Upcoming Tata Dividend: Tata Group's 38-Year-Old Telecom To Make Big Announcements Soon; BUY, ADD OR Sell?

Tata Group-backed telecom giant, Tata Communications is coming up with dividend rewards for its investors later in the current month. The 38-year-old telco holds a track record of dividend-paying and bonus shares, apart from giving hefty returns. YTD, this telecom stock is up by nearly 17% on BSE and even crossed the Rs 2,000 mark. Ahead, Q4 results and dividend announcement will stir sentiment in this telecom stock.

There is room for more upside in Tata Communications as brokerage IIFL Securities has recommended adding the stock to your portfolio. As much as a 14% potential upside is seen!

On BSE, April 5th, Tata Communications' share price was at Rs 2062.25 apiece, up by 0.3% with a market cap of Rs 58,774.13 crore. The stock's 52-week high and low are at Rs 2,085 and Rs 1,175 apiece respectively.

YTD, Tata Communications share price have zoomed by 17%. While in a year, the gains are nearly 64%. And in 5 years, the upside is multibagging to the tune of a massive 371% as of now on BSE.

In its regulatory filing, Tata Communications said that the board of directors meeting is scheduled to be held on Wednesday, April 17, 2024, to inter alia consider, approve and take on record the Standalone and Consolidated Audited Financial Results along with the Reports of Statutory Auditors thereon for the financial year ended March 31, 2024, and to recommend dividend, if any, for the financial year ended March 31, 2024.

The telecom player paid dividends up to Rs 21 per share or 210% for FY23 last year.

Since August 2000, Tata Communications has delivered up to 25 dividends, as per Trendlyne data. Apart from dividend payout, Tata Communications has paid one bonus issue to the tune of 2:1 in October 2000. While it has never carried a stock split.

Meanwhile, in Q3FY24, Tata Communications posted quarterly revenue of Rs 5,633 crore (USD 677.1 Mn) - up 24.4% YoY - backed by strong performance in Data Revenue. While its data revenue came in at Rs 4,618 crore (USD 555.1 Mn), a rise of 28.5% YoY. Further, the company's digital portfolio revenue grew by 78.2% YoY, contributing ~45% to the Data portfolio. Also, consolidated EBITDA stood at Rs 1,134 crore (USD 136.3 Mn), improving by 5.3% YoY and 11.7% QoQ.

Should You Buy Tata Communications Share Price?

In its latest research note, IIFL Securities said, "At 5x/10x EV/sales for TCOM's digital portfolio, March'25 fair value per share comes to ~Rs3,092/Rs5,292. This suggests a significant upside if TCOM's Digital portfolio business achieves scale and drives re-rating. We raise the Mar'25 TP to Rs2,342. However, demand weakness could weigh on near-term financials and offer a better entry point. Maintain ADD."

Giving rationale, IIFL Securities highlighted three key factors for Tata Communications. They are:

Positioning itself as a CommTech player:

CommTech players fall in the middle of the spectrum between telcos on one end and SIs on the other. CommTech players like TCOM work very closely with client teams on the specifications of their requirements, resulting in tailor-made solutions. TCOM offers a single pane of glass architecture for clients to view, monitor and troubleshoot the network.

TCOM's transition towards a CommTech player is on track:

TCOM's FY27 revenue target implies 40% revenue Cagr for the Digital portfolio (a proxy for CommTech). The acquisition of Switch has expanded TCOM's capabilities in media and geographical footprint (US). Integration of Kaleyra (CPaaS) has started on a healthy note, with margins springing a significant positive surprise. NVIDIA's announcement of a collaboration on AI Cloud connectivity also augurs well.

Global CommTech players command premium valuation:

A glance at global CommTech players indicates a 10x average 1YF EV/sales. Three/five out of the eight CommTech players that we looked at are Ebitda/PAT loss making. However, their average revenue in CY23 was ~US$2.5bn vs US$1bn annualised 3QFY24 run-rate for TCOM; suggesting their significantly better scale. Even if we value TCOM's Digital portfolio at 50% discount to global CommTech on EV/sales, potential upside comes to 50%.

Accordingly, IIFL's note added, " A CommTech player lies somewhere between a telco and a system integrator (SI), in terms of asset lightness, margin profile and return ratios. A flurry of new product launches, partnership with NVIDIA and organisational changes are steps towards strengthening TCOM's CommTech credentials, in our view."

The brokerage also said that, "TCOM's target to double its data revenue between FY23 and FY27 entails ~40% digital portfolio revenue Cagr. Acquisitions of Switch and Kaleyra would go a long way in helping achieve this target. We also note that global CommTech players trade at an average of 1YF 10x EV/sales."

A part of the Tata Group, Tata Communications is a global digital ecosystem enabler powering today's fast-growing digital economy in more than 190 countries and territories. Leading with trust, it enables the digital transformation of enterprises globally with collaboration and connected solutions, core and next-gen connectivity, cloud hosting and security solutions and media services.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.