Tata Communications: Strategic Transformation and FY25–27 Outlook

Executive Summary:

Tata Communications (TCOM), a major player in Indian and global telecommunications, is in the midst of a strategic transformation aimed at repositioning itself from a legacy bandwidth carrier to a diversified digital solutions provider. While the company has delivered encouraging progress in customer engagement and margin improvement, integration issues and competitive threats remain principal constraints.

Company Overview:

TCOM, a Tata Group entity listed in India, leverages a vast global subsea cable footprint but has historically been hampered by commoditized bandwidth sales and price pressures. Over the past three years, management has implemented a ‘digital fabric’ strategy, layering network, cloud/security, IoT, and CPaaS solutions over its core infrastructure. As a result, the number of large ‘million-dollar’ clients and the company’s Net Promoter Score (NPS) have reached industry-leading levels, supporting deeper relationships and solution stickiness in enterprise accounts.

Shareholding, Institutional Interest, and Market Performance

Holder Type	Sep 2025 (%)
Promoter	58.9
Institutional	32.0
FIIs	17.4
MFs/Other Inst.	12.5
Insurance Cos.	2.1
Others	9.1

Strategic Transformation:

Core Connectivity and Digital Services

TCOM’s legacy connectivity business has suffered from global pricing declines and recent infrastructure disruptions, notably the Red Sea cable cuts. However, management actions to restore volume and enter high-capacity data center-to-data center connections are beginning to pay off in both volume and margin recovery. At the same time, digital platform services like spanning cloud, security, IoT, and interaction/CPaaS, have become the company’s core growth engine, comprising nearly half of topline revenue and projected to reach 60% by FY28.

Acquisition Integration

The acquisition of Kaleyra, an omnichannel CRM and CPaaS platform, and Switch, a US-based media production/broadcast firm, expands TCOM’s digital reach but introduces integration risk. Kaleyra’s revenue declined post-acquisition as unprofitable contracts were pruned, yet management expects a turnaround driven by margin improvements in non-SMS channels. Switch’s EBITDA margins are stable, capitalizing on new media and entertainment verticals, though further scale benefits have yet to materialize.

Technology Investment

TCOM has undertaken pioneering deployments in AI infrastructure, investing in Nvidia GPU clusters to serve the IndiaAI mission and enterprise clients. This proactivity, while positioning the company at the digital frontier, raises capex and return-on-investment challenges if corporate adoption lags market expectations.

Financial Analysis:

TCOM’s revenue is expected to grow at an annual rate of 8-9% between FY25 and FY27, with EBITDA margins forecast to improve from 19.8% to more than 21% by FY27. Segmental analysis shows robust double-digit growth in digital services while legacy voice declines in line with industry trends. Operating cash flow conversion remains strong, supporting capex for strategic initiatives, and the company is gradually reducing net debt as free cash flow growth accelerates. Year-on-year fluctuations in EPS are linked to acquisition impacts and staged margin expansion. The dividend payout, which is rising, reflects management’s shareholder-friendly policies, balanced against ongoing reinvestment in innovation and infrastructure.

Key Financials (INR mn)

Year	Revenue	EBITDA	EBITDA Margin (%)	PAT	EPS	Net Debt	RoCE (%)	EV/EBITDA	PE
FY24A	209,688	42,301	20.2	12,040	34.0	91,260	14.2	13.0	38.2
FY25A	231,086	45,690	19.8	9,338	64.4	93,769	9.9	12.1	49.3
FY26E	249,701	51,421	20.6	15,619	54.8	89,459	14.0	10.7	29.4
FY27E	270,737	58,540	21.6	21,317	74.8	83,049	16.9	9.3	21.6

Risks and Challenges:

Integration and Execution

The successful integration of Kaleyra and Switch remains a key operational risk, with full profitability turnaround yet to be proven. Additionally, the overall pace of enterprise digital adoption is subject to delays due to the conservative nature of large clients and an attitude of maintaining legacy systems.

Regulatory and Legal

One of the largest risks is the ₹100bn AGR liability, which remains sub-judice. TCOM is relying on the monetization of non-core assets, especially its land bank and possible sale of its data center stake, to off-set potential regulatory hits.

Competitive and Technological

Technological competition, both from AI-focused peers and international bandwidth providers, remains intense. While TCOM’s investments in AI infrastructure are prudent, return on these assets is reliant upon broader Indian enterprise digital transformation. Should adoption continue to lag, TCOM may face a near-term mismatch between capex investments and realized revenues.

Growth Prospects and Strategic Initiatives

TCOM’s transformation is anchored by digital services expansion, strategic acquisitions, and ongoing product innovation. Organic drivers include multi-product penetration among enterprise clients, domestic and global expansion within the cloud and media verticals, and harnessing the large untapped opportunities in digital wallet share. Management has maintained capital allocation discipline and continues to invest for long-term growth, with a focus on operational efficiency and asset monetization to address legacy risks.

Competitor Analysis

Compared to Indian telecom and digital platform peers, TCOM offers differentiated exposure to enterprise clients, underpinned by its subsea cable infrastructure and “fabric” solutions. While Bharti Airtel and Reliance Jio deliver superior growth and market share, TCOM’s positioning as a solutions integrator provides insulation from pure price competition. However, the company must demonstrate sustained progress in digital revenues and margin accretion to rival peer valuation multiples.

Peer Comparison (FY27E)

Company	EV/EBITDA	PE	RoCE	Capex Intensity
TCOM	10.0	23.6	21.6%	10.3%
Airtel	10.6	31.0	28.2%	17.1%
Jio	1.9	12.8	19.7%	N/A
Indus Towers	6.9	13.2	18.2%	9.7%

Conclusion:

Tata Communications stands at a strategic crossroads, leveraging its legacy infrastructure and new digital capabilities to capture growth in India’s enterprise solutions market. The company’s strengths lie in its transformation, client relationships, and product innovation. Key challenges revolve around integration risks, regulatory exposures, and technology investment returns. While valuation offers compelling upside, long-term sustainability remains tied to effective execution across digital, operational, and regulatory fronts.