Motilal Oswal Places A Sell Call On This Tata Group Company

Broking firm, Motilal Oswal has placed a sell call on the stock of Tata Communications and sees downside of 8% from current levels.

"In line with our view that the ambitious growth targets stated in the analyst meet may require near-term high capex and opex, the acquisition could increase net debt by 22% to INR68b, along with margin dilution. But we like two things about this acquisition: 1) TCOM is upping the ante on growth efforts as it has seen limited growth in the last few years; and 2) a reasonable price for a value-creating company. We build in revenue/EBITDA CAGRs of 12/10% over FY23-25E, without factoring growth from recent acquisitions, which could drive healthy growth in the long term but may dilute near-term earnings. TCOM's strong FCF of INR12-14b, despite an increase in capex, could allow it to scout for growth opportunities with a healthy ROCE target of over 20%," the brokerage has said.

"We maintain our Neutral rating with a revised target price of Rs 1,450 per share (earlier Rs 1,350), due to improved growth visibility, led by the Kaleyra acquisition (assigned 8x/3x EBITDA to the Data/Voice business). Sustained improvement in earnings growth visibility will be vital for valuation rerating," the brokerage has said.

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The above recommendations are picked from the report of Motilal Oswal and is not a recommendation of either the author, nor Greynium Information Technologies. Greynium Information Technologies and the author are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.