Buy Tata Communications; target of Rs 780: Motilal Oswal

Motilal Oswal's research report on Tata Communications

Data segment (80-85% of EBITDA) disappointed with flat QoQ revenues at INR27.8b, coupled with a 60bp margin contraction. Within data, traditional segment (70% of data revenue) saw revenue/EBITDA decline of 3%/7%, attributed to high one-off churn. Further, transformation segment saw 9% QoQ EBITDA drop due to the sale of TTSL. Growth segment was the only silver line, with 16% QoQ jump in revenues, reducing EBITDA loss by INR 105m to INR 572m.

Outlook

We have rolled over our SOTP valuation to Sept’19, ascribing 9.5x on data EBITDA of INR 30b and 3.5x on voice EBITDA of INR 3.4b, arriving at TP of INR 780 (15% upside). Maintain Buy. The stock offers additional INR 176 option value toward the likely land demerger in 6-8 months.

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