Multibagger Stock: Tata Communications rallied over 100% in 2 years; is there more upside ahead?

Tata Communications stock is recommended as 'buy' by Nuvama Institutional Equities and IIFL Securities with target prices of 2,200 and 2,231 per share, respectively.

A Ksheerasagar
First Published14 Jun 2024, 06:40 PM IST
During its recent annual investor meeting, the company's management reaffirmed its ambitious FY27 goals across four key metrics.
During its recent annual investor meeting, the company’s management reaffirmed its ambitious FY27 goals across four key metrics. (Bloomberg)

Shares of Tata Communications, a Tata Group stock, have delivered substantial returns to their shareholders over the years, demonstrating resilience in the face of market volatility. The stock, which was trading at 914 apiece two years ago, has jumped 104% to trade at the current level of 1,868. 

Over the past 11 years, investors have enjoyed an impressive return of 1430%. In April, Tata Communications reached a new pinnacle, surpassing the 2,000 mark for the first time, touching an all-time high of 2,084 per share.

Also Read: TCPL to double capex this fiscal, expand into new categories

The company has been pivotal in shaping the landscape of digital services, playing a crucial role in enabling enterprise-level connectivity across the country. With its expansive global network, including the world's largest wholly-owned subsea fibre backbone and a Tier-1 IP network connecting over 190 countries and territories worldwide, Tata Communications facilitates around 30% of the world's internet routes. 

The company serves as a critical link, connecting businesses to 80% of the world's cloud giants and reaching 4 out of 5 mobile subscribers globally.

Also Read: Mint Explainer: Why Tata Steel is jittery about the UK election

Presently, it offers international and national voice and data transmission services, the sale and leasing of bandwidth on undersea cable systems, internet connectivity services, and other value-added services comprising telepresence, managed hosting, mobile global roaming and signaling services, transponder lease, television uplinking, and other related services.

Aggressive growth ambitions are sustained

During its recent annual investor meeting, the company's management reaffirmed its ambitious FY27 goals across four key metrics. They anticipate data revenue to soar to 280 billion, while maintaining a net debt-to-EBITDA ratio below 2x and achieving a robust return on capital employed (RoCE) exceeding 25%. 

Management said it would continue to look for strategic acquisitions to address white spaces in its portfolio, but would not want to acquire only for revenue.

On the operational front, they remain committed to sustaining consolidated EBITDA margins between 23% and 25%, excluding impacts from acquisitions or growth-related investments.

Also Read: Tata Motors shares gain as brokerages maintain bullish stance; up 7% in a week

The company is increasing the breadth and depth of market participation by focusing on new areas of participation, new buying centers, and chasing new customer segments.

Its digital portfolio has shown significant growth, increasing from 32% of data revenue in FY23 to 41% in FY24, with plans to expand this share to over 60% by FY27. Amid challenges in the Communication Platforms as a Service (CPaaS) industry's shift away from SMS, the company sees an opportunity to leverage its internal capabilities and synergies from the Kalyera acquisition to drive profitable growth in this segment, according to Nuvama Institutional Equities.

Also Read: Modi 3.0 government: Telecom industry seeks lower spectrum pricing

Management identifies margin expansion drivers in acquisition synergies, profitability of the digital portfolio, ongoing subsidiary reviews, and continuous operational enhancements. RoCE is expected to benefit from sustained margins, optimised capital utilisation, and efficient capital turnover strategies.

Mixed ratings

Following the company's reaffirmation of its aggressive growth strategy, domestic brokerage firms have expressed varied opinions. Nuvama Institutional Equities maintains a positive outlook, citing the company's strong positioning in technology and telecom. They reaffirmed a 'buy' rating on the stock with a target price of 2,200 per share.

Also Read: Multibagger! Penny stock Hardwyn India surged 6592% in 5 years, up 955% in 3 years

Similarly, IIFL Securities also reiterated a 'buy' rating on the stock, setting a target price of 2,231 per share.

In contrast, Kotak Institutional Equities remains cautious, maintaining a 'Sell' rating with an unchanged Sum-of-the-Parts (SoTP)-based fair value of 1,525. The brokerage views the risk-reward profile unfavorably.

The brokerages have left their earnings estimates unchanged. They anticipate a 7.5% CAGR in underlying data revenue from FY2024 to FY2027, projecting data revenue to reach 240 billion by FY2027 (including acquisitions), compared to management's target of 280 billion).

Kotak Institutional Equities expects the company's EBITDA margins to improve to 23% by FY2027, driven by operational efficiencies that may offset challenges from the revenue mix.

Also Read: Jefferies lists 3 stocks that may rise if natural gas is included in GST

"Tata Communications currently trades at 12.5X one-year rolling forward EV/EBITDA, representing a 25% premium to its long-term average. Given our profitability assumptions, we are awaiting a more attractive entry point for the stock," commented the brokerage.

 

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.MoreLess
First Published:14 Jun 2024, 06:40 PM IST
HomeMarketsStock MarketsMultibagger Stock: Tata Communications rallied over 100% in 2 years; is there more upside ahead?

Most Active Stocks

Adani Power

725.35
03:50 PM | 9 JUL 2024
27.4 (3.93%)

Indian Oil Corporation

171.70
03:52 PM | 9 JUL 2024
1.55 (0.91%)

Bharat Electronics

334.55
03:57 PM | 9 JUL 2024
0.4 (0.12%)

Tata Steel

171.80
03:58 PM | 9 JUL 2024
-0.5 (-0.29%)
More Active Stocks

Market Snapshot

  • Top Gainers
  • Top Losers
  • 52 Week High

Gland Pharma

2,027.50
03:44 PM | 9 JUL 2024
142.65 (7.57%)

KRBL

331.20
03:55 PM | 9 JUL 2024
22.4 (7.25%)

Phoenix Mills

3,994.20
03:29 PM | 9 JUL 2024
256.6 (6.87%)

Maruti Suzuki India

12,820.20
03:55 PM | 9 JUL 2024
794.2 (6.6%)
More from Top Gainers

Recommended For You

    More Recommendations

    Gold Prices

    • 24K
    • 22K
    Bangalore
    73,983.00-110.00
    Chennai
    74,128.00-691.00
    Delhi
    74,346.00-473.00
    Kolkata
    75,074.00400.00

    Fuel Price

    • Petrol
    • Diesel
    Bangalore
    102.86/L0.00
    Chennai
    100.75/L0.00
    Kolkata
    104.95/L0.00
    New Delhi
    94.72/L0.00
    OPEN IN APP
    HomeMarketsPremiumInstant LoanMint Shorts