Stock To Buy: This Tata Group Stock Is Given A 'Buy' Call For Double-Digit Returns In 3 Months

Brokerage firm ICICI Direct has recommended to buy the scrip of Tata Communications in its recent report. The stock has been listed as the brokerage's gladiator stock pick. Here are the important details on the scrip as given out by the brokerage:

Buy Tata Communications for 3 months for a target price of Rs. 1275

Buying range for the stock is Rs. 1095-1116, while the suggested stop loss is Rs. 1018. Given the last traded price of Rs. 1125, investors can expect a potential upside of over 13%.

Technicals of Tata Communications

After a breather for 3-4 months, the telecom sector scrips are regaining their mojo back and within the space the brokerage firm is bullish on Tata Communications as it is seen resolving out of a falling channel containing decline since January 2022. This signals the end of the corrective phase and resumption of primary up move, thus offering a fresh entry opportunity.

Thereby during the process, the stock has broken above the 3 months' range of between Rs. 1122-857 as buying demandhas emerged from the 200-week EMA (currently placed at 895) and the 80% retracement of the previous major up move of September 2020 to January 2022 (Rs. 777-1591) signalling a positive price structure.

RSI signals strength

Among oscillators, the weekly 14 period's RSI is in a strong up trend and is seen sustaining above its nine
period's average, thus validating the positive bias.

Drivers of growth for the company and the scrip

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. The brokerage expects around 9.4% revenue CAGR in FY22-24E in the overall data segment, driven by likely acceleration in growth from H2FY23 onwards. Furthermore, there are expectations of overall margins to be at 25% in FY24 vs. 25.3% in FY22, with some weakness likely in FY23. Strong cash flows generation to aid deleveraging.

Company's management take on the scrip

The management maintained FY23 margins guidance range of 23-25%. However, they also said that higher travel and admin costs will accrue, going ahead, with reopening of offices. The brokerage, however, expects margins to bounce back in FY24, driven by revenue growth recovery.

Deal win improves

order book growth in healthy double digits: Growth funnel (pre-stage of order book) has increased. Also, the company has logged healthy deal win together with good growth in order book. The company intends to drive growth by enhanced product offerings in next gen connectivity, IZO WAN, cloud, etc. Moreover the company is strengthening its employee base and augmenting regional presence via sales and marketing expenditure.

Other positives of the company

"The company's strategic growth plan, focused approach and structural improvement in data segment margins has driven multiple re-rating. While deal closures delays and supply chain issues has led to slower recovery in revenues, the demand outlook is robust in the medium to long term. Furthermore, a 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", notes the brokerage.

About the company

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

Disclaimer

The stock has been given a 'Buy' rating by the brokerage firm ICICI Direct. Readers should not construe the story as an investment advice into the stock and instead need to engage in own due diligence.