Tata Communications stock falls for 8th straight day; brokerages see limited upside

Tata Communications’ weak margin performance in Q4 turned out to be the biggest dampener for brokerages. Its EBITDA margin contracted to 18.6% in Q4, down from 22.6% in the year-ago period.

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Shares of Tata Communications dropped 5 percent in trade on April 19 as brokerages hinted at limited upside potential in the stock after the company’s weak earnings for the January-March quarter.

The losses in today’s session also marked an eighth straight day of decline for Tata Communications, falling around 14 percent. This also marks the longest losing streak for the stock since October 2023. At 12.36 pm, the stock was trading 5 percent lower at Rs 1,764.95 on the NSE.

On a year-on-year basis, the company witnessed a 1.5 percent dip in net profit at Rs 321.2 crore in the March quarter, compared to the previous year’s Rs 326 crore. Even the reported net profit was led by the reversal of past tax losses of Tata Communications (Bermuda), totaling  Rs 186 crore.

Revenue from operations rose 24.6 percent to Rs 5,691.7 crore as against Rs 4,568.7 crore in the corresponding period of the previous fiscal year. However, the EBITDA margin in the reporting quarter came at 18.6 percent, a decline from 22.6 percent in the year-ago period. Analysts at Kotak Institutional Equities attributed the fall in margins to weaker profitability of recent acquisitions.

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It was the company’s weak EBITDA margin that emerged as the biggest dampener for analysts. Kotak lowered its FY2025-27E EBITDA estimates for Tata Communications by 3-5 percent, driven by weaker revenue growth and slower ramp-up in Kaleyra profitability.

“We generously build in EBITDA margins to reach the lower end of management’s guidance of 23-25 percent by FY2027, as operating leverage is likely to offset the adverse revenue mix impact,” the firm stated. Disappointed by the company’s Q4 results, Kotak also slashed its price target for the stock marginally to Rs 1,525 while retaining its sell rating.

The brokerage based its rating on the stock to an unfavorable risk-reward and likewise its price target also forecasts a downside of nearly 18 percent for the scrip from its previous close.

Motilal Oswal Financial Services also sees limited upside potential in the stock and hence, retained its ‘neutral’ call with a price target of Rs 1,910. Going ahead, MOFSL believes that margin improvement and data revenue growth would remain the key catalysts for further valuation re-rating for Tata Communications.

On the other side, Nuvama Institutional Equities still remains positive on Tata Communications. The brokerage continues to see Tata Communications as an exciting play, offering the best of both worlds— stability of telecom and growth potential of IT Services sector.

The brokerage expects digital growth and margins for the company to pick up gradually in FY25, leading to strong growth in FY26. On that account, it held on to its ‘buy’ call on the stock, with a price target of Rs 2,200.

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