CLSA bullish on Airtel, Tata Comm; sees data business driving growth

CLSA sees long-term growth opportunity in Bharti Airtel and Tata Communications' enterprise data business, reaffirming its ‘outperform’ rating on both stocks due to their strong growth focus and capital expenditures (Capex).

In a report titled 'tale of two enterprise businesses', CLSA said that the enterprise data businesses of Bharti Airtel and Tata Communications are both growing and profitable. The brokerage assigned a target price of ₹1,890 apiece for Bharti Airtel and ₹2,070 per share for Tata Communications, implying an upside of 9 per cent and 25 per cent, respectively.

Bharti Airtel's biggest non-mobile business is enterprise data services, and its portfolio includes global and domestic segments along with data centres, the brokerage said in a report on March 26. The data centre business is growing steadily, and the domestic segment is seeing "strong" growth in digital alongside growth in connectivity services. Bharti's Airtel Business is renewing focus on digital services of cloud, security, internet on things and communications platform as a service, accounting for 90 per cent of industry growth.

While Bharti's Airtel business is larger, both of the telecom operators are growing, the brokerage said. Bharti's main competitor in enterprise data is Tata Communications, which is expected to generate ₹19,500 crore in data revenue in FY25—87 per cent of Airtel Business's size. Airtel Business revenue rose 9 per cent Year-on-Year (Y-o-Y) in the first nine months of FY25, while Tata Communications' data revenue grew 15 per cent Y-o-Y, including Kaleyra’s contribution.

Bharti leads its rival in revenue and size, CLSA noted. Airtel Business's Ebitda for the first nine months of FY25 was ₹6,100 crore, down 2 per cent YoY, while Tata Communications' Ebitda fell 3 per cent YoY to ₹2,800 crore. Bharti leads Tata Communications in revenue and size. Airtel Business is "significantly" more profitable, with margins 16 percentage points higher at 36 per cent, making its Ebitda twice that of Tata Communications. Latter's profitability was impacted by its Kaleyra acquisition, which had negative Ebitda at the time (Oct 2023), but its margins are now improving, CLSA noted.

Tata Communications' chief executive officer aims to double data revenue, adding upside to CLSA's 13 per cent CAGR by FY27. Bharti's focus on cloud, security and others account for almost 90 per cent of incremental industry growth. "We see enterprise data business as a long-term growth opportunity."

Global opportunities

Centrum Institutional Research, in a recent report, said that developed markets show near saturation in subscriber penetration, signalling mature networks and limited room for further domestic expansion. However, emerging markets such as India and Argentina have decent yet growing penetration levels, it said, suggesting a considerable growth potential for these regions to expand digital infrastructures.

Globally, telecom operators have a capex intensity of 15-17 per cent, reflecting steady investment in network modernization, it noted. But, in India, capex intensity exceeds 20 per cent due to aggressive network expansion. "this is expected to decline gradually as the market matures and efficiencies are achieved."

Stock moves

Shares of Bharti Airtel have outperformed the benchmark Nifty 50 with gains of nearly 9.5 per cent this year so far. The stock has recovered over 11 per cent from its recent lows of ₹1559 in February this year. Out of the 35 analysts tracking the stock, 30 have a 'buy' rating, three suggest a 'hold', and another two have a 'sell' call, according to Bloomberg data.

Meanwhile, Tata Communications' counter has fallen 5.9 per cent this year, compared to a 0.52 per cent fall in the Nifty 50 index. The stock is up 22 per cent from its recent lows in early March. Out of the nine analysts tracking the stock, six have a 'buy' rating, one suggests a 'hold', and another two have a 'sell' call, according to Bloomberg.