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Tata Communications shares down 23% so far in 2022; should you buy, hold or sell? Here’s what analysts say

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Tata Communications share price has declined 23% per cent so far this year. The stock plunged 10% in the previous session, its biggest fall since March 2020, after the company reported a weak set of numbers for the March quarter. The Tata Group company posted revenue growth of 4.7% on-year but higher operating expenses led to a 6% miss on EBITDA. Net profit was down due to lower EBITDA, higher D&A and taxes, offset in part by higher other income. While brokerages remain bullish on the stock and see up to 30% upside, they have revised target price downwards. “Valuation remains attractive as the stock trades at PE of 16.4x on FY24E EPS. We maintain BUY Rating on the stock with revised target price of Rs 1,407 per share,” said Yes Securities in its note. Tata Communications share price fell 2% on BSE and was trading at Rs 1,095 apiece on Tuesday.

Should you buy, hold or sell Tata Communications shares?

ICICI Securities: Buy
Target price: Rs 1,600

Tata Communications’ Q4FY22 data business net revenue grew only 5% on-year which was below ICICI Securities’ expectations. “This should be partially weak from orderbook of Q3; while orderbook funnel has sequentially improved, management commentary does indicate gradual recovery in revenue growth. TCom revenue growth faced headwinds from fewer feet on the street, delay in decision making and under-performance of usage-based services,” the brokerage said. The management is hopeful of acceleration in revenue in FY23; showing willingness to invest both in capex and opex to drive growth implies huge commitment. “We would wait for early signs of an uptick in revenue.We have cut our EPS estimates by 5-12% over FY23-24E,” it added. The brokerage has ‘buy’ call on the stock, but has reduced target price to Rs 1,600 from Rs1,680 earlier.

IIFL Securities: Buy
Target price: Rs 1,251

According to IIFL Securities’ analysts, Tata Communications Ebitda decline in quarter ended March was worse than what they estimated. However, improved revenue growth in the digital platforms & services segment, and healthy FCF generation were positives. “Management highlighted near-term weakness due to delay in deal closures, supply-chain constraints and employee attrition. It also stated that FY23 Ebitda margin would be closer to the low-mid end of the 23-25% unchanged guidance owing to higher employee costs and travel expenses. Capex would rise to $300-325m from $220m in FY22, as TCOM augments its subsea cables. In the medium term, TCOM is bullish on the overall addressable market and its growth prospects. Formulation of the 30-50% dividend payout policy is a positive,” the brokerage said. It has a ‘buy’ call on the stock with a target price of Rs Rs 1,251, down from Rs1,600 earlier.

Motilal Oswal Financial Services: Neutral
Target price: Rs 1,340

Weakness in Tata Communication’s earnings persisted on lower Data usage. However, traction in FCF generation and deleveraging of the balance sheet continues for the third consecutive quarter. “We have cut our FY23 EBITDA estimate by 4% to factor in 16% EBITDA CAGR over FY22-24, in anticipation of a recovery in usage-based revenue and new orders. Our estimates factor in risk from the continuation of the downward revision cycle as our expectation of double-digit earnings growth is largely dependent on the Digital platform and Services, which contribute 20% to total revenue, and has grown at 10% over the last three years,” said Motilal Oswal. The brokerage firm maintains Neutral rating on the stock with a target price of Rs 1,340 per share.

Emkay Global Financial: Buy
Target price: Rs 1,650

Tata Communications posted revenue growth largely in line with Emkay Global estimates. However, higher opex led to a 6% miss on EBITDA. All digital segments, except for Collaboration, grew in double-digits on-year in FY22. Topline recovery should continue to be gradual to reach double-digit yoy growth as the deal funnel is impacted by high attrition, the brokerage believes. “We trim our revenue estimates marginally. We are cutting FY23-24E EBITDA by 4-8% due to higher-than-expected cost inflation,” it said in its report. Emkay Global maintains ‘buy’ rating on the stock with a revised target price of Rs 1,650, down from Rs 1,800 earlier. Higher COE has led to a reduction in target multiple.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. TheSpuzz Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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