QoQ. The management's endeavor to drive growth has diluted margins, including the loss-making acquisitions. However, the company has reiterated its longterm focus on margin-accretive growth. We have raised our estimates to factor in a higher EBITDA run rate from the acquisition and now expect revenue/EBITDA CAGRs of 15%/16% over FY24-26. At P/E of 23x and EV/EBITDA of 8.5x on FY26E EPS, we see limited upside. We reiterate our Neutral rating on the stock.
Outlook
At P/E of 23x and EV/EBITDA of 8.5x on FY26E EPS, we see limited upside. We maintain our Neutral rating with a revised TP of INR1,750 (led by acquisitions), assigned 10x/3x EBITDA to the Data/Voice businesses. Improved growth visibility will be vital for further valuation re-rating.
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