ICICI Securities Places Buy On Tata Group's Midcap Stock, Target Price Rs 1,810

ICICI Securities has a Buy on Tata Communications Ltd. (Tcom) for a target price of Rs 1,810 apiece. The brokerage sees a potential upside of up to 14% from its current level. Recently, the company informed the stock exchange that it will acquire Kaleyra Inc., a US-based and New York Stock Exchange-listed Company.

Tata Communications is Tata Group operating in the Telecom sector. It is a midcap company with a market capitalisation of Rs 45,441.83 Crore.

Plugging the gaps through inorganic route

According to ICICI Securities, Tata Communications (TCom) has agreed to acquire Kaleyra, a US-based omnichannel integrated CPaaS player for enterprise value of US$250mn (0.73x CY22 sales). This is likely to enhance TCom's global position in CPaaS services (which is growing at 25% CAGR as per Juniper), and with The Switch acquisition, TCom's position in the US may become stronger. Strong digital businesses in the US can assist TCom to cross sell other products, thereby, improving market share in core connectivity and Digital services. It aims to grow data revenue by 2x to Rs280bn by FY27. The loss-making acquisition may drag EBITDA margin down in the near term; however, TCom aims to reach 23-25% margin in the medium term. Its balance sheet remains healthy, and the acquisition is unlikely to deteriorate the position.

"We have not baked in the acquisition in our estimates, and with increasing revenue outlook, we increase our valuation multiple (PE) to 24x (from 22x) FY25E, and accordingly raise target price to Rs1,810 (from Rs1,665). Maintain BUY," the brokerage has said.

Stock Overview

On Friday, TCom' stock last traded 1.13% higher at Rs 1599.90/share on BSE with Rs 1610/share intraday high and Rs 1515.50/share intraday low. It traded its 52-week high at Rs 1673.95/share and 52-week low at Rs 905.70/share, respectively.

In the past 1 week, the stock surged 2.47%, while, in the past 1 month, it jumped 25.69%. It jumped 30.35% in the past 3 months. It has given 75.13% positive return in the past 1 year, 161.73% in the past 3 years and 321.94% in the past 5 years, respectively.

Disclaimer

The above stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.