Tata Communications Ltd is Rated Hold

Rating Overview and Context

On 04 August 2025, MarketsMOJO revised Tata Communications Ltd’s rating from 'Buy' to 'Hold', reflecting a shift in the company’s overall assessment. The Mojo Score, a composite indicator of the stock’s attractiveness, declined by 17 points from 72 to 55. This adjustment signals a more cautious stance on the stock, suggesting that while it remains a viable investment, it may not currently offer the same upside potential as before.

It is important to note that all fundamentals, returns, and financial metrics referenced in this article are based on the most recent data available as of 31 January 2026. This ensures that investors receive an up-to-date evaluation rather than relying solely on the conditions prevailing at the time of the rating change.

Here’s How Tata Communications Ltd Looks Today

As of 31 January 2026, Tata Communications Ltd is classified as a midcap company operating within the Telecom - Services sector. The stock’s recent price movement shows a 1-day gain of 2.93%, though it has experienced a decline over longer periods, including a 13.90% drop year-to-date and a marginal 0.95% decrease over the past year. These figures highlight a degree of volatility and subdued momentum in the stock’s price performance.

Quality Assessment

The company’s quality grade is rated as 'good', supported by a high management efficiency metric. Tata Communications boasts a robust Return on Capital Employed (ROCE) of 18.37%, indicating effective utilisation of capital to generate profits. However, the half-yearly ROCE has dipped to 11.37%, signalling some recent softness in operational efficiency. Additionally, cash and cash equivalents stand at Rs 327.43 crores, which is relatively low, potentially constraining liquidity flexibility.

Valuation Perspective

Valuation remains an attractive aspect of Tata Communications Ltd’s profile. The company’s ROCE of 12.5% combined with an Enterprise Value to Capital Employed ratio of 3.7 suggests the stock is trading at a discount relative to its peers’ historical valuations. This valuation appeal is tempered by a high Price/Earnings to Growth (PEG) ratio of 9.2, which may indicate that earnings growth expectations are not strongly aligned with the current price. Investors should weigh this attractive valuation against the company’s growth prospects and risk factors.

Financial Trend Analysis

The financial trend for Tata Communications Ltd is currently flat. Operating profit has grown at a modest annual rate of 2.06% over the last five years, reflecting limited expansion in core earnings. The company is classified as a high debt entity, with an average Debt to Equity ratio of 12.62 times, which raises concerns about financial leverage and risk. Non-operating income constitutes a significant 48.49% of Profit Before Tax (PBT), suggesting that a substantial portion of profits is derived from sources outside the core business operations. This reliance may affect the sustainability of earnings going forward.

Technical Outlook

Technically, the stock is rated as 'sideways', indicating a lack of clear directional momentum in price movements. This sideways trend is consistent with the recent mixed returns and suggests that the stock may trade within a range rather than exhibiting strong bullish or bearish tendencies in the near term.

Institutional Interest and Market Position

Institutional investors hold a significant 32.95% stake in Tata Communications Ltd, reflecting confidence from entities with greater analytical resources and market insight. This level of institutional ownership can provide some stability to the stock, although it also means that market movements may be influenced by the trading decisions of these large shareholders.

What the 'Hold' Rating Means for Investors

The 'Hold' rating assigned to Tata Communications Ltd suggests that investors should maintain their current positions rather than initiate new purchases or sell existing holdings aggressively. This recommendation reflects a balanced view of the company’s prospects, acknowledging its solid management quality and attractive valuation while recognising the challenges posed by flat financial trends, high leverage, and subdued price momentum.

For investors, this means that Tata Communications Ltd may offer steady, if unspectacular, returns in the near term. The stock’s current valuation discount could provide a cushion against downside risk, but the limited growth trajectory and financial leverage warrant caution. Monitoring future quarterly results and any shifts in operational efficiency or debt management will be crucial for reassessing the stock’s outlook.

Summary of Key Metrics as of 31 January 2026

- Mojo Score: 55.0 (Hold grade)
- ROCE: 18.37% (high management efficiency)
- Debt to Equity (avg): 12.62 times (high leverage)
- Operating Profit Growth (5 years): 2.06% annualised
- Non-operating Income: 48.49% of PBT
- Enterprise Value to Capital Employed: 3.7 (attractive valuation)
- Institutional Holdings: 32.95%

In conclusion, Tata Communications Ltd’s current 'Hold' rating by MarketsMOJO reflects a nuanced assessment of its operational strengths and financial constraints. Investors should consider this rating as guidance to maintain positions while carefully monitoring the company’s evolving fundamentals and market conditions.

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