Tata Communications Ltd (TCOM) has received a 'buy' recommendation from brokerage Nuvama, which has set a target price of Rs 2,300 for the stock. This positive outlook is primarily driven by the company's accelerating growth across its digital, media, and telecom businesses, with a renewed emphasis on improving profitability under its new management.
Strategic Focus on AI and Cloud
A significant growth driver for Tata Communications is its deep dive into artificial intelligence. The company is actively embedding AI capabilities into its proprietary platforms and leveraging in-house expertise, bolstered by recent acquisitions of communication platforms, to develop innovative AI-led offerings. This strategic move aims to tap into the increasing demand for AI-powered solutions, especially as enterprises seek more personalized customer experiences.
The Indian cloud market also presents a substantial opportunity. Tata Communications views the market positively, noting that while approximately 30% of workloads have migrated to the cloud, a significant 70% remain either offline or on-premise. This indicates considerable room for further cloud adoption, with the next phase of digitization expected to focus on enterprise back-end systems, driving new growth as businesses modernize their infrastructure.
Expanding Media Business and Mobile Core
Tata Communications' media business, encompassing production, distribution, and playout, is emerging as a key growth area, with playout specifically identified as a strong driver. The company anticipates long-term opportunities from the continuous expansion of content creation across various users and digital platforms. Additionally, broadcasters represent another avenue for growth, with an increasing focus on non-live events complementing the ongoing demand for live and federation-based content.
Opportunities are also being explored in the mobile core segment, where Tata Communications' products assist telecom operators in managing roaming SIMs, enhancing their service offerings.
Reviving Voice Business and Driving Profitability
Despite the historical decline in its voice business due to the shift towards internet-based calling, Tata Communications is actively exploring ways to revive this segment. With a dedicated 150-member team and relationships with around 700 global operators, management is evaluating how to leverage these existing capabilities and networks as demand evolves towards a blend of voice, data, AI-powered voice agents, and mobile core services.
Alongside growth, profitability has become a paramount priority for the new management, particularly within the Digital business. The company aims for each sub-segment of its Digital business to achieve positive double-digit margins over time. While gross margins in the Digital business are expected to remain in the 30–35% range, efforts are underway to address high overhead costs in certain lines, which currently impact net profitability. Margin improvements are anticipated through increased contributions from platforms, operating leverage, and enhanced operational efficiencies.
The successful integration of acquisitions like Switch and Kaleyra is also expected to bolster revenue in these segments, supporting further margin expansion as these businesses scale. Overall, Tata Communications is balancing its growth ambitions with tighter cost discipline, leveraging AI, cloud, media, mobile core, and its extensive global telecom relationships to cultivate new engines for future growth.