In its latest equity research update dated April 3, 2025, Geojit Financial Services has maintained a ‘Buy’ rating on Tata Communications with a 12-month target price of Rs. 1,927, implying a potential upside of 19% from the current market price of Rs. 1,626. The brokerage's outlook is fueled by the company’s resilience in the face of infrastructure disruptions, a growing digital portfolio, and solid international expansion. The report emphasizes Tata Communications' margin improvement trajectory, strong order funnel, and robust global partnerships as levers for sustainable long-term growth.

Growth Anchored in Data Services and Enterprise Connectivity

Tata Communications has witnessed a 3.8% year-on-year increase in revenue, reaching Rs. 5,798 crore in Q3FY25, driven largely by its data services segment, which grew 6.2% YoY. Within this segment:

Core connectivity revenue increased by 2.8% YoY to Rs. 2,590 crore.

Digital portfolio revenue rose 10.2% YoY to Rs. 2,313 crore.

The company's collaboration and managed CPaaS segment grew by 11.7%, reaching Rs. 1,177 crore, thanks in part to Kaleyra.Ai—a strategic rollout that has enhanced enterprise adoption.

Tata Communications is actively riding the global digital wave with Next-Gen connectivity solutions, cloud adoption, and AI integrations powering a 9.2% YoY uptick in that vertical.

Improving Margins and Operational Efficiency Support Valuation

While EBITDA rose 2.4% YoY to Rs. 1,181 crore, the margin saw a modest contraction of 20 basis points to 20.4%, largely due to scale-driven costs. Nonetheless, the margin trajectory is positive on a sequential basis, with Q3 EBITDA margins improving by 70 bps quarter-on-quarter.

Key contributors to margin resilience include:

Reduced employee benefit expenses (down 1.1% YoY).

Lower other operational expenses (down 4% YoY).

Looking ahead, the company is targeting an EBITDA margin range of 23–25%, supported by its digital transformation initiatives and cost efficiency measures.

Profit Surges: PAT Expands Over 400% YoY

Tata Communications delivered a sharp improvement in profitability, with Reported PAT jumping 424% YoY to Rs. 236 crore in Q3FY25, primarily on account of higher topline and operating leverage. Adjusted PAT came in at Rs. 272 crore, up 3% YoY and 30.5% QoQ.

This marked improvement underscores the company’s ability to extract value from digital infrastructure investments while mitigating cost pressures.

Strong Order Pipeline and Global Wins Drive Optimism

Geojit highlights a robust uptick in the order funnel, with a 50% year-on-year increase in large-deal additions, signaling heightened enterprise demand and successful strategy execution.

Noteworthy developments in Q3 include:

Expansion of collaboration with Jaguar Land Rover for their upcoming electric SUV, utilizing Tata Communications’ MOVE platform.

A multi-million-dollar contract win with a top Latin American media technology firm.

Major client acquisitions in the UK, Ireland, and India, including a retail bank and a global retail chain.

These engagements not only add revenue visibility but also fortify Tata Communications’ international footprint.

Cloud and Security: Fastest-Growing Strategic Verticals

Cloud and Security offerings grew by 12.5% YoY to Rs. 432 crore, benefiting from expanding enterprise security needs and cloud migration trends. The company is poised to scale this segment, as cybersecurity and zero-trust architectures become indispensable in enterprise IT strategies.

Their hosted SASE (Secure Access Service Edge) offerings are gaining traction in India and abroad, positioning Tata Communications as a full-stack digital transformation partner.

Financial Forecast and Valuation Metrics

Geojit projects a 13.5% CAGR in revenue between FY25E and FY27E, reaching Rs. 27,637 crore in FY27. PAT is expected to grow at a CAGR of 52.2% over the same period, with Adjusted EPS expected to rise from Rs. 41.6 in FY25E to Rs. 83.8 by FY27E.

Key financial ratios underscore the company’s improving fundamentals:

The stock currently trades at 19x FY27E earnings, offering significant headroom given the company’s ambitious digital roadmap and capital efficiency.

Shareholding Structure and Market Performance

As of Q3FY25, the company’s promoters held 58.9% stake, with FIIs and mutual funds owning 17.8% and 13.7%, respectively. The public shareholding stood at a modest 8.3%.

While the stock has delivered -20.6% absolute return over the past year, underperforming the Sensex by 23.9%, analysts believe this gap presents a value accumulation opportunity, especially with the digital acceleration and profitability rebound in place.

Conclusion: Digital-First Outlook Justifies Re-Rating Potential

Tata Communications’ digital infrastructure capabilities, coupled with global customer wins and margin expansion, place it in a strong position to capitalize on the evolving telecom and enterprise technology landscape. Geojit’s bullish stance—reflected in its Rs. 1,927 target—is supported by solid fundamentals, efficient execution, and strong international traction.

For medium- to long-term investors, the current valuation provides an opportunity to invest in a business that is not just catching up with the digital wave but helping shape it.

Disclaimer: Investors are advised to conduct their own due diligence or consult with a registered financial advisor before making any investment decisions.