ICICI Securities has issued a double upgrade for Tata Communications, moving its recommendation to ‘Buy’ and setting a target price of ₹1,840. This upgrade comes on the back of multiple growth drivers, an improving outlook, and attractive valuations; Shares of Tata Communications Surges by 8% and Trading at ₹1,480 as of 1.06 PM on 11th March 2025
Why the Double Upgrade?
ICICI Securities has cited several key reasons for the double upgrade:
1. Strong Sales Funnel and Order Book Growth
Tata Communications has demonstrated a robust sales pipeline, which indicates future revenue growth.
2. Focus on Digital Services, Cloud, and AI
The company is investing in cutting-edge digital technologies, particularly cloud computing and artificial intelligence (AI), positioning itself for long-term success.
3. Rising Connectivity Demand from AI Adoption
With the increasing adoption of AI across industries, the demand for high-speed and reliable connectivity solutions is growing, benefiting Tata Communications.
4. Disciplined Capital Allocation with a Growth Focus
The company is maintaining a balanced approach toward capital allocation while ensuring growth remains a priority.
5. Attractive Valuations
FY27E free cash flow (FCF) yield at 4.5%
EV/EBITDA valuation of 7.9x
These metrics suggest that Tata Communications is undervalued, making it a compelling investment opportunity.
Stock Performance & Market Factors
Stock Correction Due to Near-Term Weakness:The stock experienced a correction due to short-term revenue weakness and ambitious guidance.
Impact of Red Sea Cable Cut in FY24:The company’s performance in FY24 was negatively impacted by the Red Sea cable cut, which led to a weaker order book.
Outlook Improving in FY25:With the Red Sea issue now behind, the company is witnessing double-digit order book growth in FY25-TD (till date), signaling a positive turnaround.
Market Yet to Factor in ₹33 Billion in FY27E Free Cash Flow:The market has not yet fully priced in the expected ₹33 billion FCF from core connectivity, which represents 7.2% of enterprise value (EV).
The double upgrade from ICICI Securities highlights Tata Communications’ strong fundamentals, improving growth prospects, and attractive valuations. As the company continues to expand its digital and AI-driven services, it stands well-positioned for long-term value creation.
For investors looking for a growth stock with strong upside potential, Tata Communications presents a compelling opportunity at current levels.
Disclaimer
The information provided in this article is for educational and informational purposes only and should not be considered as financial or investment advice. Stock market investments are subject to market risks, and readers are advised to conduct their own research or consult with a qualified financial advisor before making any investment decisions. The author and Sensexnifty.com are not responsible for any financial losses incurred as a result of using the information provided in this article.