Tata Communication Stock Research Report

Warming up for growth…

Tata Communications’ (TCom) H1FY25 revenue print was muted due to subdued orderbook in FY24, and longer deal conversion cycle. However, it has built a large sales funnel, which started showing benefits in H1FY25 with a few very large deal wins, and orderbook expanding by 25%. Further, new sales forces also started contributing to funnel, and it could help accelerate order booking. TCom still aspires to achieve digital business revenue of INR 180bn in FY27 (vs INR 44bn in H1FY25), and end FY25 with 20% EBITDA margin. It has made significant progress in monetisation of non-core asset on excess land. It is also reviewing other non-core assets which could help unlock value. Our estimates remain unchanged with TP of INR 1,855 based on 30x FY26E EPS. Maintain HOLD.

Changes in reporting/accounting (from Q1FY25)

1) Reclassified certain direct and indirect costs, which resulted in direct cost reduction. 2) SASE revenue –earlier split between next gen and cloud & security portfolio – is now entirely included in cloud & security segment.

Data revenue grew 21% YoY/3% QoQ to INR 48bn

Including Switch and Kaleyra acquisition, net data revenue increased 1.4% QoQ/ 10.4% YoY to INR 29.5bn. Core connectivity revenue rose 2.5% QoQ/3% YoY led by one-offs; company believes cable-cut issues are behind which should help resume growth. Digital revenue was impacted from slower orderbook in FY24. However, orderbook improved in H1FY25, with jump of 25%; yet, deal conversion cycle continues to be long. TCom has started seeing conversion from large sales funnel accumulated. It has significantly increased its foot-on-the-street, and sales force has also started adding to sales funnel. H1FY25 had healthy conversion with sealing of some large orders.

Digital revenue grew 52.4% YoY/ 3.6% QoQ (unimpressive) to INR 22.2bn

Net revenue improved 31% YoY/ down 0.9% QoQ to INR 8.3bn. Collaboration revenue increased 2.7x YoY/ 6.6% QoQ (on seasonality in base) to INR 11bn. Cloud, hosting and security grew 12% YoY/ flat QoQ to INR 4.2bn. Next-gen connectivity was down 15% YoY/ +4.5% QoQ to INR 2.2bn. Media services revenue dipped 6% YoY/ 14% QoQ to INR 2.9bn. Incubation revenue rose 58% YoY/ 34% QoQ to INR 1.9bn.