YES Securities

Target: ₹1,426

CMP: ₹1,241.25

Tata Communications reported mixed performance for the quarter. Both, the sequential revenue growth and EBITDA margin were slightly below estimates. It reported sequential revenue growth of 0.9 per cent QoQ, led by increase in the revenue of Digital Platforms and Services by 2.3 per cent QoQ.

Voice revenue declined by 8.7 per cent QoQ; while data revenue increased by 2.1 per cent QoQ. There was sequential decline in EBITDA margin (down 115 bps QoQ) led by increase in employee cost. Net debt (as of 31st Mar 2023) decreased by ₹560 crore QoQ to ₹5,700 crore.

Data portfolio grew by 10.3 per cent YoY inline with expectation. We expect the voice business to continue to decline as per the industry trend; while Data segment would continue to drive the overall performance of the company. Private 5G related capex going ahead should also drive opportunities for the company.

We expect EBITDA margin to stay in guided band of 23 per cent-25 per cent going ahead. We estimate revenue CAGR of 10.2 per cent over FY23‐25 with average EBITDA margin of 24.3 per cent. We maintain our Add rating on the stock with revised target price of ₹1,426/share based on EV/EBITDA of 8.5x on FY25. The stock trades at EV/EBITDA of 8.7x/7.2x on FY24E/FY25.