Fw: Company Report - Tata Communications - BUY

 

Tata Communications: Gaining ground - BUY CMP Rs294, Target Rs340, Upside 15.8% We interacted with Tata Communications (Tcom) to get its views on voice and data businesses. Company expects wholesale voice (95% ILD) growth of mid to high single digit though it has grown at 12-13% outpacing industry run rate. In wholesale voice, the focus is more on free cash flows rather than EBIDTA margins (which are likely to be 8-8.5% on average) with FY13 FCF of US$120mn. On the data side, historically the business has grown at 15% which can be the trend line along with 20% margin. Notably, if one adjusts for the new initiatives (like ATMs), data margins have much higher potential. Neotel has turned around at EBIT level since Q4 FY13 and Tcom remains in discussion with Vodacom to sell its entire stake in the South African arm; if successful, the deal would remove a key overhang on consolidated profitability. Capex intensity is set to decline as large cable builds are behind which would support cash flows. We tweak our estima! tes and base on an improved outlook upgrade the stock to BUY with revised 9-12mth target of Rs340.

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Warm Regards, Amar Ambani