- Data revenue rose 9% YoY, outpacing the broader telecom slowdown.
- Core connectivity grew 4% YoY, fueling higher‑margin earnings.
- EBITDA margin slipped to 19.8% – a 35bp miss on estimates.
- Valuation hinges on 9.5x FY28E EV/EBITDA for data and 5x for voice.
- Revised target price drops to INR 1,790, reflecting a tighter outlook.
You missed the quiet rebound in Tata Communications' data business, and your portfolio felt it.
Why Tata Communications' Margin Shift Matters for Telecom Investors
Motilal Oswal’s latest numbers show a nuanced picture. While consolidated revenue grew modestly at 2.2% YoY after FX adjustments, the data segment’s 9% jump signals a genuine tailwind. However, the overall EBITDA margin slipped to 19.8%, missing the firm’s own forecast by 35 basis points. For investors, that margin contraction is a red flag: it suggests that higher‑margin connectivity gains were partially eroded by weaker voice and TCTS contributions.
Sector Trends: Data Connectivity's New Growth Wave
The telecom industry is transitioning from voice‑centric models to data‑centric ecosystems. Global 5G rollouts, cloud‑edge convergence, and the rise of hyperscale data centers are pushing demand for high‑capacity fiber and IP transit. Tata Communications’ 15% YoY growth in its Digital portfolio aligns with this macro shift, positioning the company to capture incremental traffic from enterprise cloud migrations and IoT deployments.
At the same time, foreign exchange volatility continues to bite earnings for Indian exporters. The muted 2.2% consolidated revenue growth reflects this headwind, underscoring the importance of hedging strategies in future guidance.
Competitor Landscape: How Tata, Reliance, and Airtel Stack Up
Within India, the three giants—Tata Communications, Reliance Jio, and Airtel—are racing to lock in data contracts. Reliance’s Jio Platforms has leveraged its massive subscriber base to negotiate favorable wholesale data rates, while Airtel’s enterprise arm is expanding its fiber footprint in tier‑2 cities.
Tata’s advantage lies in its global network and strategic stake in STT Data Centers (26%). This asset base provides a cross‑border moat that domestic rivals lack. However, the competitive pressure forces Tata to maintain aggressive pricing, which can compress margins if cost efficiencies lag.
Historical Parallel: 2020 Connectivity Recovery and Its Aftermath
Back in FY21, Tata Communications saw a similar rebound in core connectivity after a pandemic‑induced dip. The data segment surged 12% YoY, and the stock rallied 18% on earnings beats. Yet, the momentum faded as voice revenue continued its secular decline, leading to a correction in early FY22.
The lesson? Sustainable upside requires not just a one‑off data surge but a structural shift in the revenue mix toward higher‑margin services.
Valuation Lens: EV/EBITDA Multiples Explained
Motilal Oswal applies a 9.5x FY28E EV/EBITDA multiple to Tata’s data business and a 5x multiple to voice and other lines. EV (Enterprise Value) represents market cap plus debt minus cash, while EBITDA is earnings before interest, taxes, depreciation, and amortization—a proxy for operating cash flow.
By assigning a higher multiple to data, analysts acknowledge its superior growth prospects and profitability. The 5x voice multiple reflects the sector’s maturity and slower expansion. When you combine the two, the composite implied equity value translates to a target price of INR 1,790, down from the prior INR 1,830.
Investor Playbook: Bull vs. Bear Cases
Bull Case: The data segment continues its 10%+ YoY growth trajectory, driven by 5G rollout and enterprise cloud demand. Margin expansion returns as voice contribution wanes and cost rationalization improves. The STT data center stake appreciates, adding a premium on the balance sheet. In this scenario, the stock could trade at a 10x FY28E EV/EBITDA for data, pushing the price toward INR 2,100.
Bear Case: FX headwinds persist, eroding top‑line growth. Voice and TCTS revenues decline faster than anticipated, dragging overall EBITDA margin below 18%. Competitive pricing pressure from Reliance and Airtel squeezes data margins, while the STT stake valuation stalls. The market re‑prices the stock at a 8x data multiple, dragging the price toward INR 1,500.
Investors should monitor three catalysts: quarterly data revenue trends, FX exposure reports, and any strategic moves around the STT data center partnership.