Tata Communications: Emkay Recommends To Add This Tata Telecom Stock For Rs 2,000 TP

Tata Group-backed telecom services provider, Tata Communications Q3 earnings were in-line with estimates. The company's focus is on synergies and scale continues. Tata Communications sees multiple levers to maximise value in both organic and inorganic investments in the medium term. Hence, it has a new growth trajectory. Following this, brokerage Emkay Global has recommended to ADD this Tata stock to portfolio for a target price of Rs 2,000.

In Q3FY24, Tata Communications posted quarterly revenue of Rs 5,633 crore (USD 677.1 Mn) - up 24.4% YoY
- backed by strong performance in Data Revenue. While its data revenue came in at Rs 4,618 crore (USD 555.1 Mn), a rise of 28.5% YoY. Further, the company's digital portfolio revenue grew by 78.2% YoY, contributing ~45% to the Data portfolio. Also, consolidated EBITDA stood at Rs 1,134 crore (USD 136.3 Mn), improving by 5.3% YoY and 11.7% QoQ.

However, Tata Communications' PAT dropped by 88.6% to Rs 45 crore in Q3FY24 versus Rs 394 crore in Q3FY24. Adjusted PAT declined by 36.2% YoY.

AS Lakshminarayanan, MD and CEO, of Tata Communications, said: "We are pleased to report another quarter of robust growth as data revenue crossed the Rs 4,000 crore mark with digital services contributing 45%, in line with our strategy. Even as we increase our impetus on people and platforms to deliver long-term value, our acquisitions of Oasis, The Switch and Kaleyra have created new avenues for growth and innovation. We remain confident about our medium-term ambitions."

Further, Kabir Ahmed Shakir, Chief Financial Officer, of Tata Communications said: "We are extremely encouraged that Kaleyra has turned EBITDA positive in the first quarter itself, in line with our 'Fit to Grow' strategy. We are excited about the medium term as we see multiple levers to maximise value from both our organic and inorganic investments. We continue strongly on the new growth trajectory with robust cash flow generation as the focus."

On BSE, Tata Communications' share price stood at Rs 1739.70 apiece, marginally up on Saturday with a market cap of Rs 49,581.45 crore.

Post Q3 results, in its review note, Emkay Global said, "TCom reported broadly in-line revenue and margin beat in Q3, supported by Kaleyra turning EBITDA positive. Switch has seen ~Rs250mn QoQ reduction in its losses. Management commentary on a healthy funnel is positive, despite the longer conversion cycle of the funnel. The acquisition of Switch and Kaleyra gives the company greater access to US/European markets."

Further, the brokerage's note added, that moving Kaleyra, DIGO, and InstaCC into one customer interaction suite and Switch and TCom's media being led by one business leader can help drive scale and synergies. Management is focusing on scale and synergies that can help improve margin to 23% by FY26 from 20.1% in Q3FY24.

On the valuation, Emkay's note added, ". Our TP increases to Rs2,000/share (10.5x Dec-25E EBITDA) from Rs1,900 earlier, as we increase our FY24-FY26 margin by 30-70bps on margin beat. We retain our ADD rating on the stock."

A part of the Tata Group, Tata Communications is a global digital ecosystem enabler powering today's fast-growing digital economy in more than 190 countries and territories.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.