Emkay Global has hiked the target price on Tata Communications and believes that revenue increase will tick all boxes.
"Tata Communications posted a revenue miss due to challenges faced in deal conversion and accelerated decline in the voice business. EBITDA, which declined 3% qoq, was in line, and was impacted by catch-up costs and the reversal of Covid-19-related cost savings. The pace of deleveraging was slow at Rs2.5bn in the quarter due to Rs3.8bn payment to DoT. FY21 FCF generation of Rs18 billion led to a reduction in gross debt of Rs 7.5 billion and a net debt reduction of Rs 14 billion," Emkay Global has said in a report.
Covid-19-led disruption has increased deal conversion cycle to 258 days from 203, which in turn restricted revenue delivery in the growth services segment. Deal conversion delays are expected to impact Q1FY22 performance as well, the brokerage has noted.
"Taking above-mentioned factors into account, we have reduced FY22/23E revenue by 5%/4%, while keeping our EBITDA estimates largely unchanged. TCOM's focus on financial fitness, higher dividend payout and expected revenue recovery from Q2FY22 support our positive stance. Retain Buy with a revised target price of of Rs 1,250 on FY23E EBITDA," the brokerage has stated. The shares of Tata Communications was last trading at Rs 1,089.