Motilal Oswal has given Neutral recommendation for Tata Communications with a target price of Rs. 1425 in its research report issued on Oct 21, 2021

Motilal Oswal’s research report on Tata Communications

Adjusted EBITDA, after an INR500m one-off gain in 2QFY22, rose 8% QoQ (2% above our estimate) on healthy cost optimization, despite slower revenue growth of 1.7% QoQ, which is slowly recovering. – We expect low revenue growth visibility given the low growth outlook in Connectivity (71% of revenue mix). This, coupled with weak EBITDA margin guidance of 23-25% v/s 26.7% at present, suggests double-digit growth could be challenging. However, we expect an improvement in margin from the curtailing of loses in the Incubation business, building in 10% EBITDA CAGR over FY21-24E, and revising EBITDA higher by 3-4%.

Outlook

We maintain our Neutral rating. e maintain our neutral rating with a TP of INR1,425 (assigned an EBITDA of 9x/3x to the Data/Voice business). We maintain our Neutral rating.

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