Pickup in digital margins could help Tata Communications stock rerate

In a recent analyst meet, Tata Communications reiterated it had a data revenue target of ₹28,000 crore but postponed the timeline, with a delay of a few quarters, to FY28 from an earlier guidance of achieving it in FY27.

- DEVANGSHU DATTA

Given revenue of ₹19,500 crore in FY25, this implies a compounded annual growth rate (CAGR) of 26 per cent during FY25-FY28. Guidance includes consolidated earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin of 23-25 per cent by FY27 and consolidated pre-tax ROCE (return on capital employed) of above 25 per cent and a net debt to Ebitda ratio of below 2x.

The management clarified that these assumptions could change if there's any acquisition-related impact. Management also shared that 1/3rd of incremental data revenue during FY25-FY28 would be driven by capability shift and strategic bets. The digital portfolio will contribute over 65 per cent to data revenue (47 per cent currently), and 80 per cent of its "million-dollar" customers will use three or more "fabrics" (out of its five fabrics).

This implies acceleration in digital revenue CAGR to 26 per cent vs 25 per cent CAGR over FY21-FY25, including large acquisition.