Home / Markets / Mark To Market /  Tata Communications’ growth plan fails to engage investors

The stock of Tata Communications Ltd slid to a new 52-week low of 856.25 on the NSE, on Wednesday after the company’s growth plans failed to enthuse its investors.

At its recently held analyst meet, the company’s management reiterated its strategy on platform transformation with a focus on innovations and new launches to boost revenue. The company has maintained its medium-term RoCE (return on capital employed) and operating margin guidance at 25-30% and 23-25%, respectively. However, no timeline was shared on its revenue growth target, which was a key disappointment.

“Although the company has achieved its financial fitness targets in the last two years and now has a healthy balance sheet and strong cash-flows, it continues to be noncommittal on the timelines for achieving double-digit revenue growth in the Data segment," said analysts at Emkay Global Financial Services Ltd on 15 June. The domestic brokerage house is of the view that double-digit revenue growth is essential for sustaining a re-rating.

Note that Tata Communications has shifted its strategy to a platform/solution-based company, providing Cloud and next generation solutions, from being a company offering network and related products.

Analysts at Motilal Oswal Financial Services Ltd point out that despite the connectivity business being a dominant 71% revenue contributor, it has a low growth outlook. “Growth in Digital platforms has to accelerate to achieve the management’s double-digit growth guidance. It reiterated that the order funnel is strong, but the revenue conversion cycle remains slow. We expect moderate revenue growth (10% CAGR) over FY22-24E," it said in a report. CAGR is short for compounded annual growth.

Meanwhile, the performance of the stock has been subdued. So far in this calendar year the stock has declined by 38%. Analysts note that the stock has seen steep correction after its muted Q4FY22 earnings. Further, unless the company manages to achieve sustainable double-digit revenue growth in the data segment, the stock is likely to remain range-bound, said analysts.

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