Tata Communications Ltd: New World of Communications

March 27, 2015 . Equities Desk

Tata Communications Ltd. is a USD 3.2 bn global communications and enterprise IT service provider that owns and operates the world’s most advanced subsea cable network, delivering first-class infrastructure, enterprise solutions and partnerships to carriers and businesses worldwide. The company’s presence spans across developed markets to the world’s fastest growing emerging economies. Tata Communications is the number one international wholesale voice carrier and submarine cable owner by length. The company has 20% of the world’s internet routes directly connected to its network. On top of this robust backbone, sits Tata Communications’ voice and data businesses and its comprehensive portfolio of managed enterprise services. These include high speed connections and global MPLS (multiprotocol Label Switching) virtual private networks, the world’s largest network of Telepresence services, the world’s most extensive DDoS (distributive denial-of service) mitigation and detection service, content delivery networks, and cloud enablement solutions.

Valuvation and View

The steadily improving core performance coupled with the management’s initiative towards sharpening its focus and deleveraging its balance sheet via non-core asset monetisation  seems positive for the company as this will further strengthen the company’s fundamentals. With the company’s continuous efforts to improve operational efficiency and asset allocation, increasing contribution of data business in its product portfolio with various initiatives in the ATM business, which will attain breakeven in the coming years, will give the company a new growth story.

At a current market price (CMP) of  Rs 415.8, the stock trades at an adj. P/E of 38.8x FY16E and 20.0x FY17E. We recommend ‘BUY’ on the stock with a target price of  Rs 492, which implies a potential upside of ~18.5% to the CMP from the long term perspective.

Research Report Tata Communications Ltd

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