Target: ₹1,870

CMP: ₹1,754.95

Tata Communications’ (TCom) Q4FY24 print missed our estimate with organic digital revenue growth of just 5 per cent y-o-y; acquisition margin dipped 10 percentage points q-o-q to 2 per cent. Company anticipates near-term challenges to revenue growth, but remains confident of achieving the guidance shared for FY27E – double data revenue to ₹28,000 crore, consol. EBITDA margin in the range of 23-25 per cent and RoE of >25 per cent.

TCom has invested in people and platform but sees gaps in awareness for its services which may need additional investment in marketing. It has significantly enhanced its offerings to become relevant to global customers and expects high-margin enterprise segment revenue to grow. We cut our FY25E/26E EPS by 18-24 per cent factoring in lower margin expansion, but our target price reduces marginally to ₹1,870 (from ₹1,900).

We downgrade our rating to Hold (from Add) due to near-term macro headwinds, and limited upside to valuation rerating.

Downside risks: Slower-than-expected execution in digital services revenue; continuous investments putting pressure on margins; and delay in turnaround of acquisition portfolio. Upside risks: Faster-than-expected growth in digital services and margin profile; quicker turnaround on acquisition business; and company achieving guidance within the targeted timeframe.