Tata Communications rated ‘Buy’ by Motilal Oswal; target price Rs 778

By: |
Published: January 20, 2017 3:48:29 AM

Tata Communications (TCOM) has transformed from a long-distance voice services provider to a full-service data connectivity and value-added services provider.

Tata Communications (TCOM) has transformed from a long-distance voice services provider to a full-service data connectivity and value-added services provider. Its deep connectivity and array of customised solutions should drive a healthy 10% CAGR in data revenue over FY16-19 in a largely commoditised market. Yet, its focus on (a) the higher-margin enterprise segment, and (b) value-added services should support a 490bp expansion in core EBITDA margin over FY16-19.

Factoring healthy 14% Core EBITDA CAGR over FY16-19 and subsequent deleveraging potential, the stock trades at an EV of 6x FY19E EBITDA. This is despite 40% stock price appreciation in the last six months. We recommend Buy; our SOTP-based target price is R778.

TCOM’s growing focus on the data business (contributing 57% of core revenue), leveraging its 710,000 km deep submarine network and leadership position in emerging markets, holds it in good stead. Cisco expects business IP traffic to grow at a CAGR of 18% over the next five years. TCOM’s shift from a commoditised network provider to a full-service customised enterprise solutions provider has led to sticky clientele growth. Its value-added offerings like unified communication, hosting, managed security, and a host of sector-specific data offerings also provide strong growth potential. We expect TCOM’s data segment to record healthy 10% revenue CAGR over FY16-19.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1Sebi prepares to allow options trading in commodity bourses
2China says FX reserves ample, has plan to deal with outflows
3Sensex Nifty trading flat amid mixed Asian markets; banks under pressure ahead of Axis, Yes results