ET Intelligence Group: Amid the carnage on Dalal Street, one investor seems to be bullish on select Tata Group stocks.
N Chandrasekaran, executive chairman of Tata Sons, has bought shares of Tata group companies including Tata Communications, Tata Chemicals and Tata Investment Corporation for a cumulative sum of nearly Rs 6 crore.
According to announcements by the respective companies, the Tata Sons chief has purchased 1 lakh shares of Tata Communications and Tata Chemicals each and 10,000 shares of Tata Investment Corp.
The stock of Tata Communications, an enterprise data services provider, has more than halved over the past month.
According to analysts and industry experts, a boost to work from home concept amid the Covid-19 pandemic may boost data consumption by 15 per cent sequentially for the next two quarters. The data business accounts for 80 per cent of the company’s revenues and 91 per cent of the operating profit before depreciation and amortisation (EBIDTA).
Tata Communications is the largest company in the country’s enterprise data segment. It owns the largest undersea cable network which is required for data transmission, making it one of the leading global digital infrastructure players. Its data revenue rose by 9 per cent year-on-year in the first nine months and EBIDTA rose by 37 per cent.
Reliance Jio has also started building its enterprise data business in a tie-up with Microsoft. Bharti Airtel has also recently tied up with Google to offer the service.
Analysts don’t see this as a threat, as balance sheets of the competitors are leveraged, which lowers the probability of a price war.
CLSA in a recent report said that Tata Communications’ earnings may double in the next two years led by the growth in data services business. The company has a debt of nearly Rs 9,000 crore and debt-EBIDTA ratio of 2.7, which the company intends to bring down to 2.5 times. Tata Communications has shown operational turnaround. Its adjusted loss reduced from Rs 2,875 crore in FY18 to Rs 131 crore in FY19. Analysts are expecting the company to report a net profit of Rs 270 crore for FY20.
In case of Tata Chemicals, lower crude prices is a positive since crude related costs account for nearly 40 per cent of the company’s total costs of manufacturing chemicals such as soda ash and soda bicarb.
The supply of these chemicals is likely to remain low given the production shutdowns in China and other global markets, which may offset any demand slowdown. Lower demand may soften realisations, but margins are less likely to be impacted, say analysts.
“We do not expect the same to impact the margins negatively given that crude oil and natural gas prices are also down considerably. This can provide some respite to the operational performance, going ahead,” said Chirag Shah analyst with ICICI Securities. The stock is down by 34 per cent in the past one month.