Up over 700% in four years! Is more steam left in this Tata Group multibagger?

Tata Communications Ltd, a multibagger from Tata Group, hosted its annual investors day, where the company management shared its intent to tap the opportunities with an aggressive growth ambition retained but the brokerages say that execution remains key for it.

The brokerage firms remained mixed on Tata Communications (Tata Comm), where a few analysts see a 16 per cent upside potential on the counter, while some see up to 20 per cent downside in the Tata Group stock. The company management assured commitment towards focusing on digital platform growth.

Tata Communications hosted its annual investor day, wherein the management remains committed to its FY27 target for revenue growth, margins (excluding acquisitions impact), leverage and return profile. It envisages growth opportunities in cloud, media, nextgen connectivity and CPaaS too, where its peers are increasingly focusing on profitability, said Nuvama Institutional Equities.

"It expects margin expansion in FY25, and synergies from the recent acquisitions to boost near-term growth. We continue to see Tata Comm as an exciting play, offering the best of both the worlds — stability of telecom and growth potential of the IT services sector. We maintain FY25/26 estimates with an unchanged target price of Rs 2,220," it said.

Shares of Tata Communications gave up early gains on Thursday and tumbled more than 2.65 per cent to Rs 1,880 from Rs 1,931.45, with a total market capitalization barely above Rs 53,000 crore. The scrip had settled at Rs 1,895.05 in the previous session on Wednesday.

Shares of Tata Communications have surged more than 705 per cent in last four years, surging from Rs 229.55 in May 2020. The stock has remained mostly flat in the recent month as it has gained merely 7 per cent in 2024 so far. The stock is up about 10 per cent in the last one month.

Management presented its GTM ‘product-to-platform’ strategy and discussed the expanding growth in new products and portfolios and geographies. It reiterated its ambition to double data revenue by FY27 to Rs 28,000 crore, driven by the DPS segment that is likely to contribute more than 60 per cent of data revenue, said Motilal Oswal Financial Services.

"This will require higher capex and opex, totaling $300 million in FY25E, and is projected to increase with a capex-to-sales range of 10-11 per cent. The company aspires to maintain its Ebitda margin at 23-25 per cent by FY27E. Margin improvement and data revenue growth should be the key catalysts for further valuation re-rating," it added with a 'neutral' tag with a target price of Rs 1,950.

Tata Communications reported a 1.5 per cent fall in consolidated net profit on a year-on-year (YoY) basis to Rs 321.2 crore for the quarter ended 31 March, 2024. The company's bottomline came in at Rs 326 crore in the year ago period. Revenue from operations increased about 25 per cent YoY to Rs 5,691.7 crore as against Rs 4,568.7 crore in the same quarter last fiscal.

On the contrary, Kotak Institutional Equities is not positive on the stock and has a sell rating on the stock and anticipates a 20 per cent downside in the counter. The management reiterated its ambition of doubling data revenue by FY2027; reducing net debt/Ebitda to 2 times; improving RoCEs to 25 per cent by FY26; and getting back to 23-25 per cent Ebitda margins by FY27, it said.

"Tata Comm management expects the bulk of the incremental revenue growth to be driven by the digital portfolio. We believe doubling data revenue on the existing portfolio would be a tall ask.Further, the rising share of the inherently lower-margin digital portfolio in the mix could remain a drag on margins," it added with a 'sell' tag with a fair value of Rs 1,525 on the stock.

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