Tata Communications: 'Buy' call for Tata stock amid growth in AI, cloud opportunities 

Tata Communications Ltd (TCOM) is looking to accelerate growth across its digital, media and telecom businesses while placing greater emphasis on improving profitability, with the new management focusing on expanding margins and monetising its existing capabilities, according to brokerage Nuvama. A key area of focus is artificial intelligence (AI). Tata Communications is working to embed AI capabilities into its own platforms and believes it has the in-house expertise to develop AI-led offerings, following the acquisition of a communications platform.

The brokerage has maintained its buy call on the stock with a target price of Rs 2,300.

It remains positive on the stock as the unique tech-telecom play—more so with renewed focus on profitable growth under new management. "We continue to value the Digital/Core/Others business at 10x/9x/4x based on FY28E EV/EBITDA," said Nuvama.

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Media business emerges as a growth opportunity

Tata Communications' media business spans three key areas — production, distribution and playout — with the playout segment emerging as an important growth driver. The company sees a long-term opportunity from the continued expansion of content creation across users and digital platforms.

Broadcasters represent another growth opportunity. Tata Communications is increasing its focus on non-live events, while continuing to see demand for live and federation-based content.

The company is also positive on the Indian cloud market and does not see any structural concerns around the opportunity. It estimates that around 30% of workloads have moved to the cloud, while nearly 70% remain offline or on-premise, leaving significant room for further cloud adoption.

Tata Communications believes the next phase of digitisation will increasingly involve enterprise back-end systems. While the front-end of many applications has already been digitalised, core and back-end systems remain relatively less digitised. The company expects this area to drive another leg of growth as enterprises modernise their technology infrastructure.

AI-powered customer experiences

Enterprises are increasingly looking to use AI to offer more personalised experiences to customers. TCOM aims to tap this opportunity by developing AI-powered solutions that can help businesses deliver hyper-personalised customer interactions.

The company is also seeing opportunities in the mobile core segment, where its products can help telecom operators manage roaming SIMs.

Voice business revival

The firm is also exploring ways to revive its voice business, which has declined over the years as international calling shifted towards internet-based platforms such as WhatsApp.

The company already has a 150-member team working with around 700 global operators and telecom companies. Management is evaluating ways to leverage this existing capability and customer network as demand evolves towards a combination of voice, data, AI-powered voice agents and mobile core services.

While it is still too early to quantify the size of the opportunity, the management is looking at various options to revive the business and make better use of its existing workforce and global operator relationships.

Margin expansion becomes a key priority

Alongside growth, profitability — particularly in the Digital business — has emerged as a major priority for the new management. Tata Communications believes each sub-segment of its Digital business should have the potential to generate positive double-digit margins over time.

The company expects gross margins in the Digital business to remain in the 30–35% range. However, high overhead costs in some lines of business currently weigh on profitability, with certain segments reporting net margins of negative 5–7%.

Management expects margins to improve through a combination of factors, including a higher contribution from platforms compared with resale-led revenues, operating leverage and better operational efficiencies.

The acquisitions of Switch and Kaleyra have also been integrated into the business. TCOM expects improving revenue in these segments to support further margin expansion as the businesses scale.

Overall, the company is looking to balance its growth strategy with tighter cost discipline, while using AI, cloud, media, mobile core and its existing global telecom relationships to build additional growth engines.

Stock movement today 

In the current session, Tata Communications stock fell 1.23% to Rs 1751.05. Market cap of the firm stood at Rs 49,919 crore. Total 3062 shares of the firm changed hands amounting to a turnover of Rs 53.82 lakh on BSE today.

About Tata Communications

Tata Communications is engaged in the business of providing international telecommunications services. The company’s segments include Voice Solutions (VS), Data and Managed Services (DMS) and Real Estate (RE). The VS segment includes international and national long distance voice services. The DMS segment includes corporate data transmission services, virtual private network signaling and roaming services, television, and other network and managed services. The RE segment includes lease rentals for premises given on lease and does not include premises held for capital appreciation.