Hold Tata Communications; target of Rs 1870: ICICI Securities

ICICI Securities research report on Tata Communications

Tata Communications’ (TCom) Q4FY24 print missed our estimate with organic digital revenue growth of just 5% YoY; acquisition margin dipped 10%ps QoQ to 2%. Company anticipates near-term challenges to revenue growth, but remains confident of achieving the guidance shared for FY27E – double data revenue to INR 280bn, consol. EBITDA margin in the range of 23-25% and RoE of >25%. TCom has invested in people and platform but sees gaps in awareness for its services which may need additional investment in marketing. It has significantly enhanced its offerings to become relevant to global customers and expects high-margin enterprise segment revenue to grow.

Outlook

We cut our FY25E/26E EPS by 18-24% factoring in lower margin expansion, but our target price reduces marginally to INR 1,870 (from INR 1,900) as we increase our FY26E P/E multiple to 30x (from 25x). Downgrade to HOLD (from Add).

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Tata Communications - 19042024 - isc