Tata Communications
BSE SENSEX
51,942
S&P CNX
15,635
10 June 2021
Company Update | Sector: Telecom
CMP: INR1231
TP: INR1142 (-7%)
Neutral
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Ambitious targets, but needs to tread carefully
TCOM’s analyst webinar provided a detailed deep-dive into the global
enterprise growth opportunity, management’s growth focus, margin outlook,
and investment requirements. Key insights are:
Strong focus on growth
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
TCOM IN
285
350.8 / 4.8
1365 / 447
8/7/112
389
41.1
Financials and valuations (INR b)
Y/E March
FY21 FY22E FY23E
Net Sales
171.0 174.2 192.1
EBITDA
42.6
45.2
51.5
Adj. PAT
13.3
14.4
19.0
EBITDA Margin (%)
24.9
25.9
26.8
Adj. EPS (INR)
46.5
50.6
66.7
EPS Gr. (%)
340.2
8.8
31.9
BV/Sh. (INR)
4.1
54.7 121.4
Ratios
Net D:E
57.5
2.8
0.5
RoE (%)
-227.9 172.4
75.8
RoCE (%)
19.5
16.4
18.6
Payout (%)
10.6
9.2
7.0
Valuations
EV/EBITDA (x)
10.3
9.2
7.6
P/E (x)
26.3
24.2
18.3
P/BV (x)
302.1
22.4
10.1
Div. Yield (%)
0.3
0.3
0.3
FCF Yield (%)
4.4
6.4
7.5
Shareholding pattern (%)
As On
Mar-21 Dec-20
Promoter
58.9
75.0
DII
7.5
1.4
FII
24.4
17.7
Others
9.2
6.0
FII Includes depository receipts
Mar-20
75.0
1.8
17.5
5.8
TCOM’s achieved its double-digit EBITDA growth target last year, despite
weak low single-digit Data revenue growth, thanks to margin
improvement due to an impact of COVID-19 on revenue. The
management reiterated its renewed growth focus, with a medium term
double-digit Data revenue growth target, on the back of three key
factors: a) a shift to platform from a product-based approach for Next-
Gen Connectivity, Collaboration, and Cloud and Hosting business; b)
strong focus towards the engagement program for its top 1,000
customers and account planning; and c) positioning as a digital
ecosystem enabler, with a revamped operating structure for a greater
business focus. It has managed to leverage the global shift towards digital
by moving towards platform-based delivery.
Products to platform approach to leverage growth opportunity in
global enterprise data
Despite the weak industry growth outlook in its traditional Core
Connectivity segment, with declining market size (-2% CAGR), the
management’s target of double-digit Data growth stems from its focus
toward new growth areas like: a) Next-Gen Connectivity, with on demand
connectivity solutions, IZO platform, and integrated WAN management,
where the market is expected to grow at 15% CAGR over FY20-24; b)
Collaboration and Connected Solutions, which is expected to see steady
industry growth of 15-25%; and c) Cloud Hosting and Security business,
given the huge demand for multi-Cloud adoption, with 24% market
growth over FY20-25, TCOM’s innovative IaaS/PaaS offerings, and trends
of vendor consolidation towards an integrated provider of Cloud +
Security + Network Services.
Targets double-digit revenue growth, with 23-25% margin; capex
may go up
Stock Performance (1-year)
Tata Comm
Sensex - Rebased
1,450
1,100
750
400
While near-term Data revenue growth trends remain challenging, with
the impact of COVID-19 on usage-based sectors like Media and Aviation
seeing weak growth and the second COVID wave taking a severe toll both
internally and externally, the management is still relying on growing its
new order funnel, innovative solutions, and strong market demand
towards digitization and new solutions. Yet we see two key challenges.
a.) Until new product categories in the Innovation segment achieve scale
of over 10x from a current revenue base of a mere INR1.3b, it may
continue to lag along with a weak growth outlook in its subsidiaries.
Aliasgar Shakir - Research Analyst
(Aliasgar.Shakir@motilaloswal.com)
Suhel Shaikh
-
Research Analyst
(Suhel.Ahmad@MotilalOswal.com)
3 September 2019
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
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