Buy This Largecap Tata Group Stock For Likely 25% Upside, Share Price Fall By 35%: Emkay Global

The Indian equity markets are highly volatile now, and this trading week, the market is mostly bearish due to the recent interest rate hikes by RBI. The US central bank has also hiked its interest rate to control inflation, which has further pulled the equity markets down. At that point in time, Emkay Global, a reputed brokerage firm suggests buying the stocks of Tata Communications for a good return in the short term.

Share price and return estimation

The current market price of Tata Communications is Rs. 921, and brokerage firm Emkay Global is estimating that the stock's price can go up to Rs. 1155, with a potential upside of 25.50%. The stock's 52 week high level is Rs. 1,591.95, and 52 week low level is Rs. 856.25. In the past 6 months the stock's price has fallen by 35.39%, however, in the past 1 year its share price has fallen by 31.19%. It is a reputed large cap stock of the Tata group, with a market capitalization of Rs. 24,937 crore.

In the last 2 years, the company delivered on its financial fitness goals, however, its revenue recovery has seen a delay. Management is positive about the improving funnel rate, potential deal conversions, new product launches and increased investments. But, it continued to be non-committal regarding revenue growth guidance.

What Emkay Global thinks

Commenting on the stock's potential, Emkay Global said, "We have cut FY23-25E EBITDA by 3-8% due to the delay in revenue recovery and lower margins (closer to management's guided range). We cut target multiple for Data segment to 8x (Jun'24E EBITDA) from 10.5x and arrive at a revised SOTP based target price of Rs. 1,155."

The firm added, "Although management has re-emphasized its double-digit medium-term topline growth guidance for the Data segment, there are no clear timelines. As we have highlighted in our past reports, double-digit revenue growth is essential for sustaining a re-rating. Amid these challenges, the stock saw a 30% correction after Q4FY22 results. We believe the stock will remain range-bound until TCOM is able to achieve sustainable double-digit revenue growth in the Data segment. The only positive is strong FCF generation despite higher capex spends."

The key risks of the stock are increased losses in incubation services; inability to close large deals; continued delays in revenue recovery; and higher competitive intensity.