Tata Communications shares jump 5% as JM Financial initiates coverage with buy rating

Shares of Tata Communications climbed as much as 4.9% on Wednesday to Rs 1,578.45 on the BSE after brokerage JM Financial initiated coverage on the stock with a "buy" rating at a target price of Rs 2,030, implying a potential upside of nearly 29% from current levels.

The brokerage said Tata Communications is undergoing a strategic transformation from a traditional connectivity provider to a “CommTech” player, leveraging its digital portfolio for long-term growth. While the company's core connectivity business remains a steady cash generator, the company is betting on expansion in cloud computing, security, mobility, and AI-driven services to drive future earnings, JM Financial said.

"We expect digital portfolio revenue to deliver 22% CAGR over FY24-28E, surpassing core connectivity revenue by FY28, with EBITDA margin turning positive from FY26 and improving thereon, driven by operating leverage, improved service mix, and acquisition synergies," the brokerage said.

JM Financial said the company’s data business, which includes core connectivity and its expanding digital portfolio, is expected to see EBITDA grow at a compound annual rate of 21% over FY24-FY28. The brokerage valued the data business at an 11x FY27 EV/EBITDA multiple, slightly above its historical average, citing strong growth potential in the digital segment.

Tata Communications shares have fallen 20.37% in the past year but have gained 5% in the last month. Technical indicators show the stock is trading above five of its eight key simple moving averages but remains below its 100-day, 150-day, and 200-day SMAs. The 14-day Relative Strength Index (RSI) stands at 54.5, indicating the stock is neither overbought nor oversold.

Key risks to the stock include potential delays in discretionary tech spending due to weak global macroeconomic conditions and regulatory uncertainties related to telecom policy in India, JM Financial noted.

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