Why Tata Communications May Post Its Best Monthly Gains In 14 Years
Tata Communications Ltd. is on track to report its best monthly gain in over a decade after the company hived-off its land assets into a separate company.
Shares of the global digital infrastructure provider have been hitting the upper circuit for six consecutive sessions, since the de-merger of its land bank was completed.
Tata Communications hived its property holdings into a separate entity—Hemisphere Properties India Ltd.—which will subsequently be listed, capping a 17-year effort by the unit of India’s largest conglomerate.
The demerger was stalled ever since the group firm of India’s largest conglomerate objected to the capital gains tax it would incur on transferring surplus land. That was resolved after the government amended the Income Tax Act to exempt asset sales by public-sector units from the tax. It included companies that have ceased to be public-sector units after the divestment, benefiting the company.
Shares of Tata Communications started trading after the land bank was hived off from the firm on Sept. 17. The discovered value after the demerger was Rs 260, valuing the land bank at nearly Rs 160 per share. However, Tata Communications has gained over 35 percent since the demerger.
The stock has been hitting an upper circuit as the value of the core business is still getting discovered by market forces, according to market analysts that BloombergQuint spoke to. That, the analysts said, happens whenever a demerger has taken place.
Kotak Securities agreed. “Our rating remains unchanged at ‘Add’ and the same shall be reviewed after stabilisation in ex-surplus-land price, if needed,” the brokerage said in a recent note. The stock, according to the brokerage, will now trade more on core business fundamentals which wasn’t the case earlier because of the overhang related to land bank.
The company reported a strong performance in the quarter ended June on the back of benefits of an internal transformation programme, growth in services segment and large order book in innovation services segment. Its core revenue grew by nearly six percent—the most in at least 13 quarters—while operating profit margin was 19.8 percent, the highest in at least the last 17 quarters.
Change in leadership and Jio’s potential entry into the enterprise data segment could remain an overhang, Kotak Securities said.
Among the nine analysts tracking the company, six recommend ‘Hold’ while the other three have a ‘Buy’ rating. The 12-month Bloomberg consensus target price is at Rs 333, suggesting a potential downside of six percent.