ICICI Securities has reiterated its BUY call on Tata Communications, setting a revised target price of Rs 2,100, implying an upside potential of nearly 38% from the current market price of Rs 1,525. Tata Communications has delivered a steady Q4FY26 performance, marked by robust growth in its data and digital segments. EBITDA expansion in the data business, improving order book visibility, and accelerating digital revenues underscore a structural shift in the company’s growth trajectory. Management’s renewed focus on profitability, disciplined capital allocation, and AI-driven enterprise solutions positions the company for sustainable expansion. While near-term EPS estimates have been trimmed due to tax assumptions, the long-term outlook remains intact, supported by strong deal wins, digital adoption, and margin improvement potential.

Investment Thesis: Profitable Growth Takes Center Stage

Management’s strategic pivot toward profitable growth is the most critical development. The company is no longer chasing topline expansion at the expense of margins. Instead, it is focusing on high-quality, durable earnings driven by digital services and enterprise solutions.

AI integration and supply chain digitization demand are emerging as structural tailwinds. Tata Communications is positioning itself as a key enabler in enterprise digital transformation, particularly through AI-led solutions and cloud-based infrastructure.

Order Book Momentum Signals Sustained Revenue Visibility

The company continues to deliver strong double-digit order book growth. This reflects a healthy deal pipeline, with approximately 70% contribution from digital services.

Key deal wins during the quarter highlight execution strength:

Large international contracts across industries such as automotive and beverages
Strategic mandate from a global bank to build a global capability center in India
Enterprise-scale secure edge deployment across 155 locations

This sustained deal momentum strengthens medium-term revenue visibility.

Digital Business: The Engine of Future Growth

Digital revenue grew an impressive 19.2% YoY to Rs 29.1 billion. It now contributes more than half of the total data revenue, signaling a structural shift in business mix.

Key segments driving growth:

Collaboration & CPaaS: +31.2% YoY
Next-gen connectivity: +20.3% YoY
Cloud & security: steady growth at ~4–5%
Media services: strong QoQ rebound

AI-based communication platforms are gaining strong traction among enterprise clients.

Core Data Business Remains Stable Backbone

Data revenue increased 11.5% YoY to Rs 57 billion. Growth was supported by:

Execution of large connectivity deals
Strong international business expansion (+15.6% YoY)
Stable enterprise demand

Core connectivity continues to provide predictable cash flows while digital scales up.

Margins: Temporary Pressure, Structural Upside Intact

Data EBITDA rose 17.6% YoY, but margins dipped slightly to 18.4%. This was primarily due to a higher contribution from relatively lower-margin digital services.

However:

Digital segment margins improved sequentially
High-margin products such as multi-cloud connect and interaction suites are gaining traction

Long-term margin expansion remains intact as product mix improves.

Balance Sheet Strength Improves Financial Flexibility

Net debt declined by Rs 4.8 billion QoQ to Rs 96 billion. This reflects disciplined capital allocation and improving cash flows.

Capex intensity remains controlled at ~8–10% of revenue
Dividend declared at Rs 17.5 per share

Improving leverage enhances the company’s ability to invest in growth initiatives.

Financial Outlook: Strong Earnings Visibility Ahead

Below is the summarized financial trajectory:

EPS is expected to grow at a strong pace, driven by operating leverage and digital scale-up.

Valuation Framework: SoTP Anchors Upside Potential

ICICI Securities values Tata Communications using a Sum-of-the-Parts (SoTP) methodology:

Core business valued at 12x EV/EBITDA
Data center business assigned a premium multiple of 15x
Adjusted for net debt and AGR liabilities

Fair value is derived at Rs 2,100 per share.

Key Growth Drivers to Watch

1. Digital Services Expansion: Continued scaling of AI, cloud, and collaboration solutions
2. Data Center Opportunity: Rs 1 billion+ potential from DC-to-DC connectivity by 2030
3. GCC Ecosystem Growth: India emerging as a global hub for enterprise capability centers
4. STT India IPO: Potential value unlocking event in CY27

Risks: What Could Derail the Thesis

Downside Risks:

Slower-than-expected digital execution
Continued margin pressure from investments
Delayed turnaround of acquired businesses

Upside Risks:

Faster digital monetization, especially in AI-led solutions
Stronger-than-expected margin expansion
Early achievement of medium-term guidance

Investment Verdict: Strong Buy with Long-Term Visibility

Tata Communications stands at an inflection point. The shift toward profitable growth, backed by digital acceleration and strong deal wins, provides a compelling investment case.

At current levels, the stock offers:

Strong earnings growth visibility
Improving balance sheet metrics
Structural digital tailwinds

Target Price: Rs 2,100 | Upside Potential: ~38%

Bottomline for Investors

Tata Communications is transitioning from a traditional telecom infrastructure player to a high-margin digital solutions provider. While near-term earnings adjustments may create volatility, the long-term narrative remains intact.