This Tata Group stock has tripled in 3 months, did you miss the rally?

Tata Communications share price has delivered 205% returns in last three months. Share price of Tata Group firm which stood at Rs 200 on March 19, 2020 rose to Rs 606 on June 22, tripling wealth of investors during the period.

An investment of Rs 1 lakh in this stock on March 19 would have turned to Rs 3.03 lakh on June 22.The stock fell to its 52-week low of Rs 200 on March 19 after rising coronavirus cases dampened market sentiment across the globe.

Share of Tata Communications, which has presence in over 200 countries and serves 7000 customers globally, took a significant hit from the ongoing economic slowdown and coronavirus crisis which destroyed business sentiment across the globe. However, the stock of the global telecommunications firm soon charted a recovery path with a rebound in global and domestic equities. It took merely 13 sessions for the stock to reclaim the Rs 300 mark.

On April 13, the stock opened at Rs 298 and closed Rs 36 higher at Rs 334.On April 15, the firm announced it would raise up to Rs 650 crore through bonds to refinance debt and provide for capital expenditure and working capital.

The company would collect funds through private placement of non-convertible debentures (NCDs) for Rs 500 crore and a green-shoe option of Rs 150 crore. The NCDs would carry an annual coupon rate of 7.48% for 3 years from the deemed date of allotment, it said.

On April 15, the stock closed at Rs 356. From that price level, the stock took only nine sessions to reach Rs 400 mark. On April 29, the stock closed at Rs 404.70.

Consolidated revenue in Q4 rose 3.6% YoY to Rs 4,398 crore ($608 mn). The growth came on the back of strong performance in data business.

Consolidated earnings before interest, tax, depreciation and amortisation (EBITDA) stood at Rs 869 crore ($120 mn), a rise 26.8% YoY on strong profitable growth in traditional and growth services. However, the firm widened its Q4 net loss to Rs 275 crore compared to a loss of Rs 199 crore in Q4 of FY19.

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The firm recorded loss in Q4 due to an exceptional item of Rs 378 crore. It made a provision of Rs 342 crore toward additional license fees liability to fulfill the demand made by Department of Telecommunications. It also logged an exceptional item of Rs 36.47 crore toward staff cost optimisation.

Without exceptional items, the firm would have logged a profit of approximately Rs 103 crore in Q4.

Keshav Lahoti, Associate Equity Analyst at Angel Broking said, "Tata Communications reported a good set of numbers in Q4FY20 due to growth in data consumption (82% of revenue). In the Q4 commentary, the management has stated that  there is a sharp increase in internet traffic due to Covid-19 as there was a significant increase in Work From Home (WFH). Topline for the quarter grew by 3.6% YoY while margins expanded by 360bps to 19.8%. The new norm of WFH is a positive for the company.

Net debt of the company is quite high. The company's topline has been stagnant since FY2013 though there has been an expansion in margins. Given recent run-up in the stock prices, we feel there are better opportunities available in the telecom space."

For FY20, the firm's net loss widened to Rs 84.83 crore against loss of Rs 80.43 crore in FY19.

Rakesh Jhunjhunwala made Rs 42 crore with this stock in three months

Loss increased in last fiscal after firm included exceptional item of  Rs 390.51 crore on account of provision for advances (Rs 5.92  crore) , loss on sale of investment (Rs 6.48 crore), provision for licence fees (Rs 341.64 crore) and staff optimisation cost of Rs 36.47 crore.

Earnings before interest, tax , depreciation and amortisation (EBITDA)  for FY20 rose to Rs 3,289 crore against EBITDA of Rs 2744.9 crore in FY19.

Return on capital employed (ROCE) rose to 7.8% in FY20 against 5.4% ROCE in FY19.

The coronavirus pandemic has benefited the firm. The company said internet traffic rose sharply while its UCC and IP traffic were up 20% QoQ ,23% YoY, respectively.

The company which provides internet connectivity to several global MNCs expects work from  home (WFH) to be  a  key  medium -term  trigger for organisations to  upgrade their digitisation  experience.

On June 12, the stock price closed at Rs 485.30. The firm announced its Q4 earnings on June 13. Amid better than expected earnings, the stock closed 9.89% higher at Rs 533.80 on June 15. Buoyed by the earnings, the share hit Rs 600 on June 17. It rose to intra day high of Rs 610 on NSE.

Pratibha K.Advani,Chief Financial Officer at Tata Communications said, "We have registered another quarter of robust growth in these tough times with all our financial and operating metrics tracking in the right direction. We witnessed strong profitable growth in our data business. In FY20, EBITDA margins for data business expanded by 310 BPs coming in at 22.1% on the back of growth services delivering Rs 199 crore of EBITDA for the year. We continue to drive the business towards sustainable profitability and positive cashflows."

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