JM Financial Initiates Coverage on Tata Stock: Unlocking a 35% Upside Potential!

JM Financial has recently taken a positive stance on Tata Communications, initiating coverage and assigning a ‘buy’ rating to the stock. The brokerage set an ambitious target price of ₹2,030, indicating a potential upside of 34.8%. This optimistic outlook stems from their analysis of the company’s data segment, which is expected to see an EBITDA CAGR of approximately 21% from FY24 to FY28.

Target Price and Market Response

On Wednesday, Tata Communications experienced a notable increase in its share price, rising by 3.20%. As of 9:30 AM on March 19, shares were trading at ₹1,570. Over the last month, the stock has appreciated by over 4%, although it has faced a decline of almost 21% over the past six months.

Key Growth Drivers for Tata Communications

JM Financial highlighted several crucial growth factors for Tata Communications. The company has established itself as a pivotal player in enabling digital transformation for enterprises. By focusing on areas such as cloud computing, security, mobility, AI-driven collaboration, and IoT solutions, Tata Communications is poised for substantial growth.

Projected Digital Portfolio Growth: The revenue from the digital portfolio is anticipated to grow at a CAGR of 22% from FY24 to FY28.
Contribution to Data Revenue: By FY28, the digital segment is expected to contribute approximately 53% to total data revenue, up from 41% in FY24.
Margin Improvements: Although the digital segment has faced margin pressures due to extensive investments, management anticipates a turnaround. This will be fueled by operational efficiencies from increased volumes, geographic expansion, cost management strategies, and an improved service mix.

Historical Context

Founded in 1986 as Videsh Sanchar Nigam Limited (VSNL), Tata Communications was established to manage all international telecom services previously overseen by the Overseas Communication Services department of India. This rich history underpins the company’s expertise and strategic positioning in the telecommunications landscape.

For investors looking to capitalize on emerging trends in digital transformation, Tata Communications presents a compelling opportunity, backed by robust growth projections and a solid operational foundation.