Tata Communications’ December-quarter performance highlighted steady progress in its data-led transformation and balance-sheet strengthening, even as muted FX-adjusted revenue growth and continued pressure in legacy businesses kept brokerages divided on the stock’s re-rating prospects.
The company reported consolidated
revenue of ₹6,190 crore in Q3FY26, up 1.5 per cent quarter-on-quarter (Q-o-Q) and 6.7 per cent year-on-year (Y-o-Y), broadly in line with estimates. However, adjusted for currency movements, revenue growth remained subdued, reflecting cautious global enterprise spending.
Data business offsets legacy headwinds
The data segment continued to anchor performance, reporting revenue of ₹5,360 crore, supported by recovery in core connectivity and sustained growth in the digital portfolio. Core connectivity revenue improved sequentially, aided by the revenue translation of a large hyperscaler data centre-to-data centre connectivity deal secured earlier, despite ongoing undersea cable disruptions.
Digital portfolio revenue saw broad-based growth across collaboration and CPaaS, cloud and cybersecurity, and next-generation connectivity. This was partially offset by sequential weakness in media and incubation portfolios. In contrast, voice revenue declined sharply on both a quarterly and annual basis, underscoring structural erosion, while Tata Communications Transformation Services (TCTS) also reported a contraction, weighing on consolidated growth.
JM Financial said consolidated revenue was largely in line with its expectations, noting that higher data revenue helped offset the drag from voice and TCTS. Motilal Oswal, however, pointed out that without currency tailwinds, underlying revenue growth would have been modest, reinforcing the need for sustained acceleration in data-led growth.
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Despite mixed revenue trends, profitability improved during the quarter. Consolidated Ebitda rose to ₹1,230 crore, with margins expanding 60 basis points sequentially to 19.8 per cent. JM Financial said Ebitda came in about 3 per cent ahead of its estimate, driven by margin improvement in the data segment and a sharp recovery at subsidiary Tata Communications Reimagined (TCR).
Lower staff and operating costs supported margins, though this was partly offset by higher network expenses, reflecting increased data traffic and capacity investments. Net profit exceeded estimates, aided by higher other income, including tax refunds, though partially offset by one-off charges related to staff optimisation and provisions linked to new labour code implementation.
Motilal Oswal noted that Ebitda was around 3 per cent below its estimate due to higher network costs and weaker contributions from voice and TCTS. Nevertheless, it acknowledged that margin expansion was directionally positive, led by recovery in higher-margin core connectivity and seasonal strength in Kaleyra.
Balance sheet improves; leadership transition announced
The balance sheet strengthened further, with net debt declining to ₹10,100 crore at the end of Q3FY26, bringing net debt-to-Ebitda down to around 2.1 times. Free cash flow improved meaningfully, even as capital expenditure rose to ₹810 crore during the quarter, reflecting continued investments in network capacity, subsea connectivity and digital capabilities.
The quarter also marked a key leadership transition. The board appointed Ganesh Lakshminarayanan as managing director and chief executive officer designate. He will take over following the retirement of the current MD and CEO in April 2026. With over three decades of experience across enterprise technology and telecom, analysts expect the incoming CEO to focus on scaling the digital portfolio and improving profitability.
Valuation views diverge
Brokerage views remained split on valuation. JM Financial reiterated its Buy rating with an unchanged target price of ₹2,250, citing expectations of robust data segment Ebitda growth over the medium term, margin expansion toward the lower end of management guidance, and strong positioning across cloud, artificial intelligence and internet-of-things themes.
Motilal Oswal maintained a Neutral rating with a revised target price of ₹1,790, flagging slower-than-expected margin recovery, rising contribution from lower-margin digital businesses and challenges in achieving the company’s ambition of doubling data revenue by FY28 without acquisitions. It said sustained acceleration in data revenue growth and clearer margin traction remain key triggers for a meaningful re-rating.
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 "Tata Comm Q3: Data strength lifts margins, but analysts split on re-rating")
