Tata Communications Q1 Results Review - Steady DPS Growth Offsets Declines In Other Verticals: Motilal Oswal

Motilal Oswal Report

Tata Communications Ltd. reported a 1% decline in revenue QoQ (in line), led by a decline in all segments, except digital platform and services, which grew 3% QoQ. Ebitda margin improved 140 bp QoQ to 20%, led by merger and acquisition synergies and the termination of lossmaking contracts. Organic business Ebitda margin remained in line with the long-term guidance at 23.3%.

The management's endeavor to drive growth, including in the loss-making acquisitions, led to margin contraction. However, the long-term focus on margin-accretive growth remains intact.

We estimate a CAGR of 12%/18% in revenue/Ebitda over FY24-26. We retain our Neutral rating on Tata Communications. We would closely monitor the improvement in data revenue and margins.

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