This Tata Group stock which is a digital ecosystem enabler, providing network services and software-defined network platforms came into focus after ICICI highlighted an upside potential of 25 percent.
Stock Performance
With a market capitalization of Rs 42,237 crore, Tata Communications Ltd surged up to 9 percent in Tuesday’s trading session and made an intraday high of Rs 1500 per share compared to its previous closing price of Rs 1372.40 per share. The stock is currently trading at a discount of over 30 percent from its 52-week high of Rs 2,175.
Brokerage View
ICICI Securities has upgraded Tata Communications Ltd to ‘Buy’ from ‘Hold’ with a target price of Rs 1,840, indicating an upside potential of 25 percent from Tuesday’s closing levels.
Rationale
ICICI sees a compelling risk-reward opportunity in the company, emphasizing its strong digital product portfolio. However, the market is yet to fully register its projected free cash flow (FCF) of Rs 3,300 crore in FY27.
The firm anticipates a rebound in its digital services revenue with 17 percent CAGR starting in Q4, driven by the execution of large deals, with sustained momentum extending into FY27.
In FY24, the company encountered challenges due to a cable cut in the Red Sea and sluggish order book growth. With the Red Sea issue now resolved, the brokerage expects a significant uptick in data revenue.
Core connectivity revenue is projected to grow at an annual rate of 5–6 percent, translating to a 5.1 percent CAGR over FY25–27. EBITDA from core connectivity is expected to rise at 5.9 percent CAGR during the same period, with EBITDA margins improving by 60 basis points to 45.2 percent in FY27 due to operating leverage on other expenses.
That said, the brokerage remains cautious about the company’s ambitious data business revenue target of Rs 28,000 crore for FY27, suggesting a possible delay of 12–18 months.
Company Overview
Tata Communications is a leading global digital ecosystem enabler with a worldwide infrastructure and a strong presence in emerging markets and. The company provides managed solutions to MNCs and service providers. It collaborates with 300 of the Fortune 500 companies, offering advanced solutions across communication, cloud, mobility, collaboration, networking, and data center services.
Financial Performance
In the latest quarter, Tata Communications Ltd reported a 4 percent YoY increase in its revenue from Rs 5,588 crore to Rs 5,798 crore. On a quarterly basis, there was a 1 percent increase from Rs 5,728 crore in Q2 FY25.
The net profits skyrocketed 424 percent YoY from Rs 45 crore to Rs 236 crore. On a quarterly basis, the company saw a 4 percent increase in net profits from Rs 227 crore in Q2 FY25.
Written by Shwetha Sairam
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