Ace investor Rakesh Jhunjhunwala-backed Tata Group firm Tata Communications shares have plummeted over 40 percent so far this year (2022 YTD). However, despite the recent decline, brokerages now have a bullish outlook on the stock and see up to 45 percent upside going ahead.
The stock saw a steep correction after its muted March quarter (Q4FY22) earnings. However, experts believe that the stock is likely to remain range-bound till it manages to achieve sustainable double-digit revenue growth in the data segment.
As per the March quarter shareholding data, Rakesh Jhunjhunwala's wife Rekha Jhunjhunwala owns 30.75 lakh shares or a 1.08 percent stake in the firm.
Domestic brokerages ICICI Securities and Emkay Global both have buy calls on the stock with target prices of ₹1,600 per share and ₹1,155, respectively. As per ICICI's target, it sees a whopping upside of 86 percent for the stock while Emkay expects the stock to rise around 35 percent in the next 12 months.
As per Emkay Global, although Tata Communication has delivered on its financial fitness goals, revenue recovery has seen a delay in the last two years.
“As we have highlighted in our past reports, double-digit revenue growth is essential for sustaining a re-rating. Amid these challenges, the stock saw a 30 percent correction after the March quarter results. We believe the stock will remain range-bound until it is able to achieve sustainable double-digit revenue growth in the Data segment. The only positive is strong free cash flow (FCF) generation despite higher capex spends,” it said.
It added that the management sounded positive about the improving funnel rate, potential deal conversions, new product launches and increased
investments. However, it continued to be noncommittal regarding revenue growth guidance, noted Emkay. Although management has re-emphasized its double-digit medium-term topline growth guidance for the Data segment, there are no clear timelines, Emkay pointed out.
Meanwhile, ICICI Securities also noted that the company will continue adding to the funnel and improve conversion which should aid accelerate revenue growth as supply normalises. The international market is the key focus area where it sees significant opportunity to drive growth; it would continue with its efforts to cement India's market position, stated the brokerage.
Though data services revenue growth was disappointing in FY22, ICICI said that it continues to keep the faith as a management strategy is anchored on driving faster and more durable growth.
Incorporated in 1986, Tata Communications provides telecommunications services worldwide. It operates through Voice Solutions, Data and Managed Services, Payment Solutions, Transformation Services, and Real Estate segments.
Emkay has cut its FY23-25 operating profit by 3-8 percent due to delays in revenue recovery and lower margins.
In the March quarter, the firm reported a net profit of ₹365 crore, up 22 percent YoY. Its revenues rose 4.6 percent YoY to ₹4,263 crore in the quarter ended March.
For the full year, the company posted a net profit of ₹1,482 crore, up 18 percent YoY while its revenue fell 2 percent YoY to ₹16,725 crore in FY22.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
