ICICI Direct Bets On This Tata Group Mid Cap Stock For An Aggressive 43% Gains

CMP, Target Price, Performance & Returns, Potential Gains

Tata Communication Ltd.'s current market price (CMP) is Rs. 877.45 per share, opened at Rs 920.95 per share. Today it moved down around 4.72%. ICICI Direct has set a target price of Rs. 1250 per share for the company and considering its CMP, the stock has the potential to return nearly 45% during the next 12 to 18 months. The stock's CMP is roughly Rs 21.2 above its 52-week low levels, whereas, its CMP is below Rs 714.5 of its 52-week high.

The share price of Tata Communications in the last 1 year fell nearly 32.79%. It has given negative returns in a short-term period, particularly within 1 year. On long-term investments of 3 years it gave whopping 80.62% returns, while in 5 years, it gave around 19.8% positive returns. This is a mid-cap firm with a market capitalisation of Rs. 24,947 crore.

Analyst Takeaways

The management reiterated its guidance of RoCE of 25-30%, stepped up capex of US$300 million (mn) from US$ 200 mn and EBITDA margin range of 23-25%. While the company reemphasised its ambition of double-digit growth revenue growth in the data segment, largely driven by digital platforms & services (comprising 21% of data revenues), it refrained from guiding on the timeline or any outlook on the revenue front, given the slower conversion of order book into revenues, citing delays from clients' decision making due to component supply shortage. It highlighted that its "deeper with fewer" strategy resulted in higher contribution from US$1 mn+ accounts [million dollar club (MDC)]. The company has added 33 such accounts over FY19-22 and MDC contributed 75% of revenues in FY22 (vs. 67% in FY19), which was the key driver for 28% CAGR in digital platform and services fixed revenue over FY19-22.

Key triggers for future price performance

According to the brokerage, the growth will be driven by platforms viz.
a) Cloud, edge & security
b) Next-generation connectivity
c) NetFoundry
d) MOVE & IoT, wherein each having robust market size growth potential of 15-25% CAGR over the next four to five years

Brokerage's Views & Comments on Valuation & Target Price

Tata Communications' share price has grown at ~14% CAGR over the past five years. "We value Tata Communications at a target price of Rs 1250 as we lower our target multiple to 20x from 24x earlier, amid higher cost of capital in rising interest rate regime. We maintain BUY on the company," the brokerage stated.

About - Tata Communications

Tata Communications is a leading global digital ecosystem enabler. The company offers cutting-edge solutions to its clients, including communication, collaboration, cloud, mobility, linked solutions, network, and data centre services. It enables the digital transformation of enterprises globally, including 300 of the Fortune 500 - unlocking opportunities for businesses by enabling borderless growth, boosting product innovation and customer experience, improving productivity and efficiency, building agility and managing risk. With its solutions-orientated approach, proven managed service capabilities and cutting-edge infrastructure, Tata Communications drives the next level of intelligence powered by the cloud, Internet of Things (IoT), mobility, collaboration, security and network services. Tata Communications carries around 30% of the world's internet routes and connects businesses to 80% of the world's cloud giants and 4 out of 5 mobile subscribers.