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MOSL: Morning India (28/June/18): 1. Tata Communications; 2. HCL Technologies (Acquires German company); 3. Exide Inds. (Announces JV with Leclanché); 4. Telecom

MOrning India (28/June/18): 1. Tata Communications (Strong order funnel to drive growth); 2. HCL Technologies (Acquires German company H&D); 3. Exide Inds. (Announces JV with Leclanché for Li-ion batteries); 4. Telecom (Subscribers consolidate as smaller players shut down operations)

 

Today’s top research idea

Tata Communications: Strong order funnel to drive growth; Expect earnings to start improving from 2QFY19

• High investment in frontloading growth opex/capex had hurt Data EBITDA. The management now expects its healthy funnel of orders to help maintain 12% Data revenue growth over 2-3 years (against 8% in the last three years).
• Data EBITDA margin (85% EBITDA contribution) should improve from 17% to 23% over FY18-21, leading to 410bp expansion in overall EBITDA margin to 18% by FY20.
• Within the Data segment, Growth Services is likely to see 32% revenue growth and contribute 23% of overall EBITDA by FY21 (v/s 12% loss in FY18).
• The management maintained its capex guidance of USD250m-275m (11% of sales).
• We ascribe 9x/3x to (FY20) Data/Voice EBITDA of INR30.2b/INR2.7b, arriving at a TP of INR730 (23% upside from CMP). Besides, land demerger (in the next six months) offers additional upside of INR176.

Piping hot news

Rupee nears record low on rising oil prices, trade war

• The rupee closed near its all-time low on Wednesday over concerns that higher crude oil prices will worsen India’s current account deficit and accelerate inflation. The rupee, along with other Asian currencies, has come under pressure in the last few sessions after the fall in Chinese yuan due to escalation of trade war between the US and China.