Stock To Buy: Buy On Tata Communication For Rs. 1260 Target Price; Strong Cash Flow Generation Logged

Post the global digital enablers' result, ICICI Direct has signalled a 'Buy' on the stock for a target price of Rs. 1260. The target price is seen to be realised in 12-18 months. At the current last traded price of Rs. 1069.6, the stock offers an upside of

Tata Communications Q1Fy23 Results

The company's key financial highlights for the recent quarter have been strong generation of cash flow together with positive surprise on margins
front.

Topline came in at Rs. 4311 crore, up 5.1% YoY & up 1.1% QoQ, with data revenues up ~7.6% YoY (up 1.2% QoQ) at Rs. 3340 crore. EBITDA margin was at 25% (up 95 bps YoY and up 47 bps QoQ), possibly owing to some benefit of US$ appreciation. Data EBITDA margin was at 29%, down 30 bps QoQ. The company reported a PAT of Rs. 544 crore, up
83.6% YoY, aided by higher other income (the majority of which included tax refunds and interest on the same) and lower depreciation and interest costs. There was also sequential decline in net debt by around Rs. 812 crore QoQ on the back of a healthy FCF.

Brokerages' advice on the stock

Tata Communications share price has grown at ~12% CAGR over the past five years. We maintain BUY on the company and value it at a target price of Rs. 1260", adds the brokerage.

 

Key triggers for future price performance

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 4-5 years

"We expect ~9.4% revenue CAGR in FY22-24E in the overall data segment, driven by likely acceleration in growth from H2FY23 onwards. We expect 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", adds the brokerage.

Disclaimer

The stock recommendation made is by the brokerage house. Readers and investors should not construe the report as an investment advice and take such decision after careful due diligence.