Tata stock to buy: Nuvama bets on unique tech-telecom play, sees 28% upside

Nuvama Institutional Equities has maintained its 'Buy' rating on Tata Communications Ltd with an unchanged target price of Rs 2,300, implying a 28 per cent upside from the prevailing price of Rs 1,796.90. The brokerage said the stock currently trades at 8 times estimated FY28 EV/Ebitda and that it remains positive on Tata Communications as a unique tech-telecom play, particularly with a renewed focus on profitable growth under the new management.

The brokerage said it recently met Managing Director and Chief Executive Officer Ganesh Lakshminarayanan to gauge business opportunities and understand the new management's view on growth and profitability. Nuvama said it continues to value the digital, core and others businesses at 10 times, 9 times and 4 times respectively, based on estimated FY28 EV/Ebitda

According to Nuvama, Tata Communications, or TCOM, remains a preferred partner for enterprises ahead of competitors because of its pure-play B2B network DNA. It said only a few pure-play B2B connectivity providers remain, including Orange, AT&T and TCOM.

The brokerage said TCOM has built strong core connectivity capabilities, with 65 cable systems owned directly or through consortiums, 600 paths and 15 landing stations. It added that 35 per cent of global traffic and 75 per cent of Indian financial traffic moves through TCOM's network.

Nuvama said there are no structural concerns around the India cloud opportunity, with cloud adoption gaining traction and significant room for growth still available. It noted that 30 per cent of workloads have shifted to the cloud, while 70 per cent still remains offline or on-premise.

The brokerage said the new management sees TCOM as a player with extensive capabilities that is adept at stitching together any kind of application as per client requirements. It said a combination of infrastructure, platform and services gives the company an edge over peers. Nuvama also said that with rising demand for connectivity between data centres, TCOM is seeing a shift in pricing models, with clients moving away from fixed-pay models towards transaction-based or outcome-based models.

Nuvama said enterprises are increasingly looking to use AI to deliver hyper-personalised experiences to customers, and that TCOM aims to address this gap by providing AI-powered solutions to enable such experiences. Summing up its takeaways from the management meeting, the brokerage said the company remains committed to improving digital business profitability, is well placed to capture data centre-to-data centre connectivity demand, and continues to have growth drivers intact, with limited players enjoying the trio of infrastructure, platform and services.