Tata Communications shares extend fall; plunge 16% in 8 sessions

Shares of Tata Communications continued losing streak for the eighth straight session on Friday, losing nearly 16% during this period as investors resorted to profit booking at higher levels. The stock touched its 52-week high of ₹2,085 on April 3, 2024, nearly doubling from its 52-week low of ₹1,175 hit on April 20, 2023.

Tata Communications shares have fallen over 7% in the last two sessions after the Tata Group company released its March quarter earnings report, which fell short of Street expectations. The brokerages see “limited upside” potential in the stock after it reported weak earnings in the January-March period of 2024.

Extending losses, Tata Communications shares declined as much as 6% to hit an intraday low of ₹1,740.90, while the market capitalisation dipped to ₹50,285 crore. Early today, the stock opened lower at ₹1,850.45, marginally below its previous closing price of ₹1,853.20 on the BSE. On the volume front, there was a surge in selling activities as 0.74 lakh shares changed hands over the counter as compared to two-week average of 0.22 lakh stocks.

The share price of Tata Communications touched its 52-week high of ₹2,085 on April 3, 2024, and a 52-week low of ₹1,175 on April 20, 2023.The stock has given 48% returns to its shareholders in the past one year, while it lost nearly 1% in six months. The counter has given flat returns in the calendar year 2024, while it tumbled up to 8% in a month.

Tata Communications released its March quarter earnings report on April 17, showing that its consolidated net profit dropped by 1.5% to ₹321.18 crore compared to ₹326.03 crore in the same period last year. Sequentially, the profit grew 7.2 times from ₹44.81 crore in the December quarter of FY24, led by the reversal of past Tata Communications (Bermuda) tax losses, totaling ₹186 crore.

The gross revenue of the company rose 24.6% to ₹5,692 crore in Q4 FY24, from ₹4,569 crore in the corresponding period last year. The revenue of the company stood at ₹5,633 crore in Q3 FY24.

The EBITDA grew 2.1% YoY to ₹1,056 crore, while the margin dropped by 408 basis points to 18.6%.  The data revenue grew 26.9% to ₹4,656 crore versus ₹3,670 crore in Q4 FY23.

For the full financial year, the consolidated revenues jumped by 17.5% to ₹20,969 crore, while data revenue crossed the ₹17,000 crore mark, growing by 21.9% on a full-year basis.

Post Q4 results, Motilal Oswal Financial Services reiterated its “Neutral” rating on the stock, expecting limited upside potential. “We estimate a CAGR of 14%/20% in revenue/EBITDA over FY24-26. At P/E of 22x and EV/EBITDA of 9.1x on FY26E, we see limited upside.”

The brokerage in its report says that the management's endeavor to drive growth, including the loss-making acquisitions, has resulted in margin contraction. However, the long-term focus on margin-accretive growth remains intact, it adds.

The agency says that the management reiterated the long-term target of 23-25% EBITDA margin, but in the short-term, margin may remain under pressure. It aims to double data revenue by FY27 at 15%-20% CAGR.

“The order book has been flat, while the funnel continues to be robust. In the order book, the enterprise part has been robust both domestically and internationally while OTT has been lumpy for the last few quarters,” the report notes.

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