Despite Tata Communications (TCOM) reporting June-quarter earnings that fell short of analyst expectations, leading domestic brokerages have largely maintained their 'Buy' recommendations on the company's shares. Both JM Financial and Nuvama Institutional Equities reiterated their positive outlooks, albeit with adjusted target prices.
Brokerage Insights on Q1 FY27 Performance
JM Financial noted that Tata Communications reported a consolidated revenue of Rs 6,580 crore for Q1 FY27, marking a 10.5% year-over-year increase but slightly under consensus estimates. This miss was primarily attributed to weaker growth in the cloud & cyber-security and media segments within the digital portfolio.
The data segment revenue, totaling Rs 5,710 crore, was also 1.8% below JM Financial's projections. The digital portfolio's revenue came in 2.9% lower at Rs 2,940 crore, and core connectivity revenue was 0.7% lower at Rs 2,770 crore.
Reported EBITDA stood at Rs 1,230 crore, an 8.2% YoY rise, but 6–7% below JM Financial and consensus estimates. Even the normalised EBITDA of Rs 1,280 crore, up 12.7% YoY, was 2–3% below projections. The adjusted PAT for the quarter was Rs 240 crore, also below expectations. JM Financial highlighted an increase in net debt to Rs 10,400 crore and capital expenditure to Rs 660 crore, or 10% of revenue, for the quarter. Consequently, the brokerage trimmed its FY27–29 revenue, EBITDA, and PAT estimates by 1–4%.
Revised Target Prices and Future Outlook
Following the Q1 results, JM Financial reduced its target price for Tata Communications to Rs 2,260 from an earlier Rs 2,295, while still retaining its 'Buy' call. The firm justified its continued positive stance by anticipating a robust Compound Annual Growth Rate (CAGR) of approximately 20% for the data segment's EBITDA over FY26–29E. This growth is expected to be driven by strong expansion in the digital portfolio and an improvement in the overall EBITDA margin from around 20% to approximately 22% by FY29.
Meanwhile, Nuvama Institutional Equities also observed that TCOM's adjusted EBITDA margin was 19.4% (flat quarter-over-quarter) and adjusted PAT of Rs 240 crore were below its estimates. However, Nuvama noted that the company's Q1 FY27 revenue of Rs 6,580 crore was in line with its own estimates, showing a 0.4% QoQ and 10.5% YoY growth. The brokerage specifically pointed to strong performance in data revenue, which grew 11.3% YoY, fueled by a solid 17.1% YoY growth in the digital business.
Nuvama reiterated its 'Buy' rating and, notably, raised its target price for Tata Communications to Rs 2,300 from Rs 2,000 previously. The brokerage acknowledged that while the digital business is gaining growth momentum, further efforts are needed on the margin front. They highlighted that the new management is focused on improving profitability and aiming for double-digit EBITDA growth in FY27.
As of Thursday's early trade, Tata Communications shares were trading around Rs 1,770.70, up 0.57%.