Buy This Tata Group Telecom Stock For 30% Upside: ICICI Direct

Markets are continuing to fall given the high US-bond yield and the US Fed's approach of faster rate hikes to curb inflation. In trade on April 25, 2022, Nifty has slumped again by over 1 percent to 16928.6 at day's low and at around 9:45 am is still trading lower by over 1 percent at 16,981.25. Meanwhile, broader markets have taken more of a beating with Nifty Midcap 100 down by over 1.5%.

So, with the market mood still in the consolidation, after the earnings, brokerage firm has given a 'Buy' call on one Tata stock for 30% upside

Buy Tata Communications for a target price of Rs.1610 or 30% upside for a target period of 12-18 months:

The company is a leading global digital ecosystem enabler.The company's services include an array of communication, collaboration, cloud, mobility, connected solutions,network and data centre services.

Q4FY22 Results: Softness in margins witnessed

Topline came in at Rs. 4263 crore, up 4.7% YoY & up 1.9% QoQ, largely in linewith expectations. Consolidated EBITDA margin was at 24.5% (down 40 bps YoY and down 135 bps QoQ). The decline in EBITDA to higher expenses which are back ended in nature. Data EBITDA margin was at 29.3%, down 290 bps QoQ. PAT at the company came in at Rs. 365 crore, up 22% YoY, aided by higher other income which majorly included tax refunds and interest on the same. There was also sequential decline in net debt by appromixately Rs. 444 crore QoQ on the back of healthy FCF.

Stock's price trajectory: The company's share price has grown at around 12% CAGR overthe past five years.

Key triggers for future price performance:

Growth will be led by platforms including a) cloud, edge, security, b) next generation connectivity c) NetFoundry d) MOVE & IoT wherein each havingrobust market size growth potential of 15-25% CAGR in next four to five years.The brokerage expects around10.3% revenue CAGR in FY22-24E in the overall data segment, driven by likely acceleration in growth from FY23 onwards. The brokerage expect overall margins to be stable at 25.5% in FY24 vs. 25.3% in FY22, with some weakness likely in FY23. Strong cash flows generation to aid deleveraging.

Alternate Stock Idea:

Besides TCOM, the brokerage is bullish on the stock of Bharti Airtel in telecom space. The company stock is deemed as a play on superior operating metric amid telecom sector consolidation. 'BUY' suggests the brokerage with a target price of Rs. 860 i.e. an upside of 17.5% from the current price level of Rs. 732.