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About the stock: Tata Communications (TCOM) is the leading global digital ecosystem enabler.

* It provides its clientele with state-of-the-art solutions across a wide range of communication, collaboration, cloud, mobility, connected solutions, network and data centre services

Q2FY23 Results: TCOM reported a steady quarter.

* Topline at | 4431 crore, was up 6.2% YoY & 2.8% QoQ, driven by data revenues up ~11.2% YoY & 4.6% QoQ) at | 3493 crore

* EBITDA came in at | 1130 crore, up 1.5% YoY, 4.9% QoQ. The consequent margin was at 25.5% (down 117 bps YoY, up 51 bps QoQ) led by voice margins, which were at 19.3%, up 890 bps due to India market shift (short term in nature). Core consolidated margins were 24%. Data EBITDA margin was at 28.8%, down 20 bps QoQ. The company reported a PAT of | 532 crore, up 25% YoY, aided by one offs (profit on sale of properties - | 46.7 crore & provision reversal - | 29.7 crore) and lower taxes

What should investors do: TCOM’s share price has grown at ~15% CAGR over the past five years.

* We change our rating from BUY to HOLD after a run up of ~22% in the stock price in the last three months and given the management’s non-committal guidance on growth acceleration timelines

Target Price and Valuation: We value TCOM at a target price of | 1270.

Key triggers for future price performance:

* Growth will be driven by platforms viz. a) cloud, edge & security, b) next generation connectivity, c) NetFoundry, MOVE & IoT, wherein each have robust market size growth potential of 15-25% CAGR in next four to five years

* We expect ~10% revenue CAGR in FY22-25E in the overall data segment and overall margins at 25.5% in FY25 vs. 25.3% in FY22, with weakness likely in H2FY23. Strong cash flows generation to aid deleveraging

Alternate Stock Idea: Besides TCOM, we like Bharti Airtel in the telecom space.

* A play on superior operating metric amid telecom sector consolidation

* BUY with a target price of | 860

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