Tata Communications reported a 21.2% year-on-year increase in operating profit for the second quarter of fiscal 2027. Following the results, ICICI Securities retained a positive outlook on the stock, citing strong demand for enterprise digital services. Investors should track the company's ability to turn its loss-making digital segment profitable as it scales investments in AI and data infrastructure.
Tata Communications delivered a strong performance in the second quarter of fiscal 2027, with operating profit growing by 21.2% compared to the same period last year. Following these results, ICICI Securities maintained its positive outlook on the stock, setting a price target of INR 2,130 based on the company’s ongoing transition toward high-growth digital services.
The company’s digital portfolio, which includes cloud, security, and next-generation collaboration tools, saw revenue climb 18.6%. This is significant because Tata Communications is in the middle of a long-term shift from being a traditional voice and connectivity provider to a digital platform firm. While this segment still operates with negative margins, the gap is closing. The loss in this segment narrowed to 3.6% this quarter, down from 6.9% in the previous quarter, suggesting that scale is starting to improve profitability.
Strategic Growth Drivers
Analysts point to two key trends supporting this growth. First, the global rise of data centers is creating high demand for the company’s subsea and terrestrial cable networks. As businesses store more data and increase their digital presence, they require more bandwidth, which directly benefits Tata Communications’ core infrastructure assets. Second, the company is betting on AI-driven services, such as enterprise intelligence and AI-powered voice agents, to capture new revenue streams.
Risks and Market Context
Investors should be aware of the inherent risks in this strategy. The business is capital-intensive, meaning it requires large, continuous spending on infrastructure like cables and data centers. If demand for these services slows down or if the company cannot scale its digital business profitably, this heavy capital spending could weigh on cash flow.
Furthermore, the enterprise connectivity market in India is highly competitive. Tata Communications faces pressure from both global cloud service providers and major local telecom players like Reliance Jio and Bharti Airtel, who are also aggressively building their enterprise digital offerings. The company's ability to balance its heavy capital investment with rising demand will be a key monitorable for investors. Success will depend on how quickly it can turn its digital segment fully profitable and maintain its competitive edge against larger telecom and technology peers.