ICICI Direct has recommended a buy on the stock of telecommunications firm in the range of Rs. 1440-1475 per share. While the target set out has been Rs. 1680, meaning a return to the tune of 14 percent. The stop loss has been set at Rs. 1330 per share.
The company’s view on Tata Communications: Five month’s range breakout augurs well
The telecom sector has been regaining traction after a couple of month's breather. Within this space, we remain constructive on Tata Communication as it is resolving out of five months higher base formation ( 1540-1201) above 100 days EMA, which has been held since April 2020, indicating that the higher base is in place and the stock is ready to accelerate upward momentum.
Hence, it offers a fresh entry opportunity to ride the next leg of the up move. The stock has entirely retraced past four month's decline (Rs. 1540-1201) in just two months. Faster pace of retracement indicates robust price structure that augurs well for extension of upward momentum.
Fundamental view on the stock:
Tata Communications is the leading global digital ecosystem enabler with a leadership position in emerging markets and an infrastructure that spans the globe. It provides its clientele with state-of-the-art solutions, including a wide range of communication, collaboration, cloud, mobility, connected solutions, network and data centre services.
Growth will be driven by platforms viz. a) cloud, edge & security b) next generation connectivity c) NetFoundry d) MOVE & IoT, wherein each have robust market size growth potential of 15-25% CAGR in next four to five years. We expect ~7% revenue CAGR in FY21-23E in the overall data segment, driven by likely acceleration in growth from H2FY22 onwards. We expect overall margins to at 25.5% in FY23 vs. 24.9% in FY21.
Furthermore, strong cash flow generation will aid deleveraging. The company has indicated that demand outlook is robust in the medium/long term and maintained the long term trend of double digit growth outlook along with overall EBITDA margins range of 23-25% o The company's strategic growth plan, focused approach and structural improvement in data segment margins has driven multiple re-rating. While deal closures delays could have near term weakness in revenues, demand outlook is robust in the medium/long term and recovery is likely over the next couple of quarters. Furthermore, stable performance and improved cash flow generation, deleveraging possibilities and improved return ratios bode well for the company. With cash flow generation consistency and growth levers like cloud, edge & security, IoT, etc, we remain constructive on the company .
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