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BP Equities
Tata Comm. (Buy)
CMP: ₹467.05
Target: ₹543
Tata Communications is a play on global data boom. Within GDS (global distribution system), managed services (36 per cent of GDS), which includes businesses such as payments solution (TCPSL), data centre (TCDC) and ATM (Indicash) is doing well and is expected to grow at a CAGR of 20-25 per cent. We expect the GDS business to grow at a CAGR of 16.9 per cent for FY14-17E to reach ₹13,020 crore in FY17E. Going ahead, with strong traction in the managed services segment, ATM business turning EBITDA positive, doubling of data centre capacity, we expect the EBITDA margins in the data business to expand 288 bps to reach 21.8 per cent in FY16E.
TCL decided to sell its entire stake in Neotel to Vodacom at a valuation of ₹3,940 crore. However, the deal has not been closed yet and is subject to certain regulatory approvals from the South African regulator. Neotel has a net debt of Rand 4.8 billion which is approx ₹2,690 crore. We expect the money received from the sale proceeds will be used for paring debt and the consolidated debt can come down by ₹3,500 crore in FY16. We expect the company to ride smoothly on the ongoing global data boom, especially in emerging economies and grow at a CAGR of 10 per cent for FY14-17E.
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