Tata Communications Reiterates Aggressive Growth Plan On Investor Day
The company is looking to double revenue within the next two years, by focusing on growth of its digital platform.
Tata Communications Ltd. aims to increase its revenues, improve margins and reduce net debt to Ebitda ratio (earnings before interest, taxes, depreciation, and amortization). The company is looking to double revenue within the next two years, by focusing on growth of its digital platform, it said during its investors day event on June 12.
Revenue To Be Lead By Digital Portfolio
The company is targeting the Rs 28,000-crore revenue mark by fiscal 2027. It will continue to look for strategic acquisitions to address white spaces in its portfolio, but not acquire only for revenue, Nuvama Institutional Equities said in a note.
Tata Communications also aims to reach $1 billion in revenue in US in the medium term, it said.
The core connectivity business would continue to grow by around 2–6% year-on-year, and the bulk of the incremental growth would be driven by the digital portfolio, according to the company.
Its digital portfolio has grown from 32% of data revenue in FY23 to 41% in FY24. Management is aiming to take its share to more than 60% by FY27, according to Nuvama.
Investments in new platforms will expand the addressable market and wallet share in international markets, the Tata-group company said.
Margin Expansion Plan
Tata Communications is also looking to expand its margins even as they have contracted in fiscal 2024. The company hopes to get back to 23-25% levels by financial year 2027, as against 20.2% in fiscal 2024.
This will largely be driven by improvement in digital portfolio profitability, driving acquisition synergies, strategic review of subsidiaries, and continued process improvements, according to Kotak Securities Ltd.
"We optimistically assume margins to reach the lower end of the guidance (~23%) by fiscal 2027," it said in its note.
The company also mentioned reducing the net debt to Ebitda to two-times and improving the return on capital invested to 25%+ by fiscal 2026.
Brokerage Views
Doubling data revenue on the existing portfolio would be a tall ask for the company, according to Kotak. The rising share of inherently lower-margin digital portfolio in the mix could remain a drag on margins, it said.
It reiterated a 'sell' rating as it awaits a better entry point. It maintained the target price of Rs 1,525 per share.
While, Nuvama expects margins to pick up gradually in FY25, leading to a strong growth in FY26 and remains positive on the unique play on technology and telecom. It maintained a 'buy' rating on the stock with a target price of Rs 2,200 apiece.
