Neutral Tata Communications; target of Rs 1100: Motilal Oswal

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Motilal Oswal's research report on Tata Communications

Revenue/EBITDA grew 2.8%/4.9% QoQ after modest growth (of 1% each) in the last few quarters, backed by healthy Data revenue/EBITDA growth of 4.6%/3.9%. Margin improved by 50bp to 25.5%, way above the management’s guidance of 23-25%. FCF remains strong at INR6.2b, with RoCE healthy at 28%. We have marginally cut our consolidated EBITDA, factoring in a moderate revenue/EBITDA CAGR of 9%/10% over FY22-24. While growth in Data segment has been soft, healthy FCF generation and continued deleveraging remain the silver lining, aiding valuation. We maintain our Neutral rating.

Outlook

We maintain our Neutral rating with a TP of INR1,100 (assigned 8x/3x EBITDA to the Data/Voice business). A sustained improvement in earnings growth visibility will be key to a re-rating in valuations.

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Tata Communications - 201022 - moti